Macroeconomy
We expect sustained robust growth in Q2-2022 and the rest of the year. Indications to support this include: Manufacturing remained expansive in May, in April job gains in Manufacturing and Construction and recoveries in Accommodation & Food Services, Transportation & Storage, and Education (worst hit by the pandemic), and NG spending recovered in April. While inflation may test 6% YoY, the job increases and the stimulative effect of the peso depreciation on OFW remittances, BPO earners, and exports should offset a good part of its negative effect on consumption spending. We still expect the peso to still be in depreciation mode due to higher interest rates in the U.S. and ballooning trade deficits.
Fixed Income Outlook
U.S. May inflation came in faster-than-expected at 8.6% stunning global markets and prompting the Fed to deliver a 75 bps rate hike on June 15, after raising it by 50 bps in May. The BSP followed suit with a 25 bps increase in its June meeting (replicating May rate hike), bringing the policy rate to 2.5%. Monetary tightening here and abroad, coupled with surging domestic inflation, will continue to put an upward pressure on the local 10-year yields. However, we expect domestic inflation to ease by Q4 and NG borrowing to slow down in H2 putting a cap on the 10-year T-bonds’ upswing at 8% in 2022, since U.S. inflation rates exceed PH rates by more than 300 bps.
Equities Outlook
PSEi eked out a 0.6% uptick in May despite high inflation globally, the rapid rise in global interest rates, and the China economic slowdown. Global headwinds will likely further drive down sentiment in the near term. We may see further consolidation of PSEi closer to 6,000 but robust support above suggest that the local equities may still avoid a bear market. The strong economic team put up by President-elect Ferdinand Marcos Jr. has provided some needed comfort to investors. For the full details of The Market Call, please click the link https://www.firstmetro.com.ph/the-market-call/2022TMC06
