Market direction tied to Jan inflation result

Trading decisions this week are expected to be influenced by inflation data due tomorrow, Feb. 7, with sentiment likely to be boosted should consumer price growth slow from December’s 14-year high.

The Philippine Stock Exchange (PSEi) closed last Friday with a 41.19-point or 0.59-percent gain to 7,027.38 due to last-minute bargain hunting. The broader All Shares as it also went up by 21.68 points or 0.59 percent to 3,705.46.

“This week, investors are expected to take cues from the Philippines’ January consumer price index (CPI),” Philstocks Financial Inc. senior research analyst Japhet Tantiangco said, noting that inflation remains the biggest risk to economic growth.

“An inflation rate near the upper end of the BSP’s 7.5 – 8.3 percent projection may pull the local bourse down, while a print biased to the lower end of the forecast may spur optimism,” he added.

Surging inflation, which culminated in a 14-year high of 8.1 percent in December, prompted monetary authorities to hike the BSP policy rates by a total of 350 basis points in 2023. Rate hikes will again be considered on Feb. 16.

Tantiangco said that unemployment data due the next day, Feb 8, could also provide clues as to the economy’s health.

The stock market is still having “a hard time getting past its 7,000 – 7,100 resistance range”, he added, as it remains weighed down by the lack of strong catalysts and lingering economic concerns

Online brokerage 2TradeAsia also expects inflation to set the tone for trades this week, saying “January’s inflation reading would not only be crucial for reading Bangko Sentral ng Pilipinas’ behavior for its next rate move but it will also reveal inflation drivers that may persist until the beginning of summer of 2023 and may therefore push expectations of consumer confidence recovery later in the year.”

“Still the Federal Reserve easing back on rate hikes to 25 basis points should offer medium-term reprieve,” it added, referring to the US central bank’s decision last week to limit its tightening given a slowdown in US inflation.

2TradeAsia said investors should still expect interest rates to remain elevated as macro indicators have shown little to no evidence of a lowering anytime soon.

“This quarter’s earnings season should open this week, with several Ayala companies being at the helm, such as Globe,” it added.

“That being said, earnings confirmation over the short term may force participants to break from this broad-based exuberance in favor of asset-specific fundamentals. Range trade.”

2TradeAsia said support would be at 6,800-6,900 and resistance at 7,200.

For Rizal Commercial Banking Corp. chief economist Michael Ricafort, resistance remained at 7,100 levels — the next gateway prior to further upsides such as a potential re-test of the 7,552.20 pandemic high posted on Feb. 9, 2022.

“For support levels, the immediate major support levels that will help keep intact the underlying upward momentum since December 19, 2022 will be at the 6,650-6,750 levels,” Ricafort added.

In addition to inflation and employment, he said investors would also be looking at January gross international reserves data also due on Feb. 7.

“For upcoming US economic catalysts, there will also be a lot, with the main event being Federal Reserve Chairman Jerome Powell’s interview at the Economic Club of Washington on Feb. 7 (Wednesday, Manila time),” Ricafort added.