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Friday, March 29, 2024

Volatile trading expected ahead of inflation report

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Trading at the Philippine Stock Exchange is expected to be volatile this week, as investors watch the release of the February inflation rate which will determine the direction for the benchmark interest rate.

Online brokerage firm 2TradeAsia.com said anxiety over the next few quarters replaced market’s optimism in the fourth quarter of 2022 as high inflation rate persisted.

“Next week, macro releases are likely to fuel another round of volatility, centered around local inflation and whether balance sheets are braced for another year of interest rate gyrations,” 2TradeAsia.com said.

The Bangko Sentral ng Pilipinas said last week the February inflation would likely settle between 8.5 percent and 9.3 percent despite earlier predictions that prices would ease by February.

Analysts said that given this indication, they were expecting the BSP to stay hawkish and continue raising rates over the next few months to temper inflation.

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This could hurt the growth of the economy and lead to decline in consumption spending and lower corporate earnings in the first half.

Analysts said despite the market condition, investors could adopt buy-on-dips strategy, knowing that the county’s long-term domestic growth strategy remained intact and inflation and interest rates would eventually ease from high levels.

Companies expressed optimism about sustaining their growth momentum and expansion plans for 2023.

The bellwether Philippine Stock Exchange index closed 30 points lower amid see-saw trading last week.

Data showed that while value turnover improved to an average of P9.85 billion, foreign investors continued their selling spree amid the volatile market.

Meanwhile, world stock markets rose Friday with data showing the resilience of the US and Chinese economies, reassuring investors rather than sparking worries about interest rate hikes.

With central banks in the United States, Britain and eurozone raising interest rates to tamp down inflation, signs of economic strength could persuade policymakers to hike rates further for longer and possibly prompt a more severe downturn later.

A strong run of data sent chills through trading floors in February—wiping out almost all of January’s rally—as investors realized the US central bank had more work to do to control prices.

But survey data from both China and the United States were welcomed.

“The general mood has also been helped by better-than-expected economic reports, which while raising concerns about further rate hikes, have also helped to create a mood that the economic picture may not be as dire as had been predicted at the start of the year,” said market analyst Michael Hewson at CMC Markets.

China’s February Caixin services PMI rose to 55.0 from 52.9, where a score above 50 represents expansion.

Meanwhile, the ISM services PMI in the United States was also in growth territory, dipping to 55.1 from 55.2.

February’s reading was driven by growth in more than a dozen industries including agriculture and real estate, said the ISM report.

“Overall, the survey is signaling ongoing expansion in service sector activity, not yet responding to more restrictive monetary policy,” said Rubeela Farooqi, chief US economist at research consultancy High Frequency Economics.

All three major US indices finished solidly higher, with the S&P 500 winning 1.6 percent and pushing to a gain for the week.

Falling government bond yields also helped boost equities. With AFP

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