Peso and stocks slide on inflation report

Both the Philippine peso and local stocks tumbled for a second day after the government announced that inflation rate hit 8.7 percent in January, the highest in more than 14 years, raising fears that the Bangko Sentral ng Pilipinas may continue to hike interest rates.

The peso fell 1.28 percent Tuesday to close at 55.085 against the US dollar, near a one-month low, from 54.39 Monday and 53.68 Friday. It was the local currency’s weakest level since it settled at 55.29 on Jan. 12, 2023. Total volume turnover reached $1.274 billion, up from $1.053 billion Monday.

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said that aside from faster inflation, the peso’s weakness was due to the continued upward correction of the greenback following the recent hawkish signals from the US Federal Reserve.

“The peso also weakened after recent geopolitical risks,” Ricafort said, citing the US military’s shooting down of an alleged Chinese spy balloon off the Carolina coast.

“The dollar-peso exchange rate also corrected higher after the local stock market gauge, the Philippine Stock Exchange Composite index, again corrected lower for the second straight day, considered a healthy profit-taking, by -55.35 points or -0.8 percent to close at 6,881.26,” Ricafort said.

Meanwhile, the PSE index, the 30-company benchmark of the Philippine Stock Exchange, shed 55 points, or 0.8 percent, to close at 6,881.26 Tuesday, as four of the six subsectors declined, with the services index posting the biggest loss.

The broader all-share index also went down by 18 points, or 0.52 percent, to settle at 3,655.75 on a value turnover of P6.14 billion. Losers outnumbered gainers, 97 to 88, while 51 issues were unchanged.

Only 1 of the 10 most active stocks ended in the green—SM Investments Corp. which inched up 0.55 percent to P915.00.

Manulife Investment Management and Trust Corp. head of fixed income Jean de Castro said the recent rally in bond markets was driven by expectations that the Fed would pause soon, which may also lead to the Bangko Sentral ng Pilipinas following suit.

“While the volatility of the foreign exchange market last year demonstrated the significance of the Fed’s actions on domestic monetary policy, a peaking of domestic inflation remains key to the end of the BSP’s tightening cycle. While it may be too early to say that inflation has peaked, we are optimistic that inflationary pressures coming from global commodity markets have moderated and that the worst is over for bond markets,” she said.

Manulife head of equities Mark Canizares said Philippine stocks had largely priced in the prospective rate actions of the US Fed and the BSP this year.

“For the Philippine market, the twin events that are likely to influence the general market move are the peaking of rates and inflation, both expected sometime this year. As long as prospective rate indications are not for an uptick in rates more than what is expected, it is likely that the local stock market will re-focus its view to domestic factors this quarter. A particular area of interest would be how fourth-quarter 2022 earnings will pan out and how the reopening of the economy filtered through to companies’ sales and income,” Canizares said.