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Macroeconomy

Foreign direct investment was boosted by large inflows. Despite Metro Manila+’s tighter lockdown in July-August, new economic data paint a brighter outlook for GDP in Q3 than earlier projected. The Manufacturing sector’s sterling performance in August capped a three-month run with an average monthly YoY growth of 509.3% and PMI above-50 in September to boot. Exports and capital goods imports likewise accelerated in August to provide support. The month also saw 2.6-M more jobs which brought total labor employed 11% higher than the level in October 2020. While crude oil prices raced higher to levels last seen seven years ago, we think these will taper off before the end of the year and enable YoY inflation to fall below 4% by December.

Fixed Income Outlook

Yields of domestic 10-year tenors exhibited an upward momentum in September on the back of inflation accelerating to a 32-month high of 4.9% in August and Fed’s signal to rein in its asset purchases. However, steady demand remained at the short end of the curve. Moving forward, local 10-year bond yields will continue to stay inflated as the market mulls over BTr’s decision to award long-dated securities at higher yields (likely in anticipation of the election spending in Q4-2021 and Q1-2022) and a possible tapering of Fed asset purchases to kick off in November.

Equities Outlook

PSEi continued its upswing in September, closing at 6,952.88. Local investors proved more optimistic as they remain unfazed by the inflation and interest rate jitters abroad. With PSEi breaking through the major resistance of 7,000 by October, the local equities market appears to have entered a new bull market. However, a more robust economic recovery starting Q4 should support the uptrend. Thus, we think the year’s high will come sooner, exceeding last year’s 7,139.71. The positive factors include: (1) expectation that headline inflation will fall below 4% by December, (2) BSP will not raise policy rates, (3) earnings growth have exceeded expectations and should continue for the full year, and (4) the slow uptick in foreign interest rates will not disrupt markets.

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