Investors err on the side of caution as US awaits inflation data

The benchmark Philippine Stock Exchange index (PSEi) will continue trading sideways this week as investors digest consequential economic data overseas.

The PSEi saw a modest gain of 0.68 percent to 6,222.94 the past week while net foreign selling reached P3.5 billion.

“This week could see the index continue its range-bound pattern within the 6,150 to 6,350 area, with investors taking a more cautious stance ahead of the release of US August inflation data,” Juan Paolo Colet, managing director at investment bank China Bank Capital Corp., said over the weekend.

“A higher than expected rise in US consumer prices would be unwelcome news for the equities market as it would pile pressure on the Federal Reserve to raise interest rates and prolong a hawkish monetary policy,” Colet said.

He said traders would also be on the lookout for the FTSE rebalancing, which “could influence the movement of certain local index heavyweights.”

Meanwhile, local inflation in August, which was released last week, broke the six-month streak of cooling price increases after settling at 5.3 percent. The figure was near the upper end of the Bangko Sentral ng Pilipinas’ (BSP) expected range of 4.8 percent to 5.6 percent.

Bank of the Philippine Islands said interest rate cuts were premature “considering the possibility of inflation remaining above the target of the BSP in the next six months.”

Inflation has settled above target for almost two years, but any longer than that “may affect the BSP’s credibility as an inflation targeting central bank, which in turn may limit their ability to control inflation,” BPI said. INQ