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Peso advances to 3-month high; Stocks rebound

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Philippine stocks bounced bank Tuesday to match the Wall Street rally.

The 30-company Philippine Stock Exchange index went up by 25.20 points, or 0.41 percent, to close at 6,208.82, while the broader all-shares index climbed 9.28 points, or 0.28 percent, to finish at 3,314.60.

“The index returned above the 6,200 level as a relatively benign market environment, an overnight rally in US shares and a favorable auction of 20-year US Treasuries spurred bargain-hunting in local equities,” China Bank Capital managing director Juan Paolo Colet said.

“We need to see more buying at these levels to build a case for a fresh rally,” he said.

Meanwhile, the peso extended its gains against the US dollar for the fifth trading session.  It climbed to a three-month high of 55.39 against the US dollar Tuesday from 55.55 Monday. It was the local currency’s strongest finish since Aug. 2, 2023 when it settled at 55.19 a dollar.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said a factor for the peso’s strength was the market’s expectations of the seasonal increase in OFW remittances and conversion to pesos in the fourth quarter, especially during the holiday season.

“[It is] a consistent pattern seen for many years/decades,” Ricafort said.

“The peso [is] also supported by recent hawkish signals/reiterations, after the off-cycle/surprise +0.25 rate hike to a new 16-year high of 6.50 percent on Oct. 26, 2023, followed by the local policy rate pause on November 16, 2023, as this still increases the peso’s interest rate income/returns,” Ricafort said.

The BSP also signaled the need to keep interest rates higher for longer monetary policy to help anchor both inflation and inflection expectations, especially in ensuring the achievement of the BSP’s inflation target of 2 percent to 4 percent amid geopolitical risks, particularly the Israel-Hamas war since October 7, 2023. 

The interagency Development Budget Coordinating Committee in June 2023 adjusted the peso-dollar exchange rate assumption for 2023 to 54 to 57 and 53 to 57 for the remainder of the medium term.

The peso fell to an all-time low of 59 per US dollar in October 2022 amid expectations that the Fed by that time would raise interest rates.

Meanwhile, Asian stock markets mostly retreated Tuesday, though analysts said there was still confidence on trading floors that the Federal Reserve is finished hiking interest rates.

Expectations that financial conditions will become easier in the new year as inflation comes down have fanned a rush back into risk assets in recent weeks and pushed the dollar down against its peers.

All three main indexes in New York extended their gains Monday, with the Nasdaq hitting a 22-month high thanks to an advance in tech giants including Amazon, Microsoft and Nvidia.

The rally was boosted by the successful sale of 20-year US Treasuries that sent yields on other notes lower. Talk is now growing that the Fed could cut borrowing costs as early as March, much earlier than previous bets on the second half of 2024.

“Some professional investors have turned broadly bullish on bonds amid softer US macro data and speculation that the Fed’s not only done raising rates but perhaps poised to implement so-called ‘insurance cuts’ beginning as soon as March,” said SPI Asset Management’s Stephen Innes.

Asian markets started the day on the front foot but ran out of gas as the day progressed.

Hong Kong dipped even after market heavyweight Alibaba jumped more than two percent to extend its rebound after diving 10 percent Friday on news it had cancelled the spinoff of its cloud computing arm.

Tokyo, Singapore, Jakarta and Wellington also fell, while Shanghai was flat. Sydney, Seoul, Mumbai, Taipei, Bangkok and Manila were all up.

London and Paris both retreated at the open while Frankfurt edged upward.

The yen rose, extending a rebound since coming within a whisker of the 32-year low of 151.95 to the dollar in October. The pick-up has come as US rate expectations ease and speculation swirls that the Bank of Japan is thinking of shifting from its ultra-loose policies.

The greenback was also down against the euro and pound.

Still, while traders are getting comfortable with the idea of a rate cut in the new year, Fed officials remain cautious.

In the latest remarks, Richmond Fed president Thomas Barkin warned the bank still had plenty of work to do to slay inflation, which at 3.2 percent is still well above target.

“The economy is still growing — unemployment is still 3.9% and… inflation does seem to be settling. So all that’s good,” he told Fox Business.

“But the job’s not done, and so you have to keep on until you get the job done, and we’ll see where we land.”

He added that with “inflation being stubborn”, he favored keeping rates elevated for an extended period, but how long would depend on the incoming data.

Traders are now awaiting the release of minutes from the Fed’s November policy meeting, when they held rates, while comments from officials will also be pored over ahead of their last gathering of the year on December 12-13. With AFP

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