JUNE inflation data due tomorrow will likely determine the stock exchange’s direction this week, with analysts saying a lower print could spur follow-through buying and help push the benchmark index toward the 6,200 to 6,400 range.
The Philippine Stock Exchange index (PSEi) climbed 1.91 percent week on ween after closing at 6,188.43 on Friday, with sentiment buoyed by easing oil prices, perceived progress in the US-Iran peace talks and optimism that inflation is trending lower.
Further aiding investor sentiment was the World Bank’s upgrade of the Philippines to upper-middle-income status and stronger factory activity in June as measured by the manufacturing Purchasing Managers’ Index.
But while net foreign selling eased to P171.12 million from P2.1 billion the previous week, trading value was thin, falling 40 percent to P26.52 billion.
Headline inflation eased to 6.8 percent in May from 7.2 percent in April but remained above the Bangko Sentral ng Pilipinas’ 2.0- to 4.0-percent target. The central bank last week said that June inflation could have hit 6.0-7.0 percent amid lower food and fuel prices.
Online brokerage 2TradeAsia.com said expectations of tamer June consumer prices should underpin further gains for the PSEi, with an inflation print below May’s 6.8 percent likely to help the index sustain its advance toward the 6,200-6,400 range.
It noted that the staggered implementation of the recently approved P85 daily minimum wage increase in Metro Manila was not expected to materially affect inflation, although regional wage reviews were said to be worth monitoring.
The brokerage added that sentiment toward risk assets had markedly improved amid easing concerns over further US Federal Reserve tightening, coupled with lower global oil prices as US-Iran peace talks continue.
“With the onset of first-half corporate earnings releases, local banks are seen to be the preferred core-plus play, with earnings anchored on robust net interest margins and write-backs of conservative provisions,” 2TradeAsia said.
Mining stocks are seen benefiting from renewed strength in gold and base metal prices as expectations of a less hawkish Fed are expected to improve demand for these commodities, the brokerage added.
Nonetheless, it advised investors to maintain elevated cash buffers ahead of potential market volatility with the start of Vice President Sara Duterte’s impeachment trial today.
Philstocks Financial Inc. research manager Japhet Tantiangco agreed that market direction this week would largely be dictated by the June inflation outcome, which the brokerage expects to be 6.5 percent.
“If inflation exhibits a decline from the prior month’s 6.8 percent, we may see a positive reaction from the local bourse,” he said.
Tantiangco the inflation outlook had improved amid declining global oil prices, but noted uncertainties surrounding US-Iran negotiations as no permanent resolution had been reached. Talks are on hold for now while Iran observes a week-long memorial and funeral process for its former supreme leader, Ayatollah Ali Khamenei, which runs until Thursday, July 9.
Tantiangco also urged market players to remain cautious, noting that while attractive valuations and recent gains could continue to encourage bargain hunting, downside risks persist.
From a technical standpoint, he said the PSEi has moved above its 200-day exponential moving average after having breached the 6,150-resistance level.
Should the index hold 6,150 points, this could serve as its new support, with the next resistance level at 6,400.