Stocks up, peso down after Fed hike
MANILA, Philippines — Local equities posted gains on Thursday, tracking a global rally fueled by hopes that the Federal Reserve could slow its pace of inflation-fighting interest rate hikes.
However, the Philippine peso finished weaker, as the fresh rate hike by the US central bank is expected to add more strength to a rallying dollar.
Calm prevailed on the Philippine Stock Exchange, sending the main index up 2.29% to close at 6,379.26. The broader All Shares index, meanwhile, gained 1.61%.
The local bourse joined a global uptrend triggered by the Fed’s decision. On Wall Street, the Dow and S&P rallied and the Nasdaq soared more than four percent — its best one-day rise since late 2020 — as tech firms caught a wave of optimism. The sector is more susceptible to higher rates.
And Asia followed suit, though with more muted gains. Aparat from Manila, Shanghai, Tokyo, Sydney, Seoul, Singapore, Mumbai, Jakarta and Wellington were also well in the green.
But Hong Kong dipped as the city's de facto central bank followed the Fed in lifting rates owing to its currency peg.
London, Paris and Frankfurt were up in the morning.
As expected, the Fed lifted borrowing costs 75 basis points to a range of 2.25 to 2.5 percent, close to the neutral level it considers neither stimulating nor slowing economic growth.
Forecasts have rates going as high as 3.8 percent in 2023, as the bank tries to control runaway inflation.
There is a growing concern that the sharp rise in rates is bearing down on the world's top economy and could send it into recession. In his post-meeting comments, however, Fed boss Jerome Powell said he did not consider that was the case, because "there are too many areas of the economy that are performing too well".
Powell added that officials would not give any guidance on their next move, instead taking each decision on a meeting-to-meeting basis. While he said another "unusually large increase could be appropriate" in September and officials "wouldn't hesitate" to lift by one percentage point, markets took heart from the suggestion that the bank was ready to take its foot off the gas towards the end of the year.
There was a warning that the positive mood likely will not last, however.
"This market move is the victory of hope over experience," Jeffrey Rosenberg, at BlackRock Inc, told Bloomberg Television. "I'd be a little bit cautious here."
And Citigroup's Andrew Hollenhorst and Veronica Clark added that traders appeared to be misjudging Powell's remarks.
"We read Chair Powell's press conference as more hawkish than the market's interpretation," they said, adding that inflation readings excluding food and energy will "push the Fed to hike more aggressively than they or markets anticipate".
Peso down
Meanwhile, the local currency ended at P55.82 against the US dollar on Thursday, weaker than its previous closing of P55.68.
In the past days, the peso has been trading back to the P55-level after the Bangko Sentral ng Pilipinas’ surprise 75-bp rate hike this month. In a statement on Thursday, BSP Governor Felipe Medalla said the latest move by the Fed will continue to pressure the local unit.
“The action of the US Federal Reserve, along with the tightening of global financial conditions and broadening uncertainty over global growth prospects, could continue to drive exchange rate movements in emerging market economies, including in the Philippines,” Medalla said.
“In order to manage the spillover effects of such external developments, the BSP is prepared to utilize the full force of available measures in order to address the potential risks to Philippine inflation and inflation expectations arising from an overshooting or excessive depreciation of the Philippine peso,” he added.
For Jun Neri, lead economist at Bank of the Philippine Islands, the off-cycle rate hike by the BSP was enough to pacify the market for now.
“BSP’s decision to deliver an outsized, unscheduled policy hike on 14 July 2022 appears to have calmed down market participants as it signaled an increased willingness of the monetary authorities to limit inflationary expectations and the spread of second round effects that emanated from supply-side shocks,” Neri wrote in an e-mailed commentary sent to journalists.
“The BSP’s shift from its gradualist tone to a more flexible guidance on the size and timing of future policy decisions appears to have led to a better alignment of the Peso’s decline vs the US dollar vs its Asian peers,” he added. — Ian Nicolas Cigaral with AFP
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