Speculation is a name given to a failed investment and… investment is the name given to a successful speculation–-Edward Chancellor
Trump's
Inauguration: Declares War on Interest Rates; Philippine Peso Rallies, Treasury
Yields Steepen, While PSEi 30 Lags Behind Asian Peers
In this issue
I. Year of the Snake: Trump’s Baptism of Fire: Declares War on Interest Rates
II. Asian Markets Embraces Trump’s Inaugural Risk-On Rally: Stronger Currencies, Falling Bond Yields, and Equity Gains
III. Philippine Peso Rallies as the Philippine Raises in $3.29 Billion in Bonds, Yield Curve Steepens
IV. The PSEi 30 Misses out on the Electrifying Surge in Global Risk-Taking Appetite; the January Effect and More on the Chinese Zodiac Cycle
V. Will This Week's Q4 GDP Announcement Alter the PSEi 30's Pervasive Negative Sentiment?
VI. PSE Activities: Financial Casino for the Big Boys
VII. Foreign Selling Drives PSEi 30 Decline, Low Savings Contribute to Thin Market Volume and the Sunk Cost Fallacy
Trump's Inauguration: Declares War on Interest Rates; Philippine Peso Rallies, Treasury Yields Steepen, While PSEi 30 Lags Behind Asian Peers
Trump 2.0 opens with a declaration of war against interest rates. Global and Asian markets cheer. The Philippine peso rallies, the Treasury yield curve steepens, while the PSEi 30 trails behind its Asian peers.
I. Year of the Snake: Trump’s Baptism of Fire: Declares War on Interest Rates
Donald Trump kicks off his presidency with a bang.
He fired his opening salvo against the U.S. Federal Reserve, demanding they slash interest rates and threatening to raise tariffs on OPEC members if they fail to lower oil prices.
In a video message to the World Economic Forum (WEF) in Davos, Switzerland, he stated(via Reuters): "I'll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil." (bold and italics mine)
He also softened his stance on China, refraining from arbitrarily imposing tariffs.
Bloomberg/Yahoo Finance reported: "We have one very big power over China, and that’s tariffs, and they don’t want them," the U.S. leader told Fox News host Sean Hannity in an interview that aired Thursday in the U.S. "And I’d rather not have to use it. But it’s a tremendous power over China." (italics mine)
Either Trump’s advisors suggested that slashing interest rates could slow inflation, or, as we noted two days before the U.S. election, tariffs were seen as an instrument or tool for his trade policies, much like in Trump 1.0.
Perhaps also, in recognition that ongoing wars contribute to supply disruptions and thus influence interest rates, President Trump suspended foreign aid for 90 days.
This move could apply pressure on both Ukraine and Israel in their pursuit of continued warfare or military objectives. The U.S. government has provided billions in financing and material support to sustain the conflicts in Ukraine (at least USD 69.5 billion according to the U.S. State Department) and Israel (USD 12.5 billion as reported by the Council on Foreign Relations).
If we are not mistaken, most of the critical actions taken during his first week were interconnected and could have been designed to curb inflation and lower interest rates.
However, Trump has been notably reticent about addressing the snowballing deficit spending, which is currently at an all-time high.
With the possibility of easy money in the air, U.S. and global markets celebrated Trump’s inauguration. The major U.S. equity benchmark, the S&P 500, hit a record high, while Bitcoin neared its all-time high, and the crypto market entered a hyper-volatile phase. The US oil benchmark, WTIC, fell 3.5% over the week.
According to the Wall Street Journal, "The crypto industry eagerly awaited Donald Trump’s return to the White House. Now, it’s reeling after the president and first lady launched a pair of meme coins. Dubbed $TRUMP and $MELANIA, the tokens serve no economic purpose—their value is largely driven by internet meme popularity. Since their launch Friday night, the market cap of the president’s coin has surged to $8.4 billion, while the first lady’s token is valued at approximately $800 million, according to CoinMarketCap." (italics mine)
Trump's ascension has ignited hyper-volatility in the crypto sphere, epitomizing the intensification of resource misallocation, symptomatic of an entrenched and deepening global speculative mania.
Is this a sign of its terminal phase?
Similarly, as stated last week, Trump’s administration, which begins in the Year of the Snake, "promises to be a period of intense geopolitical activity, where traditional alliances might be tested, and new power dynamics could emerge, all under the ambitious and often unpredictable deal-making leadership."
Trump’s first week in office marked a baptism by fire for geopolitics, the global economy, and financial markets.
Of course, one week doesn’t make a trend.
II. Asian Markets Embraces Trump’s Inaugural Risk-On Rally: Stronger Currencies, Falling Bond Yields, and Equity Gains
How has all this affected Asia?
Figure 1
First, the U.S. Dollar Index $DXY fell by 1.8%, marking its largest weekly drop since November 2023, primarily due to a 2.2% gain in the euro $EURUSD.
The DXY, an index measuring the U.S. dollar's value against a basket of foreign currencies, fell from a two-year high. This drop might reflect overbought conditions or could be a relief countertrend activity spurred by Trump's actions.
Despite this, the sinking dollar lifted all Asian currencies quoted by Bloomberg. The U.S. dollar weakened most against the Malaysian ringgit $USDMYR, Thai baht $USDTHB, and South Korean won $USDKRW. (Figure 1)
Figure 2
Next, the U.S. Treasury market hardly reacted to the dollar’s steep decline, with yields on 10-year notes falling only marginally.
However, yields on most ASEAN treasuries dropped significantly, or ASEAN bond prices rallied strongly. The Philippines, in particular, mirrored its U.S. Treasury counterpart $TNX. (Figure 2)
Figure 3
Lastly, with the prospect of easy money, 13 of the 19 national indices in Asia closed the week higher, averaging a 0.73% return in local currency terms. Sri Lanka’s Colombo and Mongolia’s MSE both hit their respective all-time highs. Sri Lanka, Japan's Nikkei 225, and Hong Kong's Hang Seng Index were among the top performers for the week. (Figure 3, upper window)
Rallies in Japan and Hong Kong benchmarks reached the resistance levels of their respective trading ranges. (Figure 3, lower chart)
III. Philippine Peso Rallies as the Philippine Raises in $3.29 Billion in Bonds, Yield Curve Steepens
And what of the Philippines?
Despite a strong rally among its regional peers, the USD-PHP exchange rate slipped by 0.56% week-over-week, largely due to a 0.7% rally on Friday. (Figure 4, topmost image)
This comes amidst the National Government's successful $3.29 billion bond sale, which included U.S. dollar and euro-denominated bonds, some of which were sustainability-focused offerings. The funds raised are intended to help finance the government’s budget, according to Reuters and Interaksyon.
Muted gains, despite significant U.S. dollar and euro inflows for Q1 2024? There could be more borrowings in the coming two months.
For example, the Bangko Sentral ng Pilipinas (BSP) reported $3.21 billion in approved foreign borrowings for Q4 2024: "For the period from October to December 2024, the Monetary Board approved six (6) public sector medium- to long-term foreign borrowings, amounting to $3.21 billion. This is 3.35% (or $0.11 billion) lower than the $3.32 billion in foreign borrowings approved for the same period last year." (italics added)
Approved loans have been on an upward trend since at least Q4 2022, with a notable spike in Q1 2023, followed by a dip in Q2 before continuing to trend higher. (Figure 4, middle diagram)
These approved loans are part of the BSP’s external borrowings, meaning higher debt loads will result in higher debt-servicing costs, which include both principal repayment and interest expenses—exacerbating the Philippines’ US dollar "short" conditions. (Figure 4, lowest graph)
Furthermore, National Government borrowings deposited with the BSP should contribute to the Gross International Reserves (GIR), though this represents "borrowed reserves" that require debt servicing.
The focus on maintaining benchmarks to project an image of sound macroeconomics is, in reality, more of a façade.
Figure 5
Secondly, not only have Philippine treasury rates been climbing from the belly to the long end of the yield curve, but they have also been transitioning into a bearish 'steepener,' with short rates reflecting the BSP's insistence on continuing its easing cycle, which raises inflation risks.
Unknown to the public, this may be linked to the administration’s proposed "food security emergency," which was initially scheduled for implementation on January 22nd but has since been delayed "due to non-transmittal of documents," or legal technicalities.
Like Trump, local authorities aim to curb inflation through a combination of quasi-price controls and by injecting government reserves into the marketplace under the guise of a "food security emergency".
However, this approach fails to address the demand component, which is evidenced by record-high bank lending, unprecedented levels of public sector spending resulting in all-time high public debt, and historically high nominal liquidity conditions.
Moreover, it misunderstands the dynamic nature of human actions, where suppressing activity in one area can lead to complex, unpredictable "multiplier" feedback loops (or second to nth-order effects) that ultimately undermine the original intent or objective.
The effort to suppress interest rates through the "food security emergency" reflects the administration’s entrenched belief in "free lunch" politics, which the markets have resisted.
IV. The PSEi 30 Misses out on the Electrifying Surge in Global Risk-Taking Appetite; the January Effect and More on the Chinese Zodiac Cycle
The Philippine equity benchmark, the PSEi 30, missed out on the adrenalin-powered risk-taking appetite following Trump’s inauguration and his push for a return to a global free-money regime.
Among Asia’s 19 national indices, it was one of the six equity laggards—an outlier.
The PSEi 30 fell by 0.88%, marking its third weekly drop and pulling down its year-to-date performance to -3.56% with only a week left in January.
The "January effect" has traditionally dominated the PSEi 30’s first-month performance, with only three declines in the last 12 years (since 2013). (Figure 5, middle pane)
While a strong January doesn't necessarily guarantee positive annual returns, historical data shows that after three negative Januarys—2016, 2020, and 2021—the market experienced negative annual returns. Therefore, if this pattern and correlation holds, a deficit in the PSEi’s performance this January could signal that the negative trend may persist through the year.
Moreover, January's positive returns have been slowing over time.
Still, when viewed from the perspective of the Chinese Zodiac cycle, which follows the lunar-solar calendar rather than the contemporary Gregorian calendar, the Chinese New Year typically falls between January 21 and February 20.
Therefore, in this context, examining PSEi 30 returns for the Year of the Snake from February to February reveals heightened volatility with a downside bias emerges: +16.7% in 1989, -12.85% in 2001, and -4.4% in 2013.
V. Will This Week's Q4 GDP Announcement Alter the PSEi 30's Pervasive Negative Sentiment?
The Philippine Statistics Authority (PSA) is scheduled to announce the Q4 and annual GDP figures on January 30.
In any case, the PSEi 30's weakness have emerged even before the GDP announcement.
Historically, the week prior to the GDP release has typically resulted in positive returns, with twelve out of twenty pre-GDP weeks since 2020 showing gains. (Figure 5, lowest chart)
On average, this has resulted in a 0.67% gain up to last week.
That said, the PSEi 30 has suffered four consecutive negative performances in the past four pre-GDP weeks, which has weighed on its average returns amid a backdrop of slowing GDP growth.
VI. PSE Activities: Financial Casino for the Big Boys
While the public often views the PSEi 30 as a barometer of the "market," it is important to recognize that only a few stocks drive its performance.
Figure 6
Despite the index’s recent losing streak, the top five market heavyweights still accounted for 51.7% of the index as of January 24, while the top 10 had a combined 74.1% free-float-adjusted weight. (Figure 6, upper image)
This degree of concentration does not operate in isolation; the top 10 brokers accounted for 57.7% of this week’s trades, primarily driven by institutional brokers.
The top 10 and 20 most traded issues made up 65.9% and 82.2% of main board volume, respectively.
These figures highlight the concentration of trading activities among a limited set of entities, with minimal participation from retail investors and punters.
Our humble guess is that PSE trades are dominated by third-party depository institutions like banks and other financial institutions, which constitute our "national team," operating under the indirect behest of the BSP to support the Philippine stock market.
Since 2020, the steep bear market rallies of the PSEi 30 have been dominated by local financial institutions.
Aside from the post-recess "afternoon delight" phenomenon, this explains the significant use of the pre-closing 5-minute floating period for both pumps and dumps (mostly pumps) to shape the PSEi’s end-of-day outcome.
Apart from this, the establishment's embrace of "benchmarkism" or status signaling through market or economic symbols has been evident in the membership mechanics of the PSEi 30 composite.
The Philippine Stock Exchange (PSE) constructs the PSEi 30 not just to favor companies with strong price performance, but also to serve as a "moat for elite-owned and controlled firms," as we pointed out back in February 2023.
The PSE announced changes in the PSEi 30 membership last week. It removed price laggards, including Wilcon Depot, from the downstream real estate services sector, and Nickel Asia from the nickel mining sector.
They were replaced by AREIT, an Ayala-owned Real Estate Investment Trust, and the high-flying China Banking Corp (CBC), thereby expanding the Sy Group's influence with a second bank in the PSEi 30, effective February 3, 2025. (Figure 6, lower chart)
Still, with low domestic savings to support stocks, foreign money flows play an instrumental role in determining the outcome of the PSEi and the PSE.
It goes without saying that the recent sell-offs have resulted from foreign money outflows that have overwhelmed the low savings and insufficient use of credit by the 'national team' and local punters to support the index.
VII. Foreign Selling Drives PSEi 30 Decline, Low Savings Contribute to Thin Market Volume and the Sunk Cost Fallacy
Figure 7
This week's net foreign selling of Php 1.9 billion accounted for 9.3% of gross volume. Over the last three weeks (YTD), net foreign outflows have represented 8.8% of the gross volume, which have coincided with the PSEi 30's breakdown from 6,529 in 2025. (Figure 7, topmost window)
Although seventeen of the thirty issues closed the week lower, averaging a 0.92% decrease, the performance of the top 5-6 biggest market cap issues determined the 0.88% fall of the PSEi 30 based on free-float adjusted performance. (Figure 7, middle graph)
In short, gains from SM and BPI were insufficient to offset the declines of ICT, BDO, SMPH, AC, and ALI.
The broader market sentiment was similarly fragile, with declining issues outnumbering advancing issues on all five trading days last week. Declining issues led by 86. This negative trend has been ongoing since the start of the year.
On a sectoral basis, while SM led holding firms gained with 0.2%, the material declines of ICT (-3.46%) weighed on services (-2.02%), and SMPH (-3.05%) and ALI (-2.33%) pulled down the property sector (-1.99%).
Once again, this downturn coincides with eroding volume. Main board volume slumped 21.14%, from Php 4.8 billion to Php 3.8 billion. (Figure 7, lowest diagram)
Overall, with current "trickle-down" political-economic dynamics leading to an unparalleled savings-investment gap, the PSEi 30 would find scarce support from diminishing savings, accompanied by rising risks of debt-financed malinvestments.
Despite support from the "National Team," which only compounds capital goods mispricing and amplifies resource malinvestments, this merely delays the inevitable: an unpalatable market clearing process or an unpleasant rectification of past mistakes.
The first law of holes states, "If you find yourself in a hole, stop digging." Yet, the sunk-cost fallacy ensures that the mainstream will remain in vehement denial and persist in digging deeper.
