The Market Call | July 2021

Macroeconomy Most economic indicators pointed to a more healthy recovery with outsized gains in manufacturing output in May (+265% YoY), and employment on the mend, largely to induce higher consumption spending, and NG spending still on the rise. PH added 1.4-M jobs in May, making up for the previous month’s loss. Full-time employment, likewise, improved. Meanwhile, inflation slowed down to a 6-month low due to huge decline in the prices of transportation and alcoholic beverages. Exports, capital goods imports and OFW remittances all expanded by double digits.   Fixed Income Outlook With the US economy unlikely to continue its rapid growth and the Fed assuaging markets that monetary policy tightening remains in the far future and domestic liquidity at work, bond investors flocked GS auctions and the secondary market resulting in across-the-board decline in yields in June, except for 20-year debt papers.  Unless inflation remains above 4% in July, the Covid-19 Delta variant's likely spread and consequent lockdown tightening, yields will have a slight downward basis, albeit in the context of sideward movement in Q3.   Equities Outlook Domestic investors sent PSEi up by 4.1% in June to 6,901.91 and extended its fast run into early July. Amidst a looming economic rebound, investors may find the July consolidation as an entry opportunity for stocks with good quality financials, high dividend yields, and discounted valuation. Thus, we still expect PSEi to hit 7,400 to 7,800 by yearend. The key risks to our projection include: (1) a powerful Covid variant that could lead into another restrictive lockdown that stifles the growth momentum, (2) slower-than-expected growth that may drive the debt ratio to levels that could make credit rating agencies nervous, and (3) an early and decisive U.S. Fed taper. Read full article here.