Very strong numbers in the real sector—infrastructure spending, manufacturing and new jobs—should combine with positive consumer sentiment in Q2 & Q3 to push Q2 GDP growth above 7%. Inflation will likely peak in H1 as rice imports have arrived, and US Department of Energy forecasts sliding crude oil prices starting June. With the latest BSP rate hike, the pressure on the peso should ease.
With the US Fed expectedly raising policy rates by 25 bps to 1.75% to 2% on June 13, and the peso-dollar rate climbing fast, the peaking of inflation in H1 may not provide much space for bond yields to fall. Add to that, the possibility of a 4th Fed rate hike, and the escalating trade war between US and China, EU, Mexico and Canada, darken the outlook for local bond investors. Only a sharp and sustained drop in domestic inflation and easing of trade tensions can provide relief, not anytime soon.
Without positive news and earnings surprises to temper anticipated continuous outflow of funds from the local bourse until August, we expect PSEi continuing to consolidate and trade sideways in the 7,000-7,200 range.