Macroeconomy
Total employment will likely slow down in July-August (with the Metro Manila floodings) but should bounce back starting September. NG will continue to ramp up infrastructure spending and with slower inflation to average 3.2% in Q3 and 2.8% in Q4, consumers would likely renew their spending ways in tandem with employment gains. Milder rice and crude oil prices should drive inflation down, while the peso will show an appreciation bias as the U.S. dollar and interest rates slide.
Fixed Income Outlook
Tepid job growth and slower inflation will likely push the Fed to cut its policy rates by 25 bps in September and at least another one before the end of the year. BSP has done this in its August meeting and will likely cut its policy rates by another 50 bps before the end of 2024. BSP will likely do this regardless of Fed decision (2 or 3 rate cuts in 2024) since we expect Q3 GDP growth to ease from its 6.3% pace in Q2. Besides, with domestic inflation to average 3.2% in Q3 from 3.8% in Q2, local 10-year benchmark bond yields should likewise fall towards our target 5.25% to 5.75%. The current NG borrowing program will likely remain, but we expect an RTB offering in early Q4 to pre-fund 2025 deficits. We expect more corporate bond issuances starting September. Finally, ROPs spreads over U.S. Treasuries may only mildly widen given strong PH economic growth and credit rating upgrade.
Equities Outlook
With weak U.S. employment data in July for the second month and milder inflation, market players now expect the Fed to start its rate-cutting cycle in September. This also pushed down local bond yields. These, together with higher-than-forecast PH GDP growth, BSP’s August 15th 25 bps rate cut, and strong Q2-2024 earnings growth in the Property and Financial sectors, strengthened the PSEi to run past the strong 6,800 resistance level by August 17th (at 6,847.37). Greater volumes suggest that the PSEi may enter a bull market perhaps by Q1-2025. These make us more confident about our 7,000-7,500 forecasts for H2. However, we lie in wait for more price data to confirm the signs of a potential bull market.
