Both the peso and the local stocks slid Wednesday, after Donald Trump’s speech in Congress received a mixed response and two Federal Reserve officials suggested US interest rates could rise this month.
The peso closed at a new 10-year low against the greenback Wednesday, as most currency markets felt the likelihood of an interest rates hike by the Fed.
The peso lost seven centavos to close at 50.28 a dollar, down from 50.21 a dollar Tuesday. It was the local currency’s weakest level in more than 10 years, or since it settled at 50.32 against the greenback on Sept. 26, 2006. Total volume turnover reached $429.8 million Wednesday.
ING Bank Manila senior economist Joey Cuyegkeng said in an e-mailed statement that currency markets, including the Philippines, reflected the higher likelihood of a US Fed rate hike at its mid-March meeting.
“US interest rates overnight were higher to reflect hawkish statements from key and voting members of the FOMC [Federal Open Market Committee]. The chances of a Fed rate hike this month has increased to more than 50 percent from last week’s 40 percent,” Cuyegkeng said.
Cuyegkeng also said the market took the address of President Trump in US Congress as “lacking in details about government deficit spending and tax reform. The reiteration of such intentions and objectives still resonated among investors but not as much as the higher likelihood of further tightening of monetary policy by mid-March.”
Cuyegkeng said the peso was expected to remain range-bound for now trading between 50.10 and 50.40 as markets awaited additional cues from US Fed chair Janet Yellen at her Friday’s assessment of the US economy.
At the stock market, the Philippine Stock Exchange index, the 30-company benchmark, dropped 41 points, or 0.6 percent, to close at 7,170.70. It was the market’s fourth consecutive decline, which reduced total gains this year to 4.8 percent.
The heavier index, representing all shares, went down 21 points, or 0.5 percent, to finish at 4,347.17, on a value turnover of P5.2 billion. Losers outnumbered gainers, 95 to 93, while 46 issues were unchanged.
Nine of the 20 most active stocks ended in the green, led by developer Arthaland Corp. which jumped 14.7 percent to P1.48 and Semirara Mining and Power Corp. which gained 2.9 percent to P146.40. Universal Robina Corp. advanced 1.9 percent to P163.
Meanwhile, Asian equity markets were subdued despite forecast-beating readings on Chinese factory activity and Australian growth.
In Washington President Trump’s much-anticipated address to both houses of Congress was short on detail but provided enough to keep traders mainly upbeat.
The tycoon pledged $1 trillion in public-private infrastructure spending and “massive” tax cuts for the middle class, but he did not say how any of it would be paid for.
Ryuta Otsuka, a strategist at Toyo Securities in Tokyo, told Bloomberg News: “Investors are feeling relieved. Focus is shifting toward the Fed.”
And while Jeffrey Halley, senior market analyst at forex firm Oanda, said in a commentary that the address was “high on rhetoric and light on detail” and “a highly scripted damp squib”, he added that “it has become a case of no news is ever so slightly good news”.
But Greg McKenna, chief market strategist at CFD and FX provider AxiTrader, said in a note: “It was a bit of a disappointment in the sense that he did not put any more meat on the bones” of past promises.
Global markets have surged since Trump’s November election victory on expectations his plans for infrastructure spending and tax cuts would fire up the world’s top economy. With AFP, Bloomberg