PSEi to move sideways on profit taking, rate bets

LOCAL SHARES may drop to start this week as investors pocket gains from their recent rally, but lower consumer inflation in the United States, which could lead to slower tightening by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP), may provide support.

The bellwether Philippine Stock Exchange index (PSEi) went up by 118.01 points or 1.72% to close at 6,951.54 on Friday, while the broader all shares index added 49.58 points or 1.38% to end at 3,637.62.

Week on week, the PSEi closed higher by 283.57 points or 4.25% from 6,667.97 on Jan. 6.

“The local bourse sustained its upward momentum last week, getting past its 6,800 resistance and even its previous high of 6,814.14 touched last Dec. 1, 2022,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“Local equities followed through from [the other] week’s strength, as Wall Street’s advance [last] week inspired broad-based buying post assuring US inflation data,” online brokerage 2TradeAsia.com said in a market note.

US consumer prices fell for the first time in more than two years in December, boosting bets of slower rate hikes from the Fed.

The US consumer price index (CPI) slipped by 0.1% last month, the first decline since May 2020 and coming from a 0.1% rise in November. On an annual basis, the CPI increased 6.5%, easing from the 7.1% print seen in November 2022.

The US central bank hiked borrowing costs by 425 basis points in 2022, bringing the fed funds rate to 4.25-4.5%.

For this week, Mr. Tantiangco said that he expects to see some profit taking following the market’s two-day rally that saw the PSEi gain 3.61%.

“Still, the market may sustain its ground at the 6,800 support level, supported by optimism towards the local economy’s outlook coupled with tempered expectations on the Federal Reserve and BSP’s monetary tightening following the slowdown in US inflation,” he added.

“US CPI… is expected to spur optimism across risk assets, particularly those that are cyclical-heavy and/or are sensitive to central bank movements, as this inflation improvement is substantial evidence supportive of at least rate hike pauses in the medium-to-long-term,” 2TradeAsia.com said.

The online brokerage said the Philippines’ improving macroeconomic backdrop could continue to boost the local stock market.

“The PSEi hitting 6,900+ is ~22% higher than its October 2022 low — signaling its return to bull market territory. As mentioned in our past note, this technical momentum shift coincides with lightening of fundamental pressures, which should help tide over the next major resistances at 7,200 and, eventually, at 7,500,” it added.

2TradeAsia.com put the PSEi’s immediate support at 6,700 and resistance at 7,150-7,200, while Mr. Tantiangco placed the PSEi’s support at 6,800 and resistance at 7,000-7,100. — Justine Irish D. Tabile