Local stocks and the peso rebounded Wednesday from a two-day slump, but traders remained on edge after Federal Reserve boss Jerome Powell reiterated that inflation was coming down but interest rates might need to go higher than expected to get it under control.
The PSE index, the 30-company benchmark of the Philippine Stock Exchange, rose 41 points, or 0.61 percent, to close at 6,923.08, as five of the six subsectors advanced, led by mining and oil. It was also up 5.43 percent since the start of the year.
The broader all-share index also went up 19 points, or 0.53 percent, to settle at 3,675.01, on a value turnover of P6.28 billion. Gainers outnumbered losers, 115 to 66, while 53 issues were unchanged.
Eight of the 10 most active stocks ended in the green, led by Figaro Coffee Group Inc. which jumped 13.33 percent to P1.02 and Nickel Asia Corp. which climbed 4.35 percent to P7.44.
Meanwhile, the peso appreciated 0.52 percent Wednesday to close at 54.8 against the US dollar from 55.08 Tuesday. It rebounded from a 1.28-percent loss Tuesday with the release of inflation report showing a more than 14-year high of 8.7 percent.
Most Asian markets also traded higher. A run of key data in recent months has indicated a series of bumper hikes last year was beginning to pay off, fueling hopes that the central bank could pause its tightening cycle and even lower borrowing costs at the end of the year.
But a forecast-busting jobs report on Friday—showing half a million new jobs created in January—dealt traders a heavy blow and stoked speculation that more increases were on the way.
And on Tuesday, Powell confirmed those fears, telling The Economic Club of Washington, DC that he saw 2023 to be a year of “significant declines in inflation”, but it will only hit the Fed’s two percent target next year.
But he warned “we think we are going to need to do further rate increases”, adding that the “labor market is extraordinarily strong.”
“If the data were to continue to come in stronger than we expect, and we were to conclude that we needed to raise rates more… then we would certainly do that,” he said.
The remarks were echoed by Minneapolis Fed chief Neel Kashkari—considered a dovish member of the Fed board—who said rates might need to rise from the current 4.5-4.75 percent to 5.4 percent, higher than markets are currently pricing in
“When you have the likes of Neel Kashkari reiterating his belief of a Fed Funds rate of 5.4 percent before a pause… it would appear that once again US markets are indulging in wishful thinking when it comes to where rates are likely to go over the next 12 months,” said CMC Markets analyst Michael Hewson.
Powell’s comments were also similar to what he said last Wednesday, after the bank’s latest policy meeting, which sparked an equities rally.
And Wall Street again pushed higher Tuesday.
However, OANDA’s Edward Moya said: “It will probably go down as a missed opportunity as [Powell] could have pushed back on what the market is pricing in.
“Rate cut bets for next winter firmly remain intact and that should be an issue for a Fed trying to get inflation somewhere near target.”
Eyes are now on the latest inflation report due next Tuesday. With AFP