After building momentum towards the end of July, the US dollar leveraged this strength to stage a comeback in August.

Early in the month, Fitch Ratings downgraded the US government from AAA to AA+, citing a loss of confidence after lawmakers negotiated up until the last minute on the debt ceiling deal.

This was followed by Moody’s downgrading the credit ratings of several small to medium-sized US banks on concerns surrounding profitability, internal capital, and exposure to underperforming commercial real estate. The headlines ironically supported the demand for dollars as global investors looked for safe haven assets.

On the macroeconomic data front, July non-farm payrolls (NFP) reported only 187,000 new jobs vs. 200,000 forecast while inflation grew by 3.2% year-on-year in line with expectations. In his speech at the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell reiterated sentiments from previous meetings that the central bank will continue to monitor data and adjust monetary policy accordingly.

The data releases and balanced remarks helped ease the dollar by the end of the month but the currency’s accumulated gains were more than

In the Federal Open Market Committee (FOMC) meeting recently, the US Fed left rates unchanged. However, it signaled a higher for longer stance and that it is prepared to tighten further, or increase interest rates, if appropriate. Basically, a resilient US economy would result in further tightening.

Last year, markets were optimistic on a Fed pivot in 2023. The equity market’s rallied on hope and over optimism on policy easing hence the mantra “bad economic news, is good news for markets.” Now that the reality of the “higher for longer” is here, the scenario of another hike startled markets and triggered the recent selling.

The Fed’s hawkish rhetoric has prompted volatility in the global markets. As a result, the S&P 500 has re-tested the 4,300 support amid the announcement.

Looking at the technical movement

A. The S&P 500 remains bullish in the medium term as seen with the long upward channel.

B. The upward channel will break if price falls below 4,200.

C. Price may test the 4,200 level as momentum has a downside.

Make or break at 4,200

D. A topping pattern called the “head and shoulders” has emerged, but there is no sell signal generated yet. If price were to fall below 4,200, the drawdown target of 4,070 can be projected.

Takeaway

As the overall market remains bullish, pullbacks would be good re-entry levels for the S&P 500 given that the US Fed is near the end of its tightening cycle. A healthy pullback allows markets to set up for a year-end rally. However, the bullish view will quickly turn into a bearish one if the US economy tumbles into recession, and the market’s mantra flips to “bad economic news is bad news for markets”.

KYLE TAN is an Investment Officer at Metrobank’s Trust Banking Group, managing the bank’s offshore Unit Investment Trust Funds (UITF). He holds a Master’s degree in Financial Engineering from the De La Salle University and is a Level 2 passer of the Chartered Market Technician (CMT) certification course. He spends his free time working out, training at the gun range, or hunting for rare Star Wars collectibles.

WHAT HAPPENED LAST WEEK

Last week, the local bourse closed higher by 0.27% week-on-week (w-o-w) to 6,142.79. The market started in the red on cautious trading as investors awaited key interest rate decisions and as global oil prices continued to surge, with Brent crude futures reaching a 10-month high at USD 95 per barrel on September 19, 2023, Tuesday.

However, the index rebounded in the latter part of the week following the US Fed’s and the Bangko Sentral ng Pilipinas’ (BSP) decisions to keep interest rates steady at a 5.25% – 5.50% target range and 6.25%, respectively. Some bargain-hunting before the off-cycle PSEi rebalancing this week also contributed to the rebound.

WHAT TO EXPECT THIS WEEK

This week, we expect a volatile market as the recomposition in the PSEi takes effect on September 26, 2023, Tuesday. The Philippine Stock Exchange (PSE) announced that Bloomberry Resorts Corp. (BLOOM) and Century Pacific Food, Inc. (CNPF) will be replacing Aboitiz Power Corp. (AP) and Metro Pacific Investments Corp. (MPI) in the benchmark index.

The market may also price in some relief, as an oil price rollback will be implemented this week, following 11 consecutive weeks of price hikes. Diesel pump prices are expected to decrease by PHP 0.30 to PHP 0.70 per liter, gasoline by PHP 0.20 to PHP 0.60 per liter, and kerosene by PHP 0.45 to PHP 0.85 per liter on September 26, 2023, Tuesday.

Resistance: 6,200/6,400

Support: 6,000/5,700

ANALYSIS

The 6,000-level proved to be a strong support as the PSEi bounced back from the said level last week. However, the average value turnover remained tepid at PHP 4.2 billion. The market is still trading below its key moving averages (50-day, 100-day, and 200-day), indicating that the bears remain in control.

Should the PSEi extend its gains, it can retest the next resistance levels at 6,200 to 6,400. Otherwise, if the downtrend continues, it can retrace towards the next support levels around 6,000 and 5,700.

Stay light and observe if the 6,000 support level holds. For those who plan to increase exposure, consider tranche buying around identified support areas (6,000, then 5,700) while leaving some buying power to take advantage of lower prices should the downtrend continue.

STOCK CALLS FOR THE WEEK

Century Pacific Food, Inc./ BUY ON BREAKOUT | FMSEC TARGET PRICE: PHP 29.00

Since Metro Pacific Investments Corp.’s (MPI) voluntary delisting announcement last April 26, 2023, traders have speculated on potential names that could replace MPI in the PSEi. In addition, another counter is expected to be taken off the main index — Aboitiz Power (AP). AP’s removal from the PSEi index comes after its public float fell below the 20% minimum threshold for PSEi eligibility.

Last September 20, 2023, the Philippine Stock Exchange (PSE) conducted an off-cycle index rebalancing, with both MPI and AP replaced by Bloomberry Resorts (BLOOM) and Century Pacific Food (CNPF) in the main index. All changes shall be made effective on the start of day, Tuesday, September 26, 2023. For those looking to enter CNPF, accumulating once CNPF breaks above PHP 29.60 is advisable. Set stop limit orders at PHP 27.23. Take profit at around PHP 34.04/ PHP 34.35. For those already with exposure, we recommend taking profits or implementing trailing stops to secure profits.

SM Prime Holdings, Inc. / BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 41.78

SM Prime Holdings, Inc. (SMPH) has shown growth in sales and profit in the previous quarters as a result of increased tenant sales and foot traffic. We see this spilling over the next quarters as the “ber” months signal the beginning of holiday festivities in the Philippines including family reunions and Christmas programs.

While we think that SMPH will benefit from school openings and the upcoming holidays, we continue to be wary of the effects of the suspension of SMPH’s projects in Manila Bay as it poses downside risks for the counter. Hence, we prefer accumulating only once the issue is resolved. For those looking to accumulate SMPH now, accumulating once the counter breaks above its immediate resistance at its 20-EMA day at PHP 30.30 on strong volume is advisable. Set stop limit orders below PHP 27.85. Take profits at around PHP 34.85/ PHP 35.15.

DMCI Holdings, Inc. /BUY ON BREAKOUT | CONSENSUS TARGET PRICE: PHP 12.53

DMCI Holdings, Inc. (DMC) is reportedly exploring opportunities for its core businesses, mainly its mining and power units. We expect its expansion efforts and additional exploration activities for its subsidiaries to positively benefit the counter’s earnings in the long run, leading to improved earnings for the counter in comparison to its first half 2023 earnings. DMC has been consolidating upward, creating higher highs and lows, above key moving averages (50-day and 100-day) since early August.

Indicating a bullish momentum for the counter, its RSI, a technical indicator, is on an uptrend with its MACD, another technical indicator, above zero. Furthermore, its 50-day MA has crossed above the 100-day MA, which has been followed by a rally by the counter historically. With its 200-day MA as the counter’s immediate resistance at ~PHP 10.45, we think that accumulating once DMC breaks above this level on strong volume is optimal.

Buy on a convincing break above the 200-day MA at PHP 10.45. Set stop limit orders below PHP 9.60. Take profit at around PHP 12.02/ PHP 12.12.

KEY DATA RELEASES

1) PH Budget Balance for August on September 26, 2023, Tuesday (July: -47.8 billion)

2) US GDP Annualized quarter-on-quarter for 2nd quarter 2023 on September 28, 2023, Thursday (consensus estimate: 2.3%)

3) US Initial Jobless Claims as of September 23 on to be released on September 28, 2023, Thursday (September 16, 2023: 201k)

4) US Core PCE Price Index quarter-on-quarter for 2nd quarter 2023 to be realsed on September 28 2023, Thursday

5) PH Bank Lending year-on-year for August on September 29, 2023, Friday

A casual look has been associated with something that is simple. But with fashion evolving as time passes by, casual can be something low-key yet stylish and chic.

With more workplaces embracing looser dress codes, casual style is becoming more familiar. This option lets a person to feel more comfortable at the office without feeling under- or over-dressed.

Casual fashion comes with a diversity of choices, and you need to know how the choose the right one that fits your preferred lifestyle while still looking customary to an office setting. Here are a few tips to help you in your power casual dress hunt:

For women

A casual style can look chic and stylish if one knows how to do it correctly. For women, adopt a casual-chic look by styling with neutral colors like black, white, beige, and grey and choosing soft and comfortable fabrics that are also breathable like cotton, linen, silk, or denim.

• Shirts and blouses–Invest in the basics. For example, casual shirts and blouses are clothes that can be easily mixed and matched with bottoms, layers, and accessories. Shirts can be customized to fit one’s style as they come with a variety of options. Some differ in sizes (long or short sleeves), and others differ in colors, prints, and designs (simple, patterned, or checkered).
• Bottom wear–Women can wear jeans to elevate a simple yet sophisticated look. A relaxed fit-trouser is ideal as it allows more flexibility and movement. Wide-leg trousers can also be used if one wants to emphasize their curvier features while aiming for a chic and professional look. If one wants to perk it up a bit, a midi skirt is also perfect for a casual look as the skirt comes in different shapes and styles, perfect for any body shape, its below-the-knee length gives emphasis to the footwear and adds posh to the overall style.
• Dresses–Another outfit piece to wear for a casual look are dresses. Dresses are versatile, comfortable, more feminine, and a timeless classic. Women can enjoy shirt dresses if they want to enhance their silhouette; a knitted dress that goes well during work hours or at a night out; or a long wrap dress that can be paired with sneakers or boots.
• Layering–To add life to one’s casual style, layering is the key to adding “depth and interest,” to one’s outfit. You can mix and match items and accessories based on various textures, materials, colors, and patterns that you think fit your outfit. Consider jackets, coats, or cardigans over a blouse or a dress, or tailored pieces like blazers that add structure to your ensemble.
• Shoes–For casual dressing, matching your clothes with the right pair of shoes should be well-thought of as this gives your feet a stylish look as well. For comfortable yet fashionable footwear, women can wear loafers, ballet flats, or low-heeled boots.
• Accessories–Every accessory can be customized to fit one’s personality and fashion sense. Add statement accessories that match your outfit such as a chic handbag, a pair of classy sunglasses, or a timeless watch that polishes your ensemble.

For men

Similar to women, casual dressing for men should be a balance of comfort, style, and individuality.

• Jeans–Jeans have been the foundation of the casual style for a long time. So, choosing the right pair of jeans should be done for a modern-day power look. To look smart and casual, dark-washed denim is just right; and for a more laid-back kind of look, light-colored denims are also ideal.
  For trousers, chinos are also a great fashion piece that is elegant and comfortable, a perfect piece for a smart-casual style. Chinos come in neutral colors including khaki, navy, and beige, which is ideal for occasions with “ambiguous” dress codes.
• Polo shirts–Polo shirts can be matched with decent suit pants or a premium pair of jeans. One can also stay cozy with a knitted polo shirt that can appear just as classy and elegant, or the grandad collar shirts for those leaning to a “smarter” casual look.
• Jackets–To finish the casual look, coats or jackets are the way to go. Jackets, which are long-term investments in one’s wardrobe, can be worn over everything and comes in various materials such as leather, fleece, denim, and corduroy.
• Shoes–Wear white sneakers that go with a classic look, or a leather pair for a more polished look. Aside from sneakers, other options include loafers, desert boots, and boat shoes.

Accessories and accents–Stick with that support you preferred style and express your individuality and uniqueness. One can consider wearing a designer watch or a belt that fits that pair of jeans.

Hack to try

You might wonder how to mix and match different pieces into a good casual look, especially when you’re busy. Try the “2×2 outfit formula” where you simply combine two items of formal wear and two items of casual wear. This way, you emphasize both a formal office look and a ready-to-go style.

Remember that dressing casually is about personal style, a suitable appearance, and comfort. With limitless choices of clothes and accessories at your disposal, you can find a specific casual style that truly fits your personality.

Headline inflation steered to the upside at 5.3% in August 2023 after a consistent downtrend in the prior months, driven primarily by the uptick in prices of food and non-alcoholic beverages, particularly rice prices.

The August inflation print came in higher than our anticipated print, which indicates that the upside risks projected from increasing global rice prices have already fed into headline inflation faster than expected.

Rice inflation has increased sharply to 8.7% in August 2023 from 4.2% in the previous month (see below). This has been the highest uptick since the 2018 rice crisis where rice inflation soared to its highest level of 12.6% in October 2018, bumping up headline inflation to 6.9%.

As we know, rice captures 8.9% of the Consumer Price Index (CPI) basket, and therefore any significant changes in rice prices translate to lower or higher headline inflation.

Source: DA Price Monitoring

Retail prices of rice from the regular-milled to the special kind have gone up sharply to PHP 43 – PHP 60 in August from PHP 38 – PHP 52 in NCR markets, an average of 16% year-on-year growth.

Source: PSA, DA Price Monitoring

September price cap and rice inflation

In an effort to mitigate further escalation of inflation driven by higher rice prices, the national government has implemented an Executive Order establishing a nationwide price limit for rice. According to the directive, ordinary milled rice can be retailed for a maximum of PHP 41 per kilogram, while the price cap for well-milled rice stands at PHP 45 per kilogram.

How would this impact rice inflation in September?

Looking at average prices of rice in September last year versus this year when price caps were implemented, we can still see average prices to grow by 6.1%. It is important to note that the price caps only covered regular-milled and well-milled rice, while special and premium rice sold in the market continued to follow prevailing market-determined retail prices (see below). Moreover, 100% compliance from retailers may not be guaranteed as this may result to losses despite the subsidies.

After a number of iterations, we may see rice inflation settling at 6.6%-7.0% (at 95% confidence interval) in September (see below), an improvement versus 8.7% in August, but it remains to be at an elevated level. This falls between the rice inflation prints in July and August 2018 at 5.1% – 7.5% where headline inflation settled at 5.8% – 6.6%.

While this may not be the case for the September 2023 headline inflation because of many moving parts in the CPI basket, we can expect headline inflation to still settle at an elevated level despite the price control. This takes into account other factors such as the new round of increases in fuel prices this month.

More sustainable fix sought

While price movements may have been controlled for a short while, higher global rice prices are seen to persist in the succeeding months. Thus, economic managers are looking to temporarily cut tariffs on imported rice from 35% to 10% to help reduce retail prices and ensure enough rice stocks given the impending El Niño. How could this impact inflation in the succeeding months? We’ll talk about that next.

INA JUDITH CALABIO is a Research & Business Analytics Officer at Metrobank in charge of the bank’s research on industries. She loves OPM and you’ll occasionally find her at the front row at the gigs of her favorite bands.

The US Federal Reserve kept interest rates unchanged in its Open Market Committee (FOMC) meeting on September 20, maintaining the Fed funds rate target range at 5.25%-5.50%.

The Bangko Sentral ng Pilipinas (BSP) likewise maintained the benchmark interest rates at its current level of 6.25%, for the fourth time since it its first pause.

See our report below on monetary policy rate updates and views, in light of the recently concluded FOMC and BSP Monetary Board meetings.

REPORTS

Policy Rate Updates (September 21, 2023) 

There is now an upward bias in our forecast for the country’s policy rates as inflation risks remain elevated.

Download

WHAT HAPPENED LAST WEEK

Lackluster activity seeped into the peso government securities (GS) market early last week, despite the Fixed Rate Treasury Note (FXTN) 3-25 maturity that freed up around PHP 140 billion of liquidity in the market.

Investor interest was mostly seen for short-term peso GS with sizable volume being dealt for 0.5-year Retail Treasury Bond (RTB) 3-11 given the value it provides against similar-tenored Treasury Bills (T-bills). The Bureau of the Treasury (BTr) was then seen partially awarding only around PHP 10 billion for the reissuance of FXTN 7-70 and capped the high of the auction at 6.373%, or near the bottom range of market expectations.

Post-auction, players showed buying interest in medium- to long-term peso GS on renewed appetite for duration. Buying momentum carried out in the succeeding sessions, but key economic releases on the global front were a cause for concern for some market participants. This eventually tempered the rally.

Despite elevated US yields, buying interest, mostly in longer-tenored bonds in the 15-year space, caused risk sentiment to turn at the end of the week. The scarcity of supply in the back-end l

Consumption is expected to continue to moderate in the succeeding quarters as pent-up demand fades and consumer sentiment remains pessimistic on big-ticket items amid higher interest rates, according to the Bangko Sentral ng Pilipinas (BSP). Nonetheless, seasonal consumption growth may still be seen in the fourth quater.

Meanwhile, headline inflation steered to the upside at 5.3% in August 2023 versus 4.7% previously, and after a consistent downtrend in the previous months. This was driven primarily by the uptick in prices of food and non-alcoholic beverages, restaurants and accommodation services, and transport.

Nonetheless, BSP Governor Eli Remolona Jr. recently said the inflation uptick in August doesn’t warrant another hike, indicating that the central bank may pause in its next monetary policy setting on September 21 and keep the benchmark interest rate at 6.25%. The recent uptick in inflation was driven by supply shocks, which Remolona noted to be temporary and would dissipate quickly.

Lastly, the dollar-peso exchange rate has remained stable at above the PHP 56 level, which was breached in August. Nevertheless, these levels remain stronger versus last year’s performance in the same month, when the currency pair rapidly depreciated from PHP 56 to above PHP 58 levels.

Considering these developments, particularly the rise in inflation, we have revised our full-year inflation forecast for 2023 to 6.0%, outlined as follows:

For more information on the performance and outlook for several macroeconomic indicators, as well as local macroeconomic news, please download the full report below.

REPORTS  

Economic Updates (September 15, 2023)

With the uptick in inflation in August, we have revised our inflation forecasts for 2023.

Download

Earnings of businesses may slow down next year by more than half the growth rate in 2023 amid inflation and slowing revenues.

Ma. Cristina Gabaldon, Metrobank Deputy Head for Investment Management Division, said the bank’s estimates for earnings of listed companies are quite conservative.

“For 2023, our expected earnings growth is at 15%, and our index target is 6,900. For 2024, our expected earnings growth is quite conservative at just 6%, and our index target is 7,700,” she said in an interview with ANC.

“The thing that concerns us is that topline growth for companies is quite slow, in the single digits. This might translate to lower earnings come early 2024, so some things need to happen before we become more bullish in the stock market,” she added.

She said margins of consumer companies may contract because of inflation. Wheat prices may have gone down, but rising oil prices have negated this development.

“Consumer companies and manufacturers make up 10% of the index. So with high inflation and interest rates remaining elevated, we expect things to be higher for longer. This would affect the borrowings of companies. So they might delay their big-ticket borrowings, their expansion, their capex,” she explained.

(Please see the full interview with Ma. Cristina Gabaldon here. Just go to the 25:25 time mark.)

ANTHONY O. ALCANTARA is the editor-in-chief of Wealth Insights. He has over 20 years of experience in corporate communications and has a master’s degree in technology management from the University of the Philippines. When not at work, he goes out on epic adventures with his family, practices Aikido, and sings in a church choir.