Local stocks rebounded Monday, but the Philippine peso tumbled to a two-month low as global crude prices continued to rise.
The Philippine Stock Exchange index, the 30-company benchmark, rose 56.94 points, or 0.88 percent, to close at 6,507.78, while the broader all-shares index rose 26.31 points to settle at 3,473.92.
Philstocks Financial Inc. research analyst Claire Alviar said despite the market’s advance, value turnover remained thin as investors remained cautious over upward risks to inflation rate.
Alviar said investors were also waiting for the release of second-quarter gross domestic product data later this week.
The peso shed P0.28 to close at 56.02 against the greenback Monday from 55.74 on Friday. It was the local currency’s lowest level since it finished at 56.05 on June 9, 2023. Total volume turnover reached $973.75 million, down from $1.138 billion previously.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said in an emailed response to Manila Standard the local currency’s weakness could be attributed to the surging global crude oil prices that posted new 3.5-month highs, thereby leading to some pickup in local fuel pump prices and overall inflation.
Ricafort said this led to “higher import bill and wider trade deficit for the country.”
“The peso also weakened after recent signals on being careful of not hiking local policy rates too much to avoid slowing economic/GDP growth, as well as some net foreign selling in the local stock market recently,” Ricafort said.
He said the markets were still anticipating the seasonal increase in importation activities in the third quarter after the tail-end of the seasonal increase in OFW remittances and conversion to pesos for tuition payments and other related expenses in preparation for the start of the new school year.
Economists from First Metro Investment Corp. and University of Asia & the Pacific said in their joint report titled The Market Call for the month of July that a peso depreciation was expected in the third quarter.
“With the economy’s large trade deficits still in place and the BSP’s pause compared to Fed’s 25 bps policy rate increase, and the recent [mid-July] recovery of the US dollar, we expect renewed peso weakness for the rest of Q3,” they said.
The interagency Development Budget Coordinating Committee made a peso-dollar exchange rate assumption of 54 to 57 in 2023 and 53 to 57 in the medium term.
Meanwhile, Asian equities were mixed Monday following a US jobs report that left investors weighing the chances of another Federal Reserve interest rate hike.
Global markets endured a volatile time last week, with traders spooked by a range of issues including a US rating downgrade, rising Treasury yields and a lack of concrete measures to boost Chinese growth.
While inflation continues to come down in the United States and parts of the economy are showing signs of slowing, there is plenty of speculation that the Fed will lift rates at least once more this year.
A much-anticipated jobs report Friday showed fewer-than-forecast new posts were created last month, playing into the view that the central bank could stand pat.
The cheer was offset by a still-strong read on wage growth, which backed up the hawkish outlook for more tightening, with Bloomberg reporting traders see a 40-percent chance of another hike this year.
In the medium term, they still see 1.25 percentage points of cuts by the end of 2024.
The debate was also taking place at the central bank, with Chicago Fed boss Austan Goolsbee saying officials had to be patient and that he was optimistic inflation can be brought down without sparking a recession.
He added that the question should be how long borrowing costs are kept at elevated levels, pointing out «if you hold at 5.25 percent, 5.5 percent, five-and-whatever while inflation goes down, that is a restrictive environment.
Holding is increasing restrictiveness in that sense.
However, Governor Michelle Bowman said policymakers might need to lift again to achieve stability in prices.
And Win Thin, at Brown Brothers Harriman and Co, warned: «As we›ve pointed out before, the easy part is getting from eight percent (inflation) to four percent; the hard part is getting it from four percent to two percent.
Because of this, we believe the markets continue to underestimate the Fed›s capacity to tighten.
Investors will be keeping a close eye on fresh US inflation data this week as well as jobless claims figures, hoping for a better idea about the Fed›s plans.
While markets are still pricing in a 40-percent chance of one more rate hike before the end of the year, this figure could swing either way in the event of a hot CPI print later this week,» said Michael Hewson at CMC Markets.
If next month›s jobs report is of a similar ‹goldilocks› variety then a pause seems the most likely outcome from the next Fed rate decision.
Whichever way we go with the data in the coming weeks, a pause still seems the most plausible outcome.»
Wall Street›s three main indexes ended Friday in the red, having suffered a late pullback from the morning›s rally.
And Asian investors struggled to get the week off to a positive start, with markets mixed at the start of the week.
Tokyo, Mumbai, Singapore, Taipei, Manila and Jakarta all rose but Hong Kong, Shanghai, Sydney, Seoul, Bangkok and Wellington fell.
Frankfurt was down after news that German industrial output plunged in June.
Paris and London fell.
Oil dipped but mostly held Friday›s rally after Ukraine carried out a drone attack on a Russian tanker in the Black Sea at the weekend, fueling unease about supplies from the major producer, as well as rising costs.
«Freight rates will be ballooning next week as the risks of carrying anything across the Black Sea proliferate,» Viktor Katona, at market intelligence firm Kpler Ltd. said.
He added that the price of transporting crude to India could surge by up to 50 percent. With AFP