Trading declines on US rate hike, higher inflation

INVESTORS remained cautious as stocks ended lower during the first week of May, driven by the US Federal Reserve’s rate hike, the release of local inflation data, and amid the upcoming national elections.

The benchmark Philippine Stock Exchange index (PSEi) sank by 109.02 points or 1.58% to close at 6,759.90 on Friday, while the broader all shares index dropped by 41.46 points or 1.13% to close at 3,621.70.

Week on week, the PSEi gained by 28.65 points from its close of 6,731.25 on April 29.

“The PSEi declined on May 6, 2022, the last trading day before the presidential elections,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said, adding that the drop is “similar to the recent declines in the US stock markets.”

In an e-mail, he said the market’s movement comes amid the continued increase in interest rates or bond yields that could increase borrowing and financing costs for some listed companies.

Mr. Ricafort added that this development “could also deliberately slow down the US and global economy with potential risk of recession as an unintended consequence in an effort to clamp down elevated inflation, in view of continued aggressive Fed rate hike or monetary tightening signals.”

Diversified Securities, Inc. Equity Trader Aniceto K. Pangan said in a text message, “The market moved in consolidation as the Fed increased policy rate by 50 basis-points (bps) as expected with thin trading with most investors on the sidelines, [and] as the Philippine election nears.”

Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said that the local market also fell on Friday following the negative cues from Wall Street’s overnight decline.

“This came as interest rates in the US rose with their 10-year bond yield breaching the 3.00% mark,” he added.

Wall Street’s main indexes extended losses on Friday and long-dated US treasury yield surged as investors worried that the Federal Reserve will need to be more aggressive than expected in raising interest rates to combat inflation, Reuters reported.

Tech-heavy Nasdaq registered its lowest close since 2020, notching a fifth straight weekly loss, its longest losing streak since the fourth quarter of 2012. The S&P 500 also posted its fifth straight weekly loss.

On Friday, two of the Federal Reserve’s most outspoken policy hawks pushed back on the view that the US central bank missed the boat on the fight against high inflation, citing a tightening of financial conditions that began well before the Fed began raising interest rates in March.

Earlier this week, the Fed raised its policy rate to a range of 0.75% to 1%. Critics say that is far too low to fight inflation running at three times the Fed’s 2% target, Reuters reported. 

Back home, the local statistics authority released the country’s April inflation data on Thursday.

April’s inflation rose by 4.9% from 4% in March and 4.1% in April a year ago, primarily due to faster pickup in food, utilities, and transport prices.

This was higher than the 4.6% median estimate in a BusinessWorld poll last week and near the upper bound of the 4.2-5% forecast range given by the Bangko Sentral ng Pilipinas for the month.

The stock market also closed on May 3, Tuesday in commemoration of Eid’l Fitr.

On Friday, the MidCap index retreated by 13.28 points or 1.18% to 1,116.11 and the Dividend Yield index lost 4.70 points or 0.29% to close at 1,614.94.

Decliners overwhelmed advancers, 107 versus 60, while 61 names ended unchanged.

Value turnover increased to P5.95 billion with 653.6 million shares changing hands from P5.68 billion with 1.06 billion issues seen on the previous day.

Foreigners turned sellers with P851.7 million from P135.2 million in net inflows seen on Thursday.

Philippine financial markets will be closed on May 9, Monday for the national elections. — Luisa Maria Jacinta C. Jocson with Reuters