The yield on the 10-year US Treasury bonds fell to 3.087%, its lowest level in two weeks, as US unemployment neared a 5-week high. Manufacturing and services activity in the US didn’t reach estimates, causing worries that the Federal Reserve’s (the Fed) tightening will limit growth.
When monetary policy is tightened, borrowing money becomes more expensive. While this can help slow inflation, it could also keep businesses from expanding, eventually affecting the economy’s growth.
US stocks gained, with the S&P 500 up 0.95% and the Nasdaq up 1.62%, on strong performance from tech and defensive shares. The decline in US yields also made stocks relatively more attractive.
Tech shares are those from companies that are involved in the technology industry, which has seen a lot of movement recently. These include the prominent FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks.
Defensive shares are stocks of companies which tend to perform consistently even in times when the market is down. Such companies offer products and services which are in constant demand, including necessities such as utilities, food, and household items.
When yields are low, investors tend to put their money in stocks because they might earn more from them. The reverse happens when yields increase, for the same reason.
In the Philippines, the PSEi fell by 1.67% to 6,065 as the peso weakened ahead of the Bangko Sentral ng Pilipinas’ (BSP) decision to raise interest rates to 2.5% to slow down surging inflation. The BSP also revised its inflation forecasts to 5% from 4.6% for 2022, and 4.2% from 3.9% for 2023.
Inflation estimates are important for many people because of how much the prices of goods and services can affect the performance of an economy, which then impacts investments.
The National Government (NG) budget deficit narrowed by 26.72% year-on-year to P146.8 billion in May, as revenues grew by double digits and spending shrank because of the national elections.
A budget deficit is what happens when spending is higher than earning. If it lasts a long time, it can affect the economy’s growth and stability.
