Fed rate hike fears seen to hound stocks
The local stock barometer is seen attempting to reach the 7,100 mark this week but the upside is limited by a challenging outlook for emerging markets and a high probability of a US interest rate increase next month.
Last week, the main-share Philippine Stock Exchange index (PSEi) gained 1.3 percent to close on Friday at 7,067.73 as the country’s 7.1-percent third-quarter gross domestic product (GDP) growth rate beat all expectations.
BDO Unibank chief strategist Jonathan Ravelas noted that the market rallied to as high as 7,115.76 last week but surrendered most of its gains toward the end of the trading week following US Federal Reserve Chair Janet Yellen’s statement that an interest rate increase could be imminent.
“Chartwise, the week’s close at 7,067.73 suggest the market to range between the 6,850-7,150 levels in the week ahead,” Ravelas said. “Near-term bias still remains on the downside.”
Yellen’s remarks, together with better-than-expected US economic data during the weekend, supported market expectations of a December Fed rate increase, Citigroup said in a research note.
Fed fund futures suggested an 85-percent chance of a December adjustment, Citi noted.
“The (PSEi) is still in a corrective environment so watch its resistance points (7,100-7,160) for any signs of pressure,” said Luis Gerardo Limlingan, managing director at Regina Capital Development.
Limlingan said breaking both levels would allow further recovery to the 20-day moving average at 7,297 while a failure to breach these resistance levels would send the index back to the corrective phase.
Last week’s recovery has allowed the PSEi to rise past the end-2015 closing of 6,952.08.
Following the election of Donald Trump as the next US president, equities from developed markets have gained at the expense of emerging markets, based on a fund flow monitoring by Citi. —Doris Dumlao-Abadilla
