Steady inflation data place markets on stable footing

Interest rates in the secondary market, the financial market where issued securities and financial instruments are bought and sold, dropped by 7 basis points week-on-week Friday on the heels of lower inflation numbers released by the government. "With stable inflation data, we are expecting the government to hold rates for the rest of the year amidst uncertainty in world economic recovery. Expect yields to move sideways next week with slight downward bias as demand for government debt remains strong," Jonathan Ravelas, chief strategist of BDO Universal Bank, said in the bank’s weekly outlook on financial and economic indicators. June inflation was at 3.9 percent, compared to market expectations of 4.2 percent and within government’s estimate of 3.8-4.7 percent. Year-to-date average inflation at 4.3 percent is still within government target of 3.5 percent to 5.5 percent for the year. Equities Local stocks rose 3.15 percent week-on-week with the Philippine Stock Exchange index closing at 3394.56 Friday, BDO’s weekly outlook said. Bargain hunters boosted the market after global equities recovered when good US retail sales numbers were announced. Stable June inflation data also helped buoy demand for Philippine stocks as monetary authorities were expected to hold interest rates steady, helping keep the borrowing costs of companies on the low side. Optimism about the administration of President Benigno Simeon Aquino III and positive earnings prospects continue to bolster local equities to levels last seen in 2008, according to Ravelas. "But the state of world economic recovery remains fragile and any negative news will serve as an excuse to sell," Ravelas said. "Expect local market to track world indices especially the United States. Technically, the recovery in the US Dow Jones Industrial Average is just considered a corrective pullback, as markets were oversold. Investors remain vigilant and continue to gauge pace of economic recovery." On the chart, PSE index that closed at 3394.56 on July 9 was a clear signal that Philippine stocks were testing the resistance at 3,450 to 3,500, the weekly report said. "The occurrence of a rising wedge formation – a chart pattern suggesting a near term top – in the daily chart suggests market may peak near the said levels. This is further supported by bearish divergence between the price chart and 14 day RSI. A divergence suggests the market momentum may be waning and prices may be a set-up for a sell. A break of 3,300 levels will suggest test of 3,200 initially." RSI, or Relative Strength Index, is a technical analysis indicator which measures the magnitude of gains over a given time period against the magnitude of losses over that period, according to InvestorWords.com Peso The local currency rose 0.69 percent week-on-week to close at 46.20 as risk aversion waned following the recovery in world stock markets, Ravelas said. "The US dollar also weakened significantly against major currencies especially the euro. From 1.2566 levels last week, EUR/USD is now hovering near 1.2700 levels," he said. "Expect exchange rate to continue tracking movement of dollar against major currencies (this coming)week. On the chart, the week’s close at 46.20 suggests continued range trading between 46.00 and – 46.30, according to the weekly report. —VS, GMANews.TV