Cautious trading seen on US rate hike fears

Local stocks are seen continuing to trade with caution this week as investors price in a prospective US interest rate increase later this month alongside continuing pressure on the local currency.

Last week, the Philippine Stock Exchange index (PSEi) fell by 0.16 percent or 11.87 points to close at 7,247.12 on Friday.

US Fed Chair Janet Yellen hinted in a business luncheon in Chicago last Friday that an interest rate hike would be coming soon. “The process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016,” she said.

The next US Federal Open Market Committee meeting is on March 14 to 15.

“Chartwise, the week’s close at 7,247.12 continues to suggest the market to remain range-bound between the 7,000–7,400 levels in the near term,” BDO Unibank chief strategist Jonathan Ravelas said in a research note. “Only a move above the 7,500 levels will call the bulls back to play.”

The peso’s weakening against the dollar is likewise a concern for the market, which favors a stable currency.

Last week, the peso depreciated by 0.37 percent week-on-week for the fourth straight week to P50.40 to $1 on expectations of a March rate increase by the US Fed. The peso posted a new 11-year low.

“Chartwise, the week’s close at 50.40 suggests the market to range between 50.25–50.50 levels in the week ahead. This puts the 51 levels within striking distance,” Ravelas said.

Meanwhile, leading online stockbrokerage COL Financial said the PSEi had ended flat last week following mixed corporate earnings results.

Value turnover decreased to P27.8 billion from P32.7 billion in the previous week while foreigners were net sellers throughout the week, liquidating P2.5 billion worth of shares, COL estimated.

The key domestic economic data to watch this week are the February inflation rate and the January trade numbers.