Market to take cue from Fed, GDP figure

MANILA, Philippines — The local stock market may take its cue from Wall Street, which capped off on Friday the worst weekly drop for the S&P 500 since the start of the pandemic, as investors have grown increasingly worried about rising inflation and how aggressive the US Federal Reserve might be in raising interest rates to tamp it down.

The benchmark Philippine Stock Exchange index or PSEi, however, closed 0.44 percent higher week-on-week at 7,293 last Friday.

“The Federal Reserve’s first round of policy meeting this year on Jan. 25 to 26 is likely to pull focus (this) week. Markets have already started to move in anticipation of a tightening: US Treasury yields have jumped to two-year highs with 10-year yields at 1.8 percent; the greenback has gained momentum and equities are discounting the tighter monetary environment,” 2TradeAsia said in a market commentary.

It added higher rates may also prompt outflows out of emerging markets in Asia, as regional central banks now have to contend with parities versus the Fed, on top of inflation worries of their own.

Fed funds futures traders are fully pricing in a 25 basis point hike in March, in addition to three more rate increases by year-end.

“There’s still this debate in the share price about how much the Fed is going to raise and how fast. If the Fed backpedals then the rally we’ve been seeing here may slow,” said Steve Comery, a research analyst at GAMCO Investors.

On the local front, 2TradeAsia said investors would be keeping a close watch on economic performance for the fourth quarter of 2021 to be released on Thursday, Jan. 27.

“While it is expected to tilt on the higher side from 7.1 percent in the third quarter despite the reimposition of ECQ in August, courtesy of relaxed quarantine measures versus the same period in 2020, the Omicron variant creeping in the late fourth quarter to date will skew the outlook for the next print,” 2TradeAsia said.

The spread of the Omicron variant may likewise affect first quarter economic numbers for 2022.

Against this backdrop, as well as the tightening of the US Fed, 2TradeAsia said that market investors could simply embark on dynamic and diversified trading strategies.

“Hedging exposure may be warranted in the near to medium term, especially against rate-sensitive sectors and issues with highly leveraged balance sheets,” it said.

For this week, 2TradeAsia sees immediate support at 7,200 and resistance at 7,400.