Volatility in the markets have returned due to recession fears. Germany, the UK, and China reported weak growth; while the US and Philippines continue to thrive. Although, economic weakness may soon spread to other countries. President Trump delayed a portion of the USD 300B tariffs scheduled to be imposed on Chinese exports to the US on September 1. About $150B will still be levied 10% tariff on September 1 while the remainder will be tariffed on December 16.

GDP growth slowed to 5.5% YoY in 2Q (from 5.6% in 1Q), below consensus expectation of 5.9% due to the delayed passage of the 2019 budget and the election ban. Gross fixed capital formation contracted 4.8% YoY (from growth of 6.4% in 1Q19) and government consumption growth slowed to 6.9% YoY (from 7.4% in 1Q). Despite receding inflation, private consumption growth was 5.6% YoY from 6.1% in 1Q. Considering the weak GDP growth and falling inflation (July CPI at 2.4% from 2.7% in June), the BSP has reduced its policy rate by 25 bps to 4.25%. It also lowered its 2019 and 2020 inflation estimates to 2.6% and 2.9%, respectively (from 2.7% and 3.0% previously).

The PSEi declined for the second straight week at 8,129.93, down 55 pts (-0.67%) from the previous week, with foreigners purchasing net total $5.7M (Php 291M) of Philippine stocks. Turnover continued to be weak at $116M (Php 6B). The Bureau of Treasury fully awarded the re-issued 20-yr bond at an average rate of 5.015%. At the week’s close the 2-,5-,10- and 30-yr UST yields declined 14bps, 19bps 22bps and 21bps to 1.75%, 1.66%, 1.85% and 2.38%, w/w, respectively.