Macroeconomy
Record high employment (50.5-M), record low unemployed (1.6-M) and unemployment rate (3.1%) in December should underpin consumer spending in H1-2024. Lower average inflation of 3.2% in Q1-2024, should provide additional support. GDP growth in Q4-2023 actually accelerated by 2.1% QoQ from average 1.6% in Q2-Q3 suggesting growth momentum still in place. National Government’s debt-to-GDP ratio fell to 60.2% in 2023, with a further decline to 59.0% in 2024 should support expanded NG spending to sustain infrastructure spending at least 5.0% of GDP. U.S. dollar strength amid elevated interest rates would put pressure on the exchange rate to weaken in H1.
Fixed Income Outlook
Way above market expectations, job growth in the U.S. exceeded 300,000 in December and January while the latter's inflation came at 3.1% YoY (higher than 2.9% consensus). These should prod the Fed to keep policy rates unchanged until June 2024. U.S. bond yields have climbed only moderately to around 4.15% for 10-year U.S. T-bonds, as investors expect a “goldilocks” situation of lower inflation without a recession. This has also meant a modest increase in local 10-year bond yields which we had a hard time breaching 6.25% by mid-February. However, we expect broadly sideways movement in these debt papers in the next three months as yields may not drop much either with YoY inflation in the coming months inching a little above the 2.8% YoY print in January.
Equities Outlook PSEi has landed in an overbought position after reaching 6,850 by mid-February. Slight overweighting by MSCI in its rebalancing by end-February, robust macroeconomic data as well as potentially strong corporate earnings in Q4-2023 and Q1-2024 should limit the downside. We also anticipate the PSEi to hit the 7,000-7,500 range within the year, following a period of correction in Q2. Looking ahead, we maintain a positive outlook for the Holdings, Telcos, Services, Property, and Consumer sectors as PSEi gets an added boost from foreign investors.
