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In the Know – March 22, 2023

POSTED ON MARCH 22, 2023    

Overseas news

Markets are reacting to an 80% probability that the US Federal Reserve (the Fed) will raise rates by 0.25% to reach a range of 4.75% to 5%. This would be the highest that the rates have been since 2007. Markets also await guidance from updated rate projections called the Fed Dot Plot on future hikes.


The Fed Dot Plot is a chart-style anonymized record of all Fed officials’ projections for the short-term interest rate. It can allow analysts and investors to see the general sentiment and make their decisions accordingly.


US Treasury Secretary Janet Yellen said the US government could repeat its drastic action to protect bank depositors if smaller lenders suffer deposit runs that pose the risk of contagion, as it did with Silicon Valley Bank (SVB).


In the banking world, contagion is the term for when a bank run at one institution causes enough panic to convince many depositors at another bank to pull their money out also.


In the case of SVB and similarly affected Signature Bank, the US government guaranteed all deposits to ease fears and hopefully keep customers at other banks from withdrawing their money.


The market’s so-called fear barometer, the Cboe Volatility Index (VIX) saw its biggest 2-day plunge since May 2022 as the coordinated actions to resolve the banking chaos eased fears of greater damage. This comes ahead of the Fed rate decision tomorrow (March 23, 2 AM Manila time).


The VIX attempts to measure the volatility of the S&P 500 by looking at the price of options, which are financial agreements to buy or sell a certain asset at a set price within a specified period.


Local developments

The Philippines posted a $895 million Balance of Payments (BoP) deficit in February due to foreign loan payments and a wider trade gap.


The Balance of Payments (BOP) is the difference between the money entering a country and the amount leaving that country during a certain time period. A surplus in BOP isn’t automatically a good thing, and a deficit is not always bad.


The Philippines’ Gross International Reserves (GIR) declined 2.5% month-on-month to $98.2 billion in February. This amount is still enough for 7.4 months’ worth of imports of goods and payments of services.


GIR is a country’s foreign exchange holdings, special drawing rights, reserve position in the IMF, and gold at the end of a given period, expressed as a US dollar value. The higher these reserves are, the more resilient and flexible that nation can be when the market is volatile.


With things settling down in the US and no big local news, a lot of market movement isn’t expected anytime soon. Holding on to your investments and avoiding big decisions may be the right approach for you at the moment.

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