Marcos SONA Gives Peso A Shot In The Arm

The Philippine peso comfortably outperforms its peers from the Asia EM basket as participants digest President Marcos' policy agenda and comments from BSP Governor Medalla.

• Most analysts assessed the first State of the Nation Address from President Marcos positively, as the leader pledged commitment to "prudent" fiscal management and laid out plans to boost economic growth to an ambitious target of +8% Y/Y. Marcos vowed to keep infrastructure spending at 5% of GDP, improve spending and administrative efficiency, and revamp the tax system to increase revenue collection. He also committed not to declare another lockdown, citing the need to balance public health and economic concerns.
• With the new President's maiden SONA seen removing some near-term uncertainties and having pro-growth implications, local equities may now get some reprieve. Benchmark stock index flirted with bear market last month as the peso cratered (see Figure 1), which means Marcos' pro-growth agenda will be much welcomed.

Fig. 1: Philippines Stock Exchange PSEi Index vs. USD/PHP (inversed)

Source: MNI - Market News/Bloomberg

• Budget balance data released this morning served as a reminder of the need to increase fiscal efficiency, with monthly deficit printing at PHP215.5bn in June, pushing the YtD shortfall to PHP674.2bn.
• Elsewhere, BSP Governor Medalla effectively described the August monetary policy review as a decision between a 25bp and a 50bp hike to the key interest rate, adding that oil prices and Fed action will inform policymakers' discussions. The market is still pricing 75bp worth of rate hikes over the next three months, per Bloomberg MIPR tool. Within that period, Bangko Sentral will hold two monetary policy meetings, in August and September.
• Spot USD/PHP has tumbled and last deals -0.415 at PHP55.680. The RSI has pulled back from oversold territory, after a mild bearish divergence unfolded over the past month or so. Downside technical focus turns to Jun 29 low of PHP54.600. Conversely, bulls look for a rally towards recent highs just shy of PHP56.500.
• USD/PHP 1-month NDF last seen -0.120 at PHP55.760, with bears setting their sights on Jun 28 low of PHP54.740. Topside technical focus remains on the all-time high of PHP56.740. The RSI dived under the 70 oversold threshold, even as there was no evident bearish divergence beforehand.