Stocks bounce back on prospects of less hawkish Fed

MANILA, Philippines — The local stock market recovered yesterday, ending two straight days of decline, as positive economic data and anticipation of a rate pivot by the US central bank lifted investor sentiment.

The benchmark Philippine Stock Exchange index (PSEi) closed at 7,035.76, vaulting up 242.51 points or 3.57 percent,  while the broader All Shares index rose by 96.77 points or 2.70 percent to finish at 3,687.17.

All sectors recovered as well, services, holding firms and property among the biggest gainers.

Total value turnover reached P8.987 billion. Market breadth was hugely positive, 143 to 49, while 43 issues were unchanged.

Japhet Tantiangco of Philstocks Financial said the local bourse bounced back strongly on the back of robust  economic data.

“For January 2023, the S&P Global Philippines Manufacturing PMI stood at 53.5, higher than the prior month’s 53.1,” he said.

He said bank lending in the Philippines was also up by 13.4 percent year on year, based on December 2022 data.

Stocks across emerging Asia likewise advanced as investors awaited the US Federal Reserve’s policy decision to gauge whether it is nearing the end of its interest rate-hike cycle.

While the Fed’s rate decision is a key event, Fed Chair Jerome Powell’s news conference afterwards will take the limelight, as investors will look for signs on the central bank’s trajectory for future policy decisions.

“The focus is that when the Fed will start the rate cut cycle, and whether the central bank will change its stance on ‘higher for longer’ guidance,” said Tina Teng, markets analyst at CMC Markets.

“Though a sooner Fed pivot is sceptical, market participants are probably pricing in a less hawkish Fed on the back of cooling inflation and a deteriorating economic outlook.”

Interest-rate markets have priced in a slowdown in the cracking pace of rate hikes, with Wednesday’s expected 25-basis-point (bps) hike seen bringing the Fed funds rate target range to 4.5-4.75 percent.

Barring surprises, the focus will be on Powell’s tone. Investors will be trying to gauge whether and how hard he pushes back on market pricing for rate cuts beginning as soon as the second half of this year.