STOCKS may continue to drop as investors stay cautious ahead of the expected aggressive rate hike by the US Federal Reserve as well as the release of Philippine April inflation data.

On Monday, the benchmark Philippine Stock Exchange index (PSEi) dropped by 10.17 points or 0.15% to close at 6,721.08, while the broader all shares index went down by 8.31 points or 0.23% to 3,596.83.

Philippine financial markets were closed on Tuesday in observance of Eid’l Fitr.

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said the weak trading seen on Monday shows many investors are staying on the sidelines amid lingering uncertainties.

Mr. Tantiango said investors “traded cautiously ahead of the Philippines’ April inflation data release where a faster print is expected, and the Federal Reserve’s policy meeting where aggressive monetary measures are expected to be taken.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail that the market is waiting for the Fed’s policy meeting on May 3-4, where the central bank is expected to hike key rates by 50 basis points (bp), bigger than the 25-bp increase it fired off in March.

“Possible local policy rate hike signaled as early as June recently also partly weighed on sentiment on the local stock market,” Mr. Ricafort added.

Investors expect the Fed to hike rates by 50 bps when it meets on May 3-4 and the uncertainty is around how hawkish Fed Chair Jerome Powell will sound in comments following the decision, Reuters reported.

Markets are pricing in an aggressive run of rate hikes from the Fed as it tries to tame soaring inflation amid the ongoing Russia-Ukraine crisis, continuing lockdowns in China, and soaring global commodity prices.

At home, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said in an interview with Bloomberg TV last week that the central bank may consider hiking key interest rates at its June 23 meeting.

This marks a departure from Mr. Diokno’s previous statements that the central bank would only consider normalizing its stance in the second half or when the Philippine economy’s recovery firms up.

Meanwhile, a BusinessWorld poll of 17 analysts yielded a median estimate of 4.6% for April inflation, matching the midpoint of the central bank’s 4.2% to 5% forecast and going beyond its 2-4% target.

April inflation data will be released on May 5.

Mr. Ricafort added that the market will continue to monitor the war in Ukraine and its impact on commodity prices, as this could affect monetary policy.

“Russia’s continued invasion and war on Ukraine could lead to tighter monetary policy and higher US government bond yields and interest rate benchmarks that could also increase the borrowing and financing costs for some listed companies,” he added. — L.M.J.C. Jocson with Reuters