Investors enter new week pumped up over inflation surprise

Frenzy over the lower-than-expected inflation rate in September may spill over to the stock market this week as confidence over further monetary easing continues to grow.

The 1.9-percent inflation rate recorded in September, which was cooler than the 3.3 percent in August, managed to pull the bourse to its highest closing price in more than two years last Friday at 7,467.92.

Week-on-week, the bellwether index managed to squeak in a gain of just 0.53 percent as traders wanting to lock in profits snipped any attempt at further ascent.

Japhet Tantiangco, research manager at Philstocks Financial Inc. said a softer inflation “is seen to boost market sentiment due to its positive implications on the local economy.”

“The low inflation figure could mean stronger household consumption, which would benefit our overall economic growth given its significant contribution,” Tantiangco said, adding that the Bangko Sentral ng Pilipinas (BSP) now had more room to further slash rates.

The BSP has so far cut the benchmark interest rate of banks by 25 basis points (bps) to 6.25 percent. It has given hints of possibly reducing this by up to 50 bps this year, especially after inflation settled at its lowest rate in more than four years.

Middle East tensions

Tantiangco warned, however, that escalating tensions in the Middle East remained a downside risk, as this could potentially pull up global oil prices.

To recall, the Philippine Stock Exchange Index suffered its longest losing streak this year—nine consecutive sessions—in April as Iran made retaliatory attacks against Israel over the war in Gaza.

If the market manages to regain its footing, Tantiangco said 7,400 would remain at its support level while the next resistance is seen at 7,700.

Chinabank Securities research director Rastine Mercado added a pullback “remains on the table” due to anxiety over the upcoming US inflation report and the BSP’s next policy setting meeting.

Mercado sees “heavy selling pressure” at the 7,500 to 7,550 levels, which the market has yet to touch since 2022.