Market wary of rising inflation rate

Share prices are expected to trade sideways this week amid concerns over a possible interest rate squeeze due to rising inflation rate.

Analysts said the market was preparing for the possibility of a rate increase in the upcoming Monetary Board meeting later this month after inflation gathered pace on rising pork and fuel prices.

“Ultimately, the market will have to deal with the possible rate squeeze that this may entail. With the BSP’s monetary policy meeting just around the corner, expect funds to run more prudent trading strategies,” online brokerage firm 2TradeAsia.com said.

“After all even if dovish rates are maintained, transitory inflation will impact margins negatively, on top of already frail consumer confidence,” it added.

The government last week reported that February inflation rate quickened to 4.7 percent, the highest in over two years

Bank of the Philippine Islands expects inflation to accelerate to 4.3 percent this year from 2.6 percent last year as price pressures may persist until the third quarter.

Meanwhile, investors are monitoring the recent spike in COVID-19 cases, which could be due to new virus variants and relaxed restrictions.

The government is expected to accelerate its vaccination program, using vaccines from Chinese drugmaker Sinovac Biotech and AstraZeneca, as more doses arrive.

The government last week reported that 20 million doses of Moderna COVID-19 vaccines could arrive in the Philippines as early as the end of May or early June this year.

The Philippine Stock Exchange last week rose 1.3 percent to 6,881.37. Most of sectoral indices ended in the green led by holding firms, which climbed 2 percent; industrial which advanced 1.5 percent and services which added 0.8 percent.

The mining and oil indices declined 5.1 percent week-on-week.

The average value turnover improved to P13.3 billion while the average net foreign selling improved to P550 million.

US stocks, meanwhile, ended sharply higher on Friday after a whipsaw session in which the belief the US economy was recovering overcame inflation worries, while OPEC’s production restraint pushed crude to levels not seen in nearly two years.

Wall Street share prices struggled this week and bond yields rose while traders debated whether the US recovery from the COVID-19 pandemic, fueled by a White House-backed stimulus bill costing nearly $1.9 trillion that is making its way through Congress, would push prices up.

However, government data showing the US economy added a better-than-expected 379,000 jobs in February helped push major indices to a decisively positive finish on Friday, with the Dow climbing 1.9 percent and the S&P 500 gaining 2.0 percent.

“It was good data but still far away from full employment,” Peter Cardillo of Spartan Capital Securities said of the employment report.

Inflation concerns caused yields on the 10-year Treasury notes to spike to nearly 1.6 percent, but he said if they stabilize at that level “it is safe to say that the pullback could be over.”