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In the Know – May 23, 2023

POSTED ON MAY 23, 2023    

Overseas news

The US dollar and US stocks barely changed as the market remained on the sidelines. This is because people are waiting for signs of progress in the debt ceiling negotiations before making investing decisions.


US President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the US government’s $31.4-trillion debt ceiling. They hope to reach a deal before June 1.


Right now, the US government is under negotiations on raising the total amount (or “ceiling”) of debt that it can have. Borrowing money allows it to pay for many things on time, and so there could be a severe impact if the ceiling isn’t raised soon.


US Treasury yields rose due to hawkish comments from the US Federal Reserve’s (the Fed) James Bullard and Neel Kashkari, with the former expecting two more additional rate hikes this year.


In finance, a “hawkish” approach pushes for high interest rates to fight elevated inflation. This could increase bond yields to compensate for the risk and attract buyers. Its opposite, a “dovish” monetary policy, advocates low interest rates.


Local developments

Fitch Ratings kept the Philippines’ long-term foreign currency issuer default rating at “BBB” and upgraded its outlook to stable from negative. This reflects its confidence in the economy’s continued recovery from the pandemic.


This rating can give investors insight into how much risk they are taking when they lend their money to the issuer. When the rating is high or investment grade, it means that there is a low chance of default or not getting paid for investing in that country’s debt issues.


Fitch also noted that the Bangko Sentral ng Pilipinas’ (BSP) interventions to mitigate peso volatility have been reversed, adding that monetary financing to the government during the pandemic was more limited and was reversed more quickly than in some peers.


This referred to the BSP’s flexible exchange rate policy, which it used to keep the value of the peso from moving up and down too much.


The worrying news in the US and the positive local update hint that this isn’t yet the time for big investing decisions. Waiting for solid signals of change might be the right thing for you to do now.

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