February inflation expected to determine market direction

According to analysts, the direction of the stock market this week could be largely influenced by inflation data for February, which is due tomorrow.

The Philippine Stock Exchange Core Index (PSEi), which managed to show positive results for three consecutive days last week, still closed 0.45% lower than the previous week.

It has now fallen for five consecutive weeks, and investors are said to have been alarmed at the prospect of higher inflation and continued hikes in interest rates.

“[T]The local market is expected to take into account our upcoming February CPI data,” said a senior analyst at Philstocks Financial Inc. Japhet Tantiangco.

“February inflation, which is below January’s 8.7%, could lift the spirits in some way as it could lead to a less hawkish stance on the part of the Bangko Sentral ng Pilipinas (BSP),” he added.

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“However, higher-than-January inflation in February could send the market down as it strengthens the case for another aggressive move by the local central bank.”

Inflation reached a new 14-year high of 8.7 percent in January, prompting the monetary authorities to order a 50 basis point hike, pushing the BSP discount rate to a nearly 15-year high of 6.0 percent.

BSP said last week that inflation could rise to 9.3 percent in February due to “increasing price pressures… due to higher prices for LPG (liquefied petroleum gas) as well as higher prices for basic foodstuffs such as pork, fish, eggs and sugar.”

Any easing could be capped at 8.5%, he added, likely due to lower prices for auto fuel, fruits and vegetables, chicken and beef, and a stronger peso.

Tantiangco said the market could test a return to 6800 with support at 6600.

Online brokerage 2TradeAsia.com noted that the BSP forecast of 8.5% to 9.3% “has already triggered cyclical alarms and made market trading volatile over the past few sessions.”

However, he noted that “despite macroeconomic headwinds, company-specific results and forecasts are mostly optimistic, based on overall earnings so far… [and planned] capital investment,” he added.

“However, pricing for 2023 models is expected to be subject to potential margin cuts in the first half of this year.”

This week’s data releases – January employment data to be released on Thursday and foreign direct investment results, among other things, to follow a day later – are likely to spark another round of volatility as euphoria from Q4 2022 to January 2023 passed. This is stated in the message 2TradeAsia, which gave way to concerns about the next two quarters.

“We suggest investors trade in a range knowing that growth stories are basically unchanged in the long term and will be there when rates come back to the ground,” he added.

“Immediate support is at 6400-6500. Resistance is at 6750-6800.”

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