Macroeconomy
National Government revenues and expenditures exceeded 2023 targets. The Administration is poised to ramp up infrastructure spending (plus PPP projects) in 2024 to bolster GDP growth and employment. Inflation should remain within the BSP target of 2.0% to 4.0% for H1. Thai rice prices started to decline in February and ruling out more food inflation from that end. On the other hand, crude oil prices may only have limited upside due to the tepid rebound of the Chinese economy. Exports should turn positive in 2024, but imports will remain elevated and result in trade deficits similar to 2023. Finally, the peso will have a slight appreciation bias in Q2 on U.S. dollar weakness.
Fixed Income Outlook
Face with a February job increase of 275,000 and with headline inflation still away from its 2.0% target, the Fed will likely keep its policy rates unchanged in H1. Consequently, U.S. 10-year bond yields have returned to its February 2024 peak of 4.29% by mid-March, but these hardly affected local peso bond yields. With a lower target deficit by P100.0-B in 2024 and a successful Retail Treasury bond (RTB-30) offering, the National Government (NG) can just maintain the magnitude of its current bond issuances given its higher cash balance. Inflation print in H1 will figure as the main factor for any major movement in local 10-year benchmark yields, as the financial system remains very liquid.
Equities Outlook
PSEi has climbed to and hovered near 6,900 but resistance at 7,000 has proven formidable. Nevertheless, better-than-expected Q4-2023 earnings of top banks supported the runup until mid-March. Breaching 7,000 and keeping above it will require strong backing from robust Q1-2024 financial results. Before the release of Q1-2024 earnings and MSCI May rebalancing, the direction of the index may depend on the inflation figure for March.
