Another lackluster week of trading is seen at the stock market this week as investors brace for a higher inflation and interest rate regime alongside continuing volatility in the US markets.
Last week, the main-share Philippine Stock Exchange index (PSEi) slipped by 8.99 points or 0.11 percent to close on Friday at 8,458.57.
The PSEi is now trading below the end-2017 finish of 8,558.42.
“Investors are still worried about the constant net foreign outflow and what the effects of higher inflation are going to be on our market,” said Christopher Mangun, head of research at local stockbrokerage Eagle Equities Inc.
As the Bangko Sentral ng Pilipinas (BSP) cut the reserve ratio requirement on banks by 1 percentage point to 19 percent, Mangun said this would pump fresh liquidity into the economy and some might find its way into the stock market.
“With the current trend, it may continue to trade lower as it is looking for strong support, which it may find at the 8,100-8,150 level, before it starts to recover,” Mangun said.
The government is set to release tomorrow (March 6) the February Philippine inflation report.
“A figure that doesn’t stray too far from January’s inflation of 4 percent would definitely give the market some boost,” Papa Securities said in a research note.
The inflation-targeting BSP has projected that February inflation would range from 4 percent to as high as 4.8 percent. Higher electricity rates and food prices, along with the full pass-through of higher excise taxes on petroleum products and sugar sweetened beverages, are seen to lead to upward price pressures for the month.
For the full year, the BSP forecasts an average inflation of 4.34 percent, higher than its target range of 2-4 percent.
The decline of the market in the last two weeks showed that investors chose to stay at the sidelines and exercise caution “as they have yet to get comfortable with the higher interest rates and higher inflation,” said BDO Unibank chief strategist Jonathan Ravelas.
“Market participants also took the BSP’s latest business confidence report negatively as businesses turned less optimistic in the first quarter of 2018 to 39.5 from 43.3 in fourth quarter 2017, as the survey highlighted expectations of inflation to accelerate, peso to depreciate and interest rates to rise,” he said.
Chartwise, Ravelas said the PSEi’s close at 8,458.57 continued to suggest the market would range between 8,350 and 8,700 in the near-term.
“However, should a break below the 8,350 levels occur, expect a test of 8,000 to 8,100 levels,” he said. Immediate support and resistance levels are seen at 8,350 and 8,800 levels, respectively.
Meanwhile, global markets were rattled last week by US President Donald Trump’s pronouncement that the United States would slap tariffs on steel and aluminum imports to protect national security, in turn seen escalating risks of a trade war.