Philippine shares rally as BSP, Fed turn dovish

PHILIPPINE SHARES rallied last week, with the benchmark index returning to the 6,900 level for the first time in more than four months, with expectations of monetary easing at home and in the United States boosting sentiment.

The Philippine Stock Exchange index (PSEi) closed at 6,961.96 on Thursday, rising by 1.67% or 114.59 points from its 6,847.37 finish on Aug. 16 and marking its third consecutive weekly gain. Thursday’s close was also the PSEi’s best finish in more than four months or since it ended at 6,979.81 on April 1.

Philippine financial markets were closed on Aug. 23 (Friday) for a special nonworking holiday in observance of Ninoy Aquino Day, which was moved from the original Aug. 21 date. Markets will remain closed on Aug. 26 (Monday) for the National Heroes Day.

“The local market managed to extend its rally last week. It is noticed, however, that the bourse is having a difficult time getting past its 7,000 resistance level,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

The PSEi ended at the 6,800 level on Aug. 19 to begin the shortened trading week amid market optimism after the Bangko Sentral ng Pilipinas (BSP) on Aug. 15 fired off its first rate cut in nearly four years and signaled at least one more reduction before yearend.

The market continued to climb in the following days to breach the 6,900 mark and even hit an intraday high of 7,005.27 intraday on Aug. 20 ahead of the US central bank’s annual economic symposium in Jackson Hole, Wyoming, where US Federal Reserve Chair Jerome H. Powell was set to speak on Friday and was expected to lay out their own rate cut path. Shares only closed in the red on Aug. 21 due to profit taking.

“Momentum carried the local bourse, stimulated by an earlier rate cut from the BSP. Momentum is on the side of the PSEi, getting impetus from the BSP’s ‘ahead of the Fed’ rate cut this month,” online brokerage firm 2TradeAsia.com said in a market note.

The PSEi was also boosted by US markets’ performance last week amid prospects of a September Fed rate cut, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.

Wall Street and global shares jumped on Friday toward all-time highs, while Treasury yields slumped and the dollar languished, after a speech by Mr. Powell confirmed the United States would soon begin interest rate cuts, Reuters reported.

Mr. Powell, in remarks on Friday at the annual economic symposium in Jackson Hole, Wyoming, said “the time has come” to cut interest rates as rising risks to the job market left no room for further weakness and inflation was in reach of the Fed’s 2% target, offering an explicit endorsement of an imminent policy easing.

Traders increased bets for a bigger rate cut in September following Mr. Powell’s speech, with the fed funds futures now pricing in a 37% chance of a 50-basis-point (bp) cut next month, up from about 25% late on Thursday. Traders are also pricing in about 106 bps of cuts by the end of the year. — Revin Mikhael D. Ochave with Reuters