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Macroeconomy

The expected rebound in government spending, the improvement in external trade, and below-2% inflation by August should help boost economic performance in the last quarters of 2019. Moreover, we think that real economy and financial markets will be boosted by the anticipated cut in US and local policy rates.

Fixed-Income Market

The global economic slowdown and trade war impacted Germany and Japan where the 10-year government bond yields goes deeper into -0.5% and -0.2%, respectively. This added to the threat of recession to US. The BSP is expected to cut policy rates by another 25 bps and RRR by another 200 bps, which will intensify the 10-year T-bonds to go below 4.0%. ROPs may recover a little from the move to US dollar/treasuries.

Equities Market

It seems that PSEi is only set to rebound after it survives the bumpy ride ahead. Headwinds include the rebalancing of the MSCI Emerging Markets index, the falling y-o-y NG spending, weakening peso, and the rally in gold prices as investors seek safe havens. Meanwhile, tailwinds include the falling inflation and interest rates, and lower-than-expected balance of trade deficit last June.

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