Stocks end weak as US Fed indicates more rate hikes than expected

The local stock barometer ended flat on Friday as risk appetite remained sluggish given the more hawkish bias hinted by the US Federal Reserve in the years ahead.

The main-share Philippine Stock Exchange index (PSEi) shed 4.6 points or 0.07 percent to close at 6,850.71.

For the week, the PSEi lost a total of 192.45 points or 2.8 percent as the US Fed’s language after delivering a much-anticipated 25-basis-point cut appeared more biased for further interest rate increases in 2017 than expected by the market.

“Unlike financial markets, the FOMC (Federal Open Market Committee) continues to suspend judgment about the expected stimulus from President-elect (Donald) Trump’s likely fiscal policy proposals. (Fed) Chair (Janet) Yellen noted that they are operating ‘under a cloud of uncertainty’ regarding fiscal policy and that she expected market pricing to change as more information about what might actually be implemented becomes evident,” Citigroup said in a research note.

The FOMC is now expected to do three rather than two rate increases in 2017 and three more upward adjustments each in 2018 and 2019.

“The current trajectory for median dots rises from 1.4 percent in 2017 to 2.9 percent by 2019 and 3 percent in the long run,” Citi said.

While the Fed’s massive stimuli in the past boosted liquidity in emerging markets, the shift to a tighter monetary policy in turn lures back more funds away from emerging markets back to the US.

At the local market on Friday, the main index was weighed down by the financial, industrial, holding firm and services counters while the mining/oil and property counters firmed up.

Value turnover for the day amounted to P9.55 billion. There were 94 decliners that outnumbered 83 advancers while 43 stocks were unchanged.