Market awaits US Fed, FOMC moves

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After getting over the political tension in Syria, all eyes are now on the US Federal Reserve’s crucial meetings this week in anticipation of a clear-cut decision on the timing of the tapering of easy money, the biggest overhang to emerging market assets since May.

Last week, the Philippine Stock Exchange index recouped 158.62 points or 2.65 percent to end at 6,133.24, with net foreign buying posted in four out of the five trading days of the week.

AB Capital Securities analyst Abbygayle Estrella said investors had noticeably lightened their positions ahead of this week’s US Federal Open Market Committee (FOMC) meeting on Sept. 17-18 that would be immediately followed by Federal Reserve chief Ben Bernanke’s conference in Washington D.C.

At about the same time last year in the US, the Fed launched the third wave of its quantitative easing or the aggressive bond buying operations meant to stimulate the world’s largest economy. This time, the expectation is for the US Fed to announce its timeline on the unwinding of this regime of easy money given the signs of an improving US economy.

“From last week’s return to 6,000, the PSEi will be at a crossroads as to what path it will take this week ahead of the FOMC meeting. We think the announcement of the tapering timetable would be one of the last market-moving news that poses a downside risk to the local market this year,” Estrella said.

The analyst said two scenarios were at foresight: first would be that the immediate start of the tapering that could force the main index to revisit 5,900 and the second is a rally toward 6,500 if the Fed would delay the announcement to its next meeting in October.

“For now, the investors’ cautiousness ahead of the Fed decision has built a key resistance at 6,200 which the PSEi was only able to grip for two days,” she said.

Estrella said a technical reading of PSEi’s chart was likewise showing a possible consolidation due to the sideways trend of its relative strength index, while the 6,100–6,200 level indicated the main index’s overbought status.

“We think the PSEi will be moving sideways this week with a negative bias due to the upcoming FOMC meeting and the evidence presented by its technical indicators. We advise investors to lighten up as the main index’s ability to sustain the 6,000 level will be tested this week,” she said.

Likewise taking effect this week is the realignment in the PSEi, which will bring in GT Capital Holdings and LT Group, taking the place of Belle Corp. and Manila Electric Co.

Jonathan Ravelas, chief strategist at Banco de Oro Unibank, said the PSEi’s inability to stay afloat the 6,150-6,200 levels was casting a shadow of doubt on the current bounce.

“A break below the 6,000 levels will signal a retest of the 5,500-5,700 levels in the near term,” Ravelas said.  “Only a move back above the 6,250 levels will call the bulls back to play.”

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