Stocks may drop as BSP holds policy meeting

Philippine stocks could decline further this shortened trading week as the Philippine central bank is set to hold its policy meeting on Monday and amid a lack of fresh catalysts.

On Friday, the benchmark Philippine Stock Exchange index (PSEi) dropped by 1.19% or 81.60 points to close at 6,745.46, while the broader all shares index fell by 0.7% or 25.14 points to end at 3,555.18.

Week on week, the PSEi fell by 2.29% or 158.07 points from the 6,903.53 close on March 27.

“The local bourse started the week strong, hitting above 7,000, but sentiment quickly soured after the release of US Federal Reserve comments plus the Philippine inflation print for March,” online brokerage firm 2TradeAsia.com said in a market note.

Federal Reserve officials including US central bank chief Jerome H. Powell on Wednesday continued focusing on the need for more debate and data before interest rates are cut, a move financial markets expect to occur in June, Reuters reported.

“Recent readings on both job gains and inflation have come in higher than expected,” Mr. Powell said in a speech to the Stanford Graduate School of Business. While policy makers generally agree that rates can fall later this year, he said this will happen only when they “have greater confidence that inflation is moving sustainably down” to the Fed’s 2% target.

Meanwhile, Philippine headline inflation quickened to 3.7% year on year in March from 3.4% in February. This was slower than the 7.6% clip in the same month last year.

March inflation was within the Bangko Sentral ng Pilipinas’ (BSP) 3.4-4.2% forecast for the month. This was also slightly below the 3.8% median estimate in a BusinessWorld poll of 17 analysts and marked the fourth straight month that inflation was within the BSP’s 2-4% target range.

For the first three months, inflation averaged 3.3%, below the BSP’s 3.6% forecast for this year.

This week, the PSEi could take cues from the BSP’s policy meeting on Monday, Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“While policy rates will most likely be held at current levels, investors are expected to watch out for the BSP’s cues on their policy outlook. Cues of prolonged monetary tightening are expected to dampen sentiment, while cues of rate cuts are expected to do the opposite,” Mr. Tantiangco said.

“With last week’s decline, bargain hunting opportunities are seen. However, with the bearish factors at play, and the lack of a positive catalyst, we may not see a strong rally yet from the market. A further decline for the bourse is still possible,” he added.

Mr. Tantiangco put the PSEi’s major support at the 6,700 level.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort placed the PSEi’s immediate minor support at 6,630-6,700 and immediate major support at 6,360-6,500.

2TradeAsia.com put immediate support at the 6,800 level and resistance at the 7,000 level. — R.M.D. Ochave with Reuters