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We expect GDP gains starting Q3 as Metro Manila, Calabarzon, and Central Luzon (more than 62% of GDP) get freed from most quarantine restrictions by mid-July. The downtrend in number of deaths provides support for this view. Faster pace of supply chain and transport restorations will keep food prices relatively steady, sufficient to blunt the sharp rise in crude oil prices since late May. However, a V-shaped recovery may not ensue unless the government can start spending fast its new stimulus package of some P1.3-T (approval may come only by August) and ability of firms to restore and strengthen their supply chains and provide safe work environments for their workers.

Fixed-Income Outlook

U.S. 10-year T-bond yields spiked to 0.80% on June 5 which pulled back yields to around 0.65% as employment increased by 2.5 M in May. However, nationwide protests and organized movements against police brutality pulled back yields to the lower end of the range. Domestically, we expect bond yields to be low as inflation remains near 2% and with the sufficient liquidity afforded by the BSP caused by the policy rate cuts since November 2019. ROPs will retain its attractiveness as Japan Credit Rating Agency (JCR) raised their PH credit rating to A- stable.

Equities Outlook

Equities around the world continued to rally in May with the reopening of advanced economies led by the U.S. Likewise, PSEi benefitted from the opening of most Luzon economy, with the transition from Enhanced Community Quarantine (ECQ) to General Community Quarantine (GCQ), which managed to push the index above 6,000 in the first week of June. Improving investor sentiment in both the PH and the U.S. will further help the PSEi back to bull territory by Q3.

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