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Macroeconomy

Recent economic indicators point to a stronger Q4 and on 2020, with positive employment print and poverty data indicating better investment numbers for the last quarter of 2019. Household consumption would still benefit from this, softer inflation (on average) and low interest rates. The National Government (NG) will continue to ramp up infrastructure spending amidst the still-large fiscal space. Moreover, the private sector (because of PPP, robust residential and commercial building demand) should further drive capital goods investments.

Fixed-Income Market

While inflation may rise further in December, it should average 1.4% in Q4 and 2.5% for the full year 2019. We still see a slight easing in 10-year bond yields while 3-month yields stay flat (at around 3.2%) given much higher and unchanged BSP policy rates at 4%. On the domestic side, we also see limited upward pressure on bond yields as NG has the clear option to borrow more from abroad.

Equities Market

The economic recovery in Q3 back to above-6% growth should continue into Q4 and beyond. Nonetheless, we do not expect much gains in share prices for the rest of the year, as the negative sentiment [a carryover from November] may still persist a little bit. We, however, are more optimistic for 2020, since we are seeing a good base-building consolidation, and corporate earnings in 2020 expected to follow the macroeconomic lift.

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