Stocks retreated from a six-day rally, while the peso strengthened to a three-month high against the US dollar after US Federal Reserve boss Jerome Powell flagged a rate hike slowdown and China signaled a softer approach to fighting Covid.
The PSE index, the 30-company benchmark of the Philippine Stock Exchange, lost 45 points, or 0.7 percent, to close at 6,734.99 Thursday, as three of the six subsectors advanced.
The broader all-share index also dropped 12 points, or 0.4 percent, to settle at 3,501.03, on a value turnover of P10.1 billion. Gainers outnumbered losers, 112 to 77, while 40 issues were unchanged.
Four of the 10 most active stocks ended in the green, led by SM Investments Corp. which climbed 4.4 percent to P980.00 and Converge ICT Inc. which went up 3.5 percent to P16.00.
Meanwhile, the peso gained P0.34 or 0.6 percent Thursday to close at 56.22 against the US dollar from 56.56 Tuesday. Wednesday was a holiday in the Philippines.
It was the local currency’s strongest level since it settled at 56.145 a dollar on Aug. 31, 2022. Total volume turnover reached $898.7 million, down from $1.030 billion previously.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said earlier the peso might sustain its gains against the greenback in the coming weeks amid the expected increase in remittances, coupled with higher export sales in December.
He said the peso’s weakness in the past few weeks could be attributed partly to the seasonal increase in imports by some manufacturers primarily meant to prepare for the seasonal growth in demand for many businesses in the fourth quarter.
“But the seasonal increase in importation [is] already at the tail-end, before the seasonal increase in OFW remittances and export sales in Q4 that could provide some support for the peso exchange rate especially towards the end of the year, based on the consistent patterns for many years,” Ricafort said.
The Fed is now expected to have smaller rate increases with the easing of inflation in the world’s biggest economy. Economists earlier said the latest 75-bps rate hike by the Bangko Sentral ng Pilipinas could support the peso against the US dollar.
A growing sense of hope that months of sharp monetary tightening around the world is finally reining inflation back from its decades-long highs sent equities surging in November, even as policymakers warned more work had to be done.
And in a much-anticipated speech Wednesday, Powell said the full effects of the Fed’s belt-tightening had yet to be felt but that it “makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”.
He signaled the US central bank’s December gathering would likely see officials lift borrowing costs by 50 basis points, having pushed them up by a bumper 75 points at the past four meetings.
However, Powell did say policy would need to remain tight “for some time” to restore price stability, echoing comments from other Fed officials who suggested there might not be any cuts until 2024.
Analysts said the reaction to Powell’s remarks—which had been expected to be his most dovish in some time—highlighted a sense of relief among investors that a long-hoped-for pivot was on the cards.
All three main indexes on Wall Street surged, with the Nasdaq leading the way as rate-sensitive tech firms rocketed.
The gains extended November’s rally and helped claw back more of the hefty losses suffered for much of 2022.
The dollar also suffered a sell-off, tanking more than one percent against the yen to levels not seen since August.
The greenback’s losses come after it soared across the board this year as Fed monetary policy diverged more and more from other central banks.
Investors were “putting those nasty thoughts of a bear market to bed as the December Santa Rally springs alive”, said Stephen Innes at SPI Asset Management.
“Indeed investors are reveling in the afterglow of moderating Fed signals. And with the Fed done with jumbo hikes, it’s seemingly enough to mark the bottom in the bear market and could lead to a sustainable rally.”
He added that bets on rates topping five percent were fading and the advance in markets could push into the new year, with another slowdown in November inflation potentially fueling a bull rally—when a market rises 20 percent from its recent low.
“Still,” he warned, “inflation will need to play along.”
In another sign of hope, data earlier showed that eurozone inflation eased for the first time in 17 months in November.
Hong Kong led the gains in Asia again, with tech giants including Alibaba and Tencent tracking massive gains in their US-listed stock, while Shanghai ended well up.
Those rallies were also helped by signs that China is edging towards a more pragmatic approach to fighting the coronavirus, having hammered the economy this year with its strict zero-Covid strategy of lockdowns and mass testing.
After widespread unrest against the measures — and calls for more political freedoms — authorities have announced moves aimed at loosening some restrictions.
On Wednesday, Vice Premier Sun Chunlan, who heads China’s Covid campaign, told the National Health Commission that the fight was entering a new phase as Omicron weakens and more people are vaccinated.
Bloomberg News also noted that she did not refer to “dynamic Covid-zero”, the term used to explain Beijing’s strategy.
“It is clear that the authorities are setting the stage for Covid measures to be relaxed,” said Justin Tang, at United First Partners. “Equity prices will see a boost as China joins the rest of the world in living with Covid.” With Julito G. Rada, AFP