Fed hints set PSEi for rough ride this week

Volatility may usher the market this week, as investors absorb the US Federal Reserve’s latest word on monetary policy and gauge the likelihood of “rapid fire” rate cuts in the coming months.

Glee over the Bangko Sentral ng Pilipinas’ (BSP) monetary policy easing spilled over to last week, with the benchmark Philippine Stock Exchange Index (PSEi) soaring to its second-highest closing of the year at 6,961.96 on Friday, up by 1.67 percent.

Year-to-date, the PSEi has also risen by 7.94 percent.

The index’s peak so far this year was reached on April 1 at 6,979.81, before geopolitical tensions and economic uncertainties worried investors and dragged the index to as low as 6,100 in June.

Despite the rally, the market may see some volatility this week as traders react to Fed chief Jerome Powell’s speech, according to Rastine Mercado, research director at investment bank China Bank Capital Corp.

“Markets will be closely monitoring his speech for indications on the size and pace of the Fed’s widely anticipated policy rate cuts in their upcoming meetings,” Mercado said in an email.

He added that the current optimism in other markets was driven by hopes of the American central bank slashing rates by a total of 75 basis points this year.

If this rings true, the PSEi may again test the 7,000 psychological resistance level, which it failed to hold last week due to profit-taking.

“Any indications to the contrary could drum up a wave of ‘risk-off’ sentiment across markets,” Mercado said.

Stock trading platform 2TradeAsia.com also sees optimism over the consumer segment to lift the bourse, as interest rate cuts lower borrowing costs and, therefore, spur spending.

2TradeAsia.com sees the PSEi’s immediate support level at 6,800 and resistance at 7,000-7,050. —Meg J. Adonis INQ