SLIP. The latest rate hike in the Federal Reserve's key rates resulted in the negative close of both the Philippines' main stocks gauge and the peso on Friday (June 17, 2022). An economist said investors are expecting more aggressive cuts in the Fed rates to tame the accelerating inflation in the US. (PNA graphics)

MANILA – Expectations for more aggressive hikes in the Federal Reserve’s key rates, after the 75 basis points increase this week, resulted in the negative close of the Philippines’ main equities index and the peso on Friday.

The Philippine Stock Exchange index (PSEi) shed 0.96 percent, or 61.45 points, to 6,331.56 points.

All Shares followed with a decline of 1.17 percent, or 40.29 points, to 3,394.95 points.

Holding Firms led the sectoral gauges in terms of losses after it fell 1.90 percent, followed by Industrial, 1.65 percent; Property, 1.24 percent; Financials, 1.17 percent; and Mining and Oil, 0.83 percent.

Only the Services index gained during the day after it rose by 1.74 percent.

Volume was thin at 917.4 million shares amounting to PHP11.71 billion.

Decliners led advancers at 133 to 57 while 45 shares were unchanged.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort, in a report, said the local bourse tracked its counterparts in the US and closed to its new 10-month low since August 13 last year.

Ricafort said US stock markets slipped by 2.4 percent to 4.1 percent to their low in one year to one-and-a-half years.

“(This turnout is due to) concerns over more aggressive Fed rate hikes in an effort to clamp down elevated US inflation/ CPI (consumer price index) that would lead to risk of economic slowdown or even recession, as part of the Fed's efforts to bring down inflation eventually back to the target of 2 percent,” he said.

Relatively, the local currency depreciated to 53.75 against the US dollar from its 53.47 close on Thursday.

Its weakness showed early on after opening the day at 53.47 from a 53.30 start in the previous session.

It traded between 53.76 and 53.43, resulting in an average of 53.551.

Volume dropped to USD962.5 million from the previous day’s USD1.14 billion.

Ricafort said the peso closed to its weakest in more than three-and-a-half years or after finishing the trade at 53.80 on Oct. 25, 2018.

He attributed the peso’s performance during the day to the latest Fed rate hike, which resulted in, among others, a rise in US Treasury yields.

Ricafort said the benchmark 10-year US Treasury yield rose to 3.22 percent, which is among its 11-year high.

“Market sentiment also weighed as global crude oil prices lingered among three-month highs recently and also near 14-year highs, at above USD118 per barrel recently that could potentially add to elevated inflation and could also add to the country's oil import bill,” he said.

Ricafort forecasted the peso’s next important resistance level at the 54-level against the US dollar, and the immediate support levels at 53.20 to 53.40.

He also noted that the financial markets are in a wait-and-see stance ahead of the transition to the new government, which will officially sit on June 30.

“The financial markets and the general public are still waiting for more details on the remaining cabinet members of the new administration, continuity narrative at the very least, reform measures (especially on fiscal policy/ debt management, particularly on possible new taxes that could lead to higher prices/ inflation), and other policy priorities for the coming days/ weeks, as a source of new cues/ leads for the local financial markets,” Ricafort added. (PNA)