The Market Call | November 2024

Macroeconomy

We still expect a strong GDP rebound in Q4 since employment will likely expand as NG accelerates infrastructure spending and consumers also benefit from milder inflation—expected to average 2.3% in Q4 and even lower in Q1-2025. Analysts likely missed out on the fact that on a seasonally adjusted basis, the economy grew faster in Q3 (by 1.7%, QoQ) than in Q2 (0.7%). We have a sanguine view of inflation due to projected weaker crude oil prices through 2025 and international rice prices have already significantly declined.  The peso-dollar rate will face upward pressure due to robust U.S. dollar rally starting October, except for brief 2-month period in 2024 due to OFW remittances. We have lowered our full year GDP growth forecast to 5.8% from 6.0%.

Fixed Income Outlook

The Fed went ahead and cut policy rates by 25 bps on November 7th and will likely do a similar one in December, but it failed to convince markets that it will continue to pursue plans to aggressively reduce them in 2025. Despite 2.1% YoY (PCE) inflation (preferred measure by Fed) or just a tad over its 2.0% inflation target, U.S. markets held on to the view that newly elected Donald Trump will bloat the fiscal deficits with his planned tax cuts. NG appears to have resumed higher spending rate for the rest of 2024 as previewed in September. And with local inflation likely to average 2.3% in Q4 amid low crude oil and rice prices, and even lower to 2.1% in Q1-2025, local 10-year bond yields can easily drop by 100 bps through 2025.

Equities Outlook

Rising bond yields and lackluster Q3 GDP growth subdued trading as investors stepped back in the absence of positive economic data. Good Q3 earnings reports and attractive counter plays could move the index sideways between 6,500 and 7,000 levels, though November may be a more cautious month ahead especially with the MSCI November rebalancing exercise.