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Macroeconomy

Elevated NG spending on infrastructure projects, coupled with the spill-over effects of the election should keep growth momentum in Q1 steady. Moreover, the downtrend in inflation print augurs well for higher consumer spending and leads us to expect cuts in reserve ratio requirement (RRR) in Q2. The peso’s recent gains should prove temporary given the huge trade imbalance and the need to beef up GIR to counter possible external shocks.

Fixed-Income Market

With the US economic slowdown, “confirmed” by the Fed’s stance of no rate hikes in 2019, US 10-year T-bond yields headed south in March. IMF’s further cut in its world growth projections for 2019 reinforces our stance that domestic factors will drive local bond yields. Long-term bond yields should track the slide of inflation deep into H2. Besides, our take that BSP will likely trim RRRs supports our view that bonds continue to be an attractive asset class.

Equities Market

We expect PSEi to trade within the range of 7,500 to 8,200 in Q2 with positive drivers just on balance with downbeat forces. On the constructive side, we see some progress in US-China trade negotiations, BSP lowering RRR, and further easing of inflation. The headwinds come from delayed national budget approval, slowing world economic growth led by China and US, and a possibly less-than-expected GDP expansion in Q1.

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