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Philippine economy in solid shape as Marcos set to take the helm

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© Reuters. FILE PHOTO: Vendors wearing face masks for protection against the coronavirus disease (COVID-19) stand by their fruit stalls at a public market in Quezon City, Metro Manila, Philippines, February 5, 2021. REUTERS/Eloisa Lopez

By Neil Jerome Morales and Enrico Dela Cruz

MANILA (Reuters) -Newly-elected Philippine President Ferdinand Marcos Jr. will inherit an economy that has strongly bounced back from the COVID-19 pandemic when he takes office in June, but soaring food and fuel costs will need to be addressed quickly.

Southeast Asia’s fifth-largest economy grew a better-than-expected 8.3% in the first quarter, the government said on Thursday. It was the fastest annual growth since the June quarter of 2021 when it expanded 12.1% and exceeded a 6.6% forecast in a Reuters poll.

That growth rate made the Philippines the fastest growing economy in the East Asia Region for the period, officials said.

On a seasonally adjusted basis, the economy grew 1.9% in January-March from the previous quarter, with the easing of COVID-19 curbs and election-related spending underpinning domestic demand.

That gives the central bank scope to raise interest rates to tackle rising inflation, which threatens to dampen consumer sentiment and derail the economic recovery.

“Since we are doing relatively well on the economic opening as evidenced by the Q1 data, the immediate priority is to address inflation, especially those that affected people the most, food prices,” Economic Planning Secretary Karl Kendrick Chua told a news conference.

The Bangko Sentral ng Pilipinas (BSP) holds its next policy meeting on May 19, with some analysts seeing higher chances for an interest rate hike.

“With GDP now back to pre-COVID levels and with inflation accelerating, we fully expect BSP to hike policy rates at the May 19 meeting,” said ING senior economist Nicholas Mapa.

Economists have raised concerns the BSP, which has kept benchmark interest rates steady since November 2020 at record lows, could fall behind the curve as central banks around the world step up monetary tightening to fight inflation.

Governor Benjamin Diokno, however, has flagged a possible hike in June, with the BSP looking at raising rates two to three times to bring down inflation by next year.

REFORMS AND FISCAL PRUDENCE

To sustain the growth momentum, Chua also urged the next administration to pursue further tax reforms, continue fiscal prudence and boost tax revenues needed to finance infrastructure projects and human capital development.

Boosting tax revenue is crucial as Marcos must tackle the problem of heavy public debt bloated by heavy borrowings to finance the government’s pandemic measures.

“A majority mandate on top of sizable political capital opens the door for opportunities for Marcos to implement substantial economic reforms early on in his single six-year term,” ING’s Mapa said.

Marcos, who clinched a decisive victory in Monday’s election, said he would hit the ground running as president and was looking very carefully at candidates for his economic team, with infrastructure, jobs and energy prices his priorities.

Another pressing issue is the need to widen face-to-face learning as schools reopen, Chua said, a key challenge for the education department, which will be under the supervision of newly-elected Vice President Sara Duterte-Carpio, daughter of the current president.

Students have faced setbacks due to lack of access to computers and patchy internet during 20 months of online learning.

Economy

Oh Snap! Social media stocks lose billions after Snapchat parent warning

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© Reuters. FILE PHOTO: A woman stands in front of the logo of Snap Inc on the floor of the New York Stock Exchange (NYSE) in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

By Nivedita Balu and Medha Singh

(Reuters) – Snap Inc (NYSE:SNAP) shares plunged more than 40% and sparked a sector-wide selloff on Tuesday after a profit warning from the Snapchat parent signaled tough times ahead for the once-booming digital ad industry.

The company was on track to lose $15 billion in market capitalization, while shares of major online advertisers and social-media firms were set to lose a combine $200 billion in value from the rout.

Meta Platforms, Pinterest (NYSE:PINS), Twitter (NYSE:TWTR) and Google-parent Alphabet (NASDAQ:GOOGL) were all down between 7% and 24%.

Snap said on Monday it was expecting to miss quarterly revenue and profit targets set just a month earlier and would have to slow hiring and lower spending.

The bleak view from one of the sector’s well-known names underlines the impact of the Ukraine war, surging inflation and rising interest rates on social media companies just when they were trying to shake off the hit from changes to Apple (NASDAQ:AAPL)’s iOS operating system.

“Snap is a proxy for online advertising and when you see weakness there then you automatically think Facebook (NASDAQ:FB), Pinterest and Google,” said Dennis Dick, a trader at Bright Trading LLC.

“Once you start thinking about Google, that’s when the markets starts to sell off.”

Tuesday’s selloff comes days after a Bank of America (NYSE:BAC) fund managers survey indicated investors are becoming increasingly bearish on tech stocks, a stark reversal to a bullish trend in the past 14 years.

Snap shares were trading at $13.3, lower than their 2017 IPO price of $17.

Analysts said Snap’s outlook for core profit suggested expenses will outpace its revenue growth, given headcount was up 52% in the prior quarter.

“There’s a lot to deal with in the macro environment today,” Chief Executive Officer Evan Spiegel said at a tech conference on Monday.

GRAPHIC: Digital advertising stocks this year (https://graphics.reuters.com/DIGITAL%20ADVERTISING-STOCKS/dwpkrnzogvm/Digital%20advertising%20stocks%20this%20year.png) cb55bba9-860d-4771-9546-5eaef7b68cf01

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As Fed amps up inflation fight, one policymaker urges caution

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© Reuters. FILE PHOTO: President and Chief Executive Officer of the Federal Reserve Bank of Atlanta Raphael W. Bostic speaks at a European Financial Forum event in Dublin, Ireland February 13, 2019. REUTERS/Clodagh Kilcoyne

(Reuters) – With the Federal Reserve amping up its fight against 40-year high inflation, one U.S. central banker this week urged caution so as to avoid triggering “significant economic dislocation” with interest-rate hikes that were too sharp.

“As we expeditiously return monetary policy to a more neutral stance to get inflation closer to our 2 percent target, I plan to proceed with intention and without recklessness,” Atlanta Fed President Raphael Bostic said in an essay released Tuesday on the bank’s website.

The essay set out in written form what he had laid out in an appearance on Monday: the case for raising interest rates by another half of a percentage point at each of the Fed’s next two meetings, as Fed Chair Jerome Powell has signaled, but then to pause on rate hikes in September to see the effects of tighter policy on the economy and inflation.

Monetary policymakers must be “mindful” of the uncertain effects of the pandemic, the war in Ukraine and supply constraints on the economic outlook, and “proceed carefully in tightening policy,” Bostic wrote.

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Economy

Stocks slump on growth concerns, bond yields slip

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© Reuters. FILE PHOTO: Men wearing protective face masks walk under an electronic board showing Japan’s Nikkei share average inside a conference hall, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan January 25, 2022. REUTERS/Issei Kato

2/2

By Herbert Lash and Lawrence White

NEW YORK/LONDON (Reuters) – Shares slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and slowed manufacturing output, while Treasury yields dipped as the weakness in equities revived a safe-haven bid for U.S. government debt.

U.S. and euro zone business activity slowed in May, with S&P Global (NYSE:SPGI) attributing the decline in its U.S. Composite PMI Output to “elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth.”

Higher costs from surging freight and raw material prices led Abercrombie & Fitch Co to say it will continue facing headwinds until at least year-end, a day after Snapchat parent Snap Inc (NYSE:SNAP) said the U.S. economy had worsened faster than expected in April.

A two-day relief rally in equities was snuffed out as investors took note of sliding corporate profits on persistent supply chain issues, worsened by the Ukraine war, and soaring inflation that has forced consumers to cut discretionary spending.

The U.S. economy likely faces a sharp slowdown as the Federal Reserve hikes interest rates to stamp out inflation, according to David Petrosinelli, a senior trader at InspereX.

“It’s really all about a hard landing and the Fed really being boxed in the corner with only demand-side tools to help,” Petrosinelli said. “They really need to squash demand.

“This is going to have a ripple effect for the economy, which is why you’re seeing the price action in stocks and bonds,” he said.

MSCI’s gauge of stocks across the globe shed 1.69%, while the pan-European STOXX 600 index lost 0.99%.

On Wall Street, the Dow Jones Industrial Average fell 1.37%, the Nasdaq Composite dropped 3.33% and the S&P 500 lost 2.16% as it again headed toward a bear market.

Shares of Snap plummeted 41.1%, dragging down several social media and internet stocks, while Abercrombie fell 29%.

In Europe, utilities and commodity-linked stocks led declines but banking shares rose.

European Central Bank Chief Christine Lagarde said she saw the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level.

The comments came a day after Lagarde accelerated a policy turnaround that has seen her go from all but ruling out a move this year to penciling in several hikes.

“It has raised jitters in global markets about the possibility at least of a more aggressive move by the ECB,” said Phil Shaw, chief economist at Investec in London.

“There were reports overnight that some hawks on the governing council thought her comments yesterday seemed to rule out a 50-basis-point hike, but her remarks today appeared to leave that on the table,” he said.

Germany’s 10-year Bund yield fell 7.3 basis points to 0.951%.

Treasury yields fell to one-month lows as those on benchmark 10-year Treasury notes fell 13 basis points to 2.729%.

The dollar index fell 0.343%, with the euro up 0.38% to $1.073.

Lagarde’s comments in a blog post on Monday and a swing that drove the U.S. currency to two-decade highs reinforced tactical weakness in the dollar, said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.

“The broader macro backdrop still supports the risk-off take,” Rai said. “The dollar still has more room to run over the medium term.”

DISAPPOINTING DATA

Markets took some comfort from U.S. President Joe Biden’s comment on Monday that he was considering easing tariffs on China, and from Beijing’s continuing promises of stimulus.

Unfortunately, China’s zero-COVID-19 policy and its lockdowns have already done considerable economic damage.

JPMorgan (NYSE:JPM) cut its forecast for second-quarter Chinese gross domestic product to -5.4% from a prior -1.5% after disappointing data in April. On an annualized basis, its global forecast for the quarter is 0.6%, the weakest since the great financial crisis outside of 2020.

U.S. crude oil recently fell 0.05% to $110.23 per barrel and Brent was at $113.76, up 0.3% on the day.

Spot gold added 0.8% to $1,867.57 an ounce.

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