Cautious trading expected this week

Local stocks are seen trading with caution this week as investors price in prospective local interest rate increases following the spike in June inflation while the US-China trade war was set in motion with the imposition of new tariffs.

Last week, the main-share Philippine Stock Exchange index (PSEi) shed 6.97 points or 0.1 percent to close on Friday at 7,186.71. An early rebound was reversed by renewed fears on local inflation, which hit a five-year high of 5.2 percent and overshot consensus and central bank expectations.

The Philippine stock market is now on its eighth bear market since 1987, BDO Unibank chief strategist Jonathan Ravelas said.

Based on history, bear markets last from as short as three months to as long as 57 months, or an average of 17.71 months. Bear markets result in a decline of 400.64 points to as much as 2,469.41 points or 1,578.44 points on the average, he noted.

On the other hand, bull markets usually lasted from 10 to 48 months or 18.71 months on average, adding 735.85 points to as much as 5,192.40 points or 2,106.11 points on the average.

Ravelas said the latest inflation report reignited inflation fears, causing the market to retreat from its march toward the 7,500 levels last week on heightened expectations that another policy rate hike was looming.

“The week’s close at 7,186.71 signals the market’s retreat from its assault of the 7,500 levels and resumes another attempt below the 7,000 levels,” Ravelas said.

Meanwhile, the peso weakened anew by 0.15 percent week-on-week—for the fifth straight week—to 53.42:$1 as the minutes of the last Federal Open Market Committee meeting reaffirmed the US central bank’s commitment to gradually raise rates amid headwinds rising from trade battles and emerging-market turmoil that could blunt tailwinds from fiscal policy, Ravelas said.

Ravelas said another factor that led to the peso’s depreciation was the report that the country’s gross international reserves for June had dipped to its lowest level since June 2012 to $77.7 billion versus $79.2 billion in May.

“Chartwise, the week’s close at 53.42 highlights the strong dollar trend remains. Continue to expect the currency to range within the 53.30 to 53.65 levels in the near-term,” he said.