Rate cut anticipation to fuel stock market’s rally

Philippine Shares could extend their climb this week in anticipation of the expected interest rate cut from the Bangko Sentral ng Pilipinas (BSP) by next month and as more firms report their latest financial results.

On Friday, the Philippine Stock Exchange index (PSEi) jumped by 1.29% or 86.68 points to finish at 6,791.69, while the broader all shares index increased by 0.69% or 24.97 points to close at 3,627.83.

This was the PSEi’s best finish in over three months or since it closed at 6,827.06 on April 4.

Week on week, the bellwether index surged by 2.16% or 143.46 points from its 6,648.23 finish on July 12, marking four consecutive weeks of gains.

“Bulls continued to sustain momentum, zooming past 6,700, carried by optimistic expectations on policy rates,” online brokerage firm 2TradeAsia.com said in a note.

“We continue to see a buildup in positive momentum for the local bourse as it extended its rally to a fourth straight week. The local market has also gotten past the 6,700 level, which was previously considered as a resistance. Its 50-day and 200-day exponential moving averages are about to form a golden cross. Finally, value turnover, whilst still tepid, is seen to be improving compared to previous weeks,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

For this week, Mr. Tantiangco said the market could initially decline as investors pocket their gains from the PSEi’s recent rally. “However, at its current level, the local market is still deemed to be fundamentally undervalued. Hence, long-term investors may also take positions this week.”

“The market could still be able to post gains this week with optimism driven by hopes of a rate cut by the BSP soon and anticipation of second-quarter corporate results,” Mr. Tantiangco said.

BSP Governor Eli M. Remolona, Jr. last month said the Monetary Board may deliver its first rate cut in over three years at its Aug. 15 review — the only policy meeting scheduled in the third quarter — as they expect inflation to continue easing this semester.

The Monetary Board could reduce borrowing costs by 25 basis points (bps) in the third quarter and by another 25 bps in the fourth quarter, he said.

The BSP last month kept its policy rate at a 17-year high of 6.5% for a sixth straight meeting after raising interest rates by 450 bps from May 2022 to October 2023.

“The local currency, if it strengthens further against the US dollar and Wall Street, if it continues to post record performances, are also expected to provide aid to the bourse,” Mr. Tantiangco added. He put the PSEi’s support at 6,700 and resistance at 7,000 for this week.

2TradeAsia.com placed the PSEi’s immediate primary support at 6,650, secondary support at 6,500, and resistance at 7,000.

“The PSEi made a stopping point just a touch south of a strong resistance point in 6,800. It would be a relatively tall order to break this level,… but so far, the macro backdrop plus corporate fundamentals are backing lofty ambitions towards 7,000,” it said. — R.M.D. Ochave