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Thursday, April 18, 2024

Low inflation, US debt deal to lift stocks

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Share prices are expected to get a boost from the progress of the US debt deal and the upcoming release of May inflation rate.

“The passing of the US debt ceiling bill may continue to give the local market an upward boost. Investors are also expected to take cues from our upcoming May inflation data,” Philstocks Financial Inc. research manager Japhet Tantiangco said over the weekend.

Tantiangco said the further slowdown in inflation which could lead to a possible interest rate cut in the coming months may support positive sentiment.

The Bangko Sentral ng Pilipinas said last week inflation likely eased further to as low as 5.8 percent in May from 6.6 percent in April following the rollback in petroleum prices and the reduction in poultry and fish prices.

Inflation reached a 14-year peak of 8.7 percent in January, before slowing down to 8.6 percent in February, 7.6 percent in March and 6.6 percent in April.

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The BSP’s next policy meeting is on June 22.

Online brokerage firm 2TradeAsia.com said the local market remained on sideways movement amid thin trading last week despite recent positive developments.

“Generally the positive Q1 earnings report were not able to give the index enough escape to trade past the 6,700 level,” 2TradeAsia.com said.

Investors are expected to recalibrate their portfolio by focusing on stocks that would benefit from the slowdown in inflation rate.

The index is expected to trade between 6,400 and 6,600 levels this week. The bellwether Philippine Stock Exchange index closed lower by 18 points to 6,512 amid lackluster trading last week.

Analysts said the market’s chart remained bearishly biased with the bourse posting losses for the second straight week.

Global stocks rallied Friday, closing out the week on a high in the United States following a bumper jobs report and a deal in Congress to avert a potentially catastrophic debt default.

The stronger-than-expected employment data released Friday morning suggests the US economy remains resilient despite concerted action from the Federal Reserve to suppress demand and bring down high inflation.

The passage of a debt limit deal through both houses of Congress appears to have eased market fears of a debt default as well, with Wall Street’s “fear gauge” sinking to its lowest level since before the Covid-19 pandemic.

“The Senate swiftly approved the new debt ceiling deal in the US prompting relief in the markets,” said AJ Bell investment director Russ Mould.

“A bigger bounce might have been forthcoming had investors not already been very much factoring in an agreement, with only a modest sell-off around the crisis,” he said. 

Official data released Friday showed that the United States added 339,000 jobs in May even as the unemployment rate climbed to 3.7 percent and wage gains fell, signaling a persistently strong labor market.

The debt deal and the “Goldilocks” jobs report — neither too good nor too bad — suggests the US economy “is not facing an immediate risk of a recession,” Edward Jones investment strategist Angelo Kourkafas told AFP.

Monetary policy officials have said a softer labor market and much lower inflation were key to the central bank being able to stop lifting borrowing costs.

Analysts had expected the Fed to relent on more than a year of interest rate hikes aimed at curbing historically high inflation if jobs market numbers cooled.

But Friday’s job data drew different reactions, with some predicting the Fed is now under more pressure to increase interest rates later this month, while others suggested it can still afford to skip a hike this time around.

The higher-than-expected job creation figures “will add pressure on the Federal Reserve to continue its path of increasing rates,” said Srijan Katyal at the international brokerage ADSS.

“It’s likely that the Federal Reserve will raise interest rates by at least 25 basis points when it next meets,” he added. With AFP

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