The Philippine Stock Exchange index fell below the 6,200 level Wednesday as investors opted to stay on the sidelines ahead of the US Federal Reserve’s two-day symposium beginning Thursday.
The 30-company bellwether declined 32.76 points, or 0.53 percent, to close at 6,179.63, while the broader all-shares index dropped 13.32 points to settle at 3,339.63.
Luis Limlingan, head of sales at Regina Capital Development Corp., said investors were preparing for the start of the Fed’s symposium where Chairman Jerome Powell was expected to deliver remarks.
Investors were also focused on likelihood that China’s economy would further slow down.
Value turnover was thin at P3.26 billion.
The peso also fell Wednesday to close at 56.73 against the US dollar from 56.38 Tuesday.
Bangko Sentral ng Pilipinas Governor Eli Remolona said the weakness in China’s economy and the recent downgrade of the US credit rating weighed on emerging markets’ currencies including the peso.
Meanwhile, Asian markets mostly rose Wednesday with traders battling to maintain momentum from the previous day’s much-needed rally as they contemplate an extended period of elevated interest rates.
Sentiment has taken a hit in recent weeks owing to a spike in US Treasury yields to around 15-year highs, fueled by expectations that a strong economy will allow the Federal Reserve to stick to its campaign of monetary tightening.
That has forced investors to push back their expectations of when borrowing costs will eventually come down — just a few months ago, they were betting on a cut by the end of the year.
All eyes are on a planned speech Friday by Fed chief Jerome Powell, with dealers hoping for some clarity on its plans to keep inflation on a downward path and held at the central bank’s two percent target.
Forecasts are for a reiteration of his previous remarks that the goal is taming prices, even with rates already at 22-year highs.
“It’s not the height of rates that matters as much as how long they stay high,” said Tom Essaye, founder and president of Sevens Report Research.
“If we see Powell hint at higher for longer on Friday, we will need to brace for more equity market volatility.”
Investors are also awaiting earnings from Nvidia, which is tipped to post forecast-busting revenue in the second quarter thanks to the surge in demand for its processors used in developing artificial intelligence applications.
The firm’s shares have rocketed this year, helping boost many other tech firms, even as traders fret over the impact of higher borrowing costs on their bottom lines.
“The remarkable results it delivered in the previous quarter ignited a surge in the tech sector and generated optimism around artificial intelligence prospects, consequently driving the impressive performance of the S&P 500 throughout this year,” said SPI Asset Management’s Stephen Innes.
Tech companies are largely susceptible to elevated rates owing to their use of debt to fuel growth.
However, National Australia Bank’s Rodrigo Catril said: “There are some concerns the chipmaker may have experienced supply constraints against what seems to be an unquenchable demand for its products.
“Nvidia’s performance is seen by many as a potential bellwether for the IT sector and markets in general.”
China woes
A rally in Nvidia helped propel gains in global markets earlier this week, though traders could not keep up the buying owing to ongoing rate worries.
While the Nasdaq edged up slightly, the S&P 500 and Dow fell.
Asia fluctuated throughout the morning on Wednesday but stilled later on with most markets slightly higher.
Hong Kong, Tokyo, Sydney, Singapore, Wellington, Mumbai, Bangkok, Jakarta and Taipei were slightly higher but Shanghai, Seoul and Manila fell.
London, Paris and Frankfurt rose at the open
China’s economic woes also continue to fuel risk aversion, with the main cause of worry being its sputtering property sector.
Real estate titan Country Garden — which is drowning in a sea of debt — stands on the verge of default, fueling worries of contagion throughout the financial system domestically and possibly globally.
While Beijing has introduced some measures to stimulate the economy and support developers, they have been piecemeal and met with a shrug by investors, who are calling for a wide-ranging stimulus.
Alicia Garcia Herrero at Natixis said the best way to help would be to ease tough restrictions imposed on the industry in 2020 to stop speculation and wide-ranging borrowing.
She added: “Chinese policymakers should focus on limiting potential spillovers into the financial sector and thereby systemic risk. The longer they wait to do so, the bigger the cost will be.” With AFP