Fed cut anticipation may keep PSEi above 7,000

Philippine shares may stay at the 7,000 level this week as the US Federal Reserve is expected to cut rates for the first time in over four years.

On Friday, the Philippine Stock Exchange index (PSEi) inched down by 0.02% or 1.82 points to end at 7,022.85, while the broader all shares index declined by 0.08% or 3.02 points to close at 3,788.63.

Still, week on week, the PSEi ended 86.76 points or 1.25% higher than its 6,936.09 finish on Sept. 6, marking its second straight week of gains.

“Momentum favored local equities ahead of what is likely the Fed’s first rate cut since March 2020. The PSEi closed above the 7,000 level for the first time since February 2023,” online brokerage 2TradeAsia.com said in a market note.

For this week, the expected Fed cut at its Sept. 17-18 meeting is expected to give Philippine shares a lift, Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“[This] week, the market may continue to test the validity of its breach of the 7,000 level. Taking the center stage would be the Federal Reserve’s policy decision and outlook. A policy rate cut by the Fed together with hints of further easing moving forward is expected to fuel optimism at the local front since this would give the Bangko Sentral ng Pilipinas more room to ease their policy, too,” Mr. Tantiangco said.

The Federal Reserve is nearly as likely to deliver an outsized interest-rate cut this week as a more-usual-sized reduction, trading in rate-futures contracts suggested on Friday, as financial markets priced in a bigger chance that the Fed will move more aggressively, Reuters reported.

A quarter-point reduction at the Fed’s Sept. 17-18 meeting is still seen as the slightly more likely outcome, but only marginally so.

Futures tied to the Fed’s policy rate now reflect about a 47% chance that the Fed will cut its policy rate, currently in the 5.25%-5.5% range, by a half of a percentage point. That’s up from about 28% on Thursday.

“The local currency’s strengthening against the dollar, if it continues [this] week, is also expected to help the local bourse,” Mr. Tantiangco added. “Chart-wise, if the market holds ground at 7,000, its trading range is seen from 7,000 to 7,150.”

On Friday, the peso ended at PHP 55.995 per dollar, rising by 20.50 centavos from its PHP 56.20 close on Thursday, Bankers Association of the Philippines data showed.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the PSEi’s next resistance is its Sept. 10 intraday high of 7,109.75, while its immediate minor support level is at 6,835-6,940.

2TradeAsia.com put the market’s immediate support at 6,900 and resistance at 7,100-7,200.

“With macro and corporate data moving positively along a similar direction, volumes should be aided by institutional funds edging back into risk after consecutive quarters of being harrumphed by either tight capital environment or limited growth play options,” it said. — R.M.D. Ochave with Reuters