Granular lockdown strategy inspiring market to flirt with 7,000

The local stock barometer is seen to test the 7,000 barrier this week as investors look forward to granular lockdowns in lieu of metro-wide restrictions while continuing to ride on the US Federal Reserve’s dovish monetary policy stance.

Last week, the main-share Philippine Stock Exchange index (PSEi) gained a total of 110.51 points or 1.63 percent, closing Friday at 6,897.13.

“The market is likely to sustain its rally this week on expectations that granular lockdowns may now be implemented that will, in effect, replace the tight nationwide restrictions. This could be the recalibrated strategy of the government as vaccination progress is seen to hit majority of the population in the [National Capital Region and surrounding provinces] by the fourth quarter of 2021,” said Manny Cruz, chief strategist at local stock brokerage Papa Securities.

“This will indicate that more industries will be reopened at a sustainable basis and put back the economy on track to recovery,” he said.

At the same time, he said the stock market would continue to draw strength from the US Fed’s seeming bias to maintain an easy monetary policy.

He noted the weakness in US jobs data supported earlier signals of dovish policy. On Friday, it was reported that US non-farm payrolls in August had increased by just 235,000, much lower than the 720,000 additional jobs that the market was expecting.

The slower-than-expected US jobs growth cast doubts on the Fed’s timeline to taper its monetary stimulus via bond buying operations. It was previously signaled that the Fed wasn’t in a hurry to raise its key interest rates but it could taper bond buying operations within this year.

With these developments, Cruz said the market may be back on track to test the 7,000 resistance in the near term.

Sustained “risk-on” sentiment from Wall Street has boosted local sentiment on selected blue chips, particularly telecom stocks, added Jonathan Ravelas, BDO chief strategist.

However, he said the rising new infections arising from the more contagious Delta variant may limit the market’s rally.

“The week’s close at 6,897.13 signals the market still has some gas to try the 6,900 to 7,000 levels in the near-term,” Ravelas said.

“Failure to test said levels could trigger some profit-taking,” he added.