The US dollar gained, US stocks fell, and US Treasuries sold off after hawkish remarks from St. Louis Federal Reserve Bank President James Bullard, as he stated the need to boost rates to at least 5-5.25% to effectively help curb elevated inflation.
The US Federal Reserve (the Fed) has 12 banks, each of which has its own president, representing a separate region of the country. These presidents work with the 7 members of the institution’s board to decide on the Fed’s monetary policy as a whole.
A flurry of mixed economic data added to the sell-off in US Treasuries, including initial jobless claims coming in at only 222,000 versus the 228,000 consensus estimate, which signals a tight labor market and may warrant further Fed rate hikes. The US 10-year yield was 0.08% higher at 3.766% for the day.
A sell-off is the term used to describe a situation in which a large number of a security (like stocks or bonds) is sold in a short amount of time. This causes the price of that security to fall, often drastically.
When there are a lot of jobs available, it usually indicates that demand is strong in various industries, which could add inflationary pressures.
As telegraphed by Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla earlier this month, the Monetary Board increased the overnight reverse repurchase (RRP) rate by 0.75% to 5%, the highest in nearly 14 years.
The overnight reverse repurchase rate refers to the rate applied to government securities that the BSP sells to banks with the agreement to buy them back the next day. This is done to temporarily reduce the amount of money in the financial system, and is also known as the key rate.
The BSP also raised its average inflation forecast for this year to 5.8%, from 5.4%. For next year, the BSP raised the inflation forecast to 4.3% from 4.1%.
S&P Global Ratings reaffirmed the Philippines’ investment grade of “BBB+” rating with a “stable” outlook, as it expects improvement in the growth trajectory and the country’s fiscal performance in the next 24 months.
S&P’s ratings provide information for investors to form a view on if an issuer would probably repay its debts on time and in full, which could help them decide on whether to put money in or not. In this case, it is of much interest to foreign investors.
There isn’t a clear direction to be seen in the latest developments, and so staying away from big changes to your portfolio might be the right approach for now.