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Tuesday, December 5, 2023

Stocks, peso rise on expected BSP pause

Philippine stocks and the peso moved up Thursday ahead of the Bangko Sentral ng Pilipinas’ decision to keep the benchmark interest rate steady at 6.5 percent, representing a pause in its monetary tightening cycle.

Analysts said local shares sustained their upward momentum as investors took positive cues from Wall Street’s overnight performance.

The 30-company Philippine Stock Exchange index added 20.35 points, or 0.33 percent, to close at 6,191.48, while the broader all-shares index inched up by 6.77 points, or 0.20 percent, to finish at 3,314.49.

Philstocks Financial Inc. research analyst Mikhail Plopenio said the anticipated pause in rate hike by the BSP also boosted market sentiment.

“Last-minute buying aided the market’s uptick wherein the market closed at its intra-day high,” Plopenio said.

The peso closed at 55.79 against the US dollar Thursday, stronger than Wednesday’s 55.83.

Oxford Economics said the BSP was expected to keep interest rates steady until the second quarter of 2024, when it would likely shift to rate cuts.

“Declining inflation should keep BSP on the sidelines until then. The risks are tilted to a delayed start to the rate cut cycle given inflation volatility and our expectation for the US Fed to start cutting only in Q3 2024,” it said.

Meanwhile, most Asian markets fell Thursday as investors took a breather and cashed in on a recent rally, though analysts said the outlook was bright, even as data pointed to a soft landing for the world’s top economy.

Figures released Tuesday showing a slower-than-expected rise in the US October consumer price index lit a fire under global equities, cementing traders’ views that the Federal Reserve would no longer need to hike interest rates and even fueling talk of cuts next year.

Hopes for a further slowing in inflation were boosted the next day by figures showing producer prices had also come in below forecasts.

However, a slightly above-estimate print on retail sales growth tempered the mood, even as it marked a sharp drop from the previous month.

The readings allowed dealers to step back and take a pause from their recent buying, leaving Wall Street’s three main indexes only slightly higher, and pushing Asian stocks lower on Thursday.

Hong Kong, which jumped almost four percent the day before, led losses as it gave up one percent, while Tokyo, Shanghai, Sydney, Wellington, Bangkok and Jakarta were also in the red.

London and Paris fell at the open, though Frankfurt edged up.

Singapore, Seoul, Taipei, Manila and Mumbai also eked out gains.

Still, observers said the pullback was not unusual and remained upbeat heading into the new year.

“The soft producer price index reading has the potential to magnify the message conveyed by the consumer price index report,” said Stephen Innes at SPI Asset Management, adding that some “overly optimistic” traders could take the readings as disinflation might be in the pipeline.

“The retail sales report and the PPI figures were highly accommodating to a Goldilocks interpretation, although after Tuesday’s fireworks, it may already be in the price,” he said referring to data that is neither too strong nor too weak.

TradeStation’s David Russell said there was a growing belief that the Fed had managed to thread the needle in bringing inflation down while also keeping the economy humming and avoiding a sharp slowdown.

“Price growth is moderating, but with strong demand on the sidelines. The soft landing is taking shape,” he said.

US President Joe Biden said much-anticipated talks with his Chinese counterpart Xi Jinping were the “most constructive and productive” of their relationship, as the two try to find some common ground after years of tensions.

“We’ve made some important progress, I believe,” he told reporters.

The meeting in California ahead of the APEC summit saw the two reach agreements on several issues including high-level military communications and artificial intelligence.

Long-running tensions between the two global superpowers have weighed heavily on markets, with investors concerned about the impact on trade and geopolitics.

Later, Xi told US business leaders that China was “ready to be a partner and friend of the United States”.

Axioma’s Olivier d’Assier said: “I think it goes a long way (towards) removing one of the worries that investors had.”

“The relationship has been going downhill since last year. So, we are clearly seeing a bottom. We weren’t expecting much out of this meeting. They both extended an olive branch,” he told Bloomberg Television.

“And they’re talking, which is best, which is more than what we had maybe a few months ago. So, I think the market will take that as a check mark of this. Less geopolitical risk on the table.”

There was little major reaction to news that US lawmakers had passed a stop-gap budget bill Wednesday to keep federal agencies running for another two months, averting a painful shutdown of the government that many had warned could deal a blow to the economy.

The deal came just before a Friday night deadline following a proposal by new House Speaker Mike Johnson, meaning more than a million public workers would continue being paid through the Thanksgiving and Christmas periods.

Ratings agency Moody’s last Friday downgraded its outlook on US debt to negative from stable, citing large debts and political gridlock.

Moody’s is the only major agency to maintain its top-level rating for US sovereign debt. With AFP

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