Stocks retreat ahead of expected US Fed pause

MANILA, Philippines — Local stocks retreated yesterday as investor sentiment soured following a sharp drop in foreign direct investments (FDI), bucking a global equities uptrend as traders were all but certain that the US Federal Reserve will refrain from hiking interest rates later in the day.

The benchmark Philippine Stock Exchange index (PSEi) closed at 6,434.06, down by 73.20 points or 1.12 percent, while the broader All Shares index slipped to 3,437.04, down by 30.21 points or 0.87 percent.

Claire Alviar of Philstocks Financials said the local bourse slipped as the lower net FDI inflow to the Philippines weighed on sentiment.

FDI net inflow to the Philippines dropped by 30.7 percent year-onyear in March, while in the first quarter, net inflow declined by 19.60 percent. Lower FDI net inflow dampened investor sentiment as this may have negative spillover effects in the economy, such as slower economic growth and reduced consumer spending if this continues to decline.

Total value turnover reached P11.452 billion. Market breadth was negative, 118 to 72, while 41 issues were unchanged. In the US, the much-watched CPI report showed prices barely rose in

May, with just a 0.1 percent increase from the prior month. On an annual basis, consumer prices rose by four percent , the smallest in more than two years, slowing from April’s 4.9 percent.

That has crystallized traders’ views that the Fed is unlikely to hike rates later on Wednesday. They now see more than a 90 percent chance of the bank staying put.

“Having already flagged the possibility of a pause I think it’s unlikely that (the Fed) would veer off course at this particular juncture,” said Richard McGuire, head of rates strategy at Rabobank in London.

“They do clearly appear to be  approaching this on a somewhat cautious basis given the elevated level of uncertainty. The CPI data yesterday was pretty much bang in line so nothing there to challenge this outlook.”

“We think it will be a hawkish pause as the Fed emphasizes that the hiking cycle might not be done. Whether the pause turns into a skip will depend on incoming data,” said Eugene Leow, senior rates strategist at DBS Bank.