The Market Call | July 2018

Macroeconomy

More recent positive real sector data, along with robust gains in jobs creation and bullish consumer sentiment in Q2 & Q3, point to a faster 7% growth trajectory in Q2. We maintain our view that inflation will have little upside and should taper off starting in Q3.

Fixed-Income Market

As local bond investors put more emphasis on the specter of faster pace of inflation, having priced in four Fed rate hikes in 2018, demand for bonds and yield movements should come more under the influence of developments in the inflation front. We do expect the inflation rate to peak in June or July since rice prices may soften with the recent availability of imported rice, and crude oil prices appear to have already began to fall below $70/barrel.

Equities Market

Positive news in the coming months such as Q2 GDP growth of 7% or higher, clear slowing of inflation, and stable exchange rate, together with better earnings reports for Q2 and Q3, could spark the rally to overcome finally the wildly negative vibes and end the year on a stronger note at 7,900 – 8,200.

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