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Macroeconomy

We are bullish on the economic growth and inflation fronts. We expect Philippine growth to expand by 6.0% in Q3 and accelerate further to 6.5% in Q4 on the back of formidable new job creation by July 2019, inflation falling to 1.7% in August on track to go sub-1.5% by September and signs of resurgence in National Government (NG) spending to boost domestic demand starting Q3. Besides, better-than-expected external demand would stimulate the economy as exports growth has remained in positive territory since April 2019.

Fixed-Income Market

We expect a renewed fall in 10-year T-bond yields and 91-day yields, due to favorable domestic and external factors. Externally, the downward pressure on yields may be seen not only in the US, but also in EU and Japan. Domestically, below-target inflation, BSP policy and RRR cuts, and lower-than-expected borrowings by the National Government should provide the impetus. Thus, a fall of 10-year T-bond yields below 4.0% may be possible as financial markets tend to “overshoot”.

Equities Market

PSEi should continue to trade in a narrow range of 7,780-8,050 until more positive economic and corporate developments emerge. Corporate earnings should fall mostly in line with expectations, but the pullout threat of POGO could dampen market sentiment. However, BSP cuts in policy rate and reserve requirement could provide the needed stimulus.

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