The local stock market is expected to maintain its sideways movement this week, as investors await more clarity on the US Federal Reserve’s next policy action.
The Fed is slated to meet Jan. 31 to Feb. 1, and analysts are expecting a rate hike downshift amid further cooling in US inflation.
“Investors are now preparing for the upcoming US Federal Reserve policy meeting and the kick-off of corporate earnings report early next month,” said equity research analyst Neil Andrew Maderaje.
Analysts said despite the better-than-expected gross domestic product growth in 2022, the market still failed to break the 7,150 resistance level last week. This could indicate that investors were still waiting for more catalysts to push the market forward, they said.
The Philippine Statistics Authority reported last week that the GDP expanded by 7.6 percent in 2022, faster than the 5.7-percent growth in 2021.
This also surpassed the government’s growth target of 6.5 percent to 7.5 percent for the year despite higher inflation and interest rates.
“We think it is best to stay on the sidelines for now,” Mercantile Securities said.
The bellwether Philippine Stock Exchange index closed flat at 7,052.16 on Friday as share prices traded mostly sideways, and the broader all-share index inched up by 0.40 percent to settle at 3.697.63.
Foreign investors were net buyers of P1.78 billion worth of stocks last week.
Meanwhile, Wall Street stocks finished off a positive week on an upbeat note Friday after data showed further ebbing of US inflation, while European equities wobbled before ending the session with meager gains.
A benchmark of US inflation closely-watched by the Federal Reserve showed further moderation in December, according to official data.
The personal consumption expenditures price index rose 5.0 percent last month from a year ago, a smaller increase than in November but still above the Fed’s target rate.
Fed policymakers have hinted that the central bank could enact a quarter-point interest rate hike next week, smaller than a series of recent increases and enough of a shift to raise investor hopes of a policy pivot.
“There’s certainly a potential for a softish landing, or at least it hasn’t been ruled out,” said Art Hogan, an analyst at B. Riley Financial.
The broad-based S&P 500 finished at 4,070.56, up 0.3 percent for the day and 2.5 percent for the week.
Central banks spent last year ramping up borrowing costs to battle soaring prices and any sign of strength in the economy was taken as a bad sign that officials would continue to tighten policy sharply, threatening companies’ profits.
The European Central Bank is also holding a monetary policy meeting next week, with analysts expecting a 50-basis-point rate increase.
Concern towards the end of the year focused on a possible global recession caused by the restrictive policies, with several observers warning that top economies were likely to suffer a so-called hard landing.
Thursday’s US growth figures showed a slowdown in 2022 from the previous year but a better-than-expected performance in the final months. That was described as a “Goldilocks scenario” where the figures are neither too good nor too bad.
Yet, there remain lingering jitters of a possible downturn.
“There being a time lag between interest rate hikes and the effect on the economy, it remains difficult to predict how much of the Federal Reserve’s actions so far are having the desired dampening effect,” noted Interactive Investor analyst Richard Hunter.
“More pessimistic investors are suggesting that the latest quarter of growth could be the last before previous hikes take full effect, potentially pushing the economy towards recession this spring,” he said.
Investors are also keeping a nervous eye on earnings season, which has been mixed thus far. With AFP