More volatility ahead as focus turns to Fed meet

ALL EYES will be on the Federal Reserve policy meeting later this week as markets worldwide await if the United States central bank will begin normalizing its monetary policy.

Coming off its seventh consecutive week of decline, the benchmark Philippine Stock Exchange index (PSEi) may be vulnerable to more selling pressure in the days leading to the Federal Open Market Committee (FOMC) meeting, analysts said. The local barometer fell 140.40 points or 1.99% to end the prior week at 6,911.38.

Caution dominated the local market last week in the run-up to this week’s FOMC meeting, with equity analysts saying that investors have already priced in a rate hike at the close of the two-day policy review on Sept. 17.

“Investors have been discounting a rate increase so hopefully going forward, with that out of the way, the market will reduce volatility and investors will gain some confidence,” Jose A. Vistan, Jr., research head at AB Capital Securities, Inc., said by phone.

Global financial markets may be hit with bouts of increasing volatility and if the US central bank eventually decides to raise interest rates, investors will need answers on the duration, the amount of the step-up and target rate, Jason T. Escartin, investment analyst at F. Yap Securities, said in an e-mail.

A delay in the first interest rate hike since 2006, however, is not yet out of the woods as some investors bet that the Fed will weigh the impact of China’s surprise devaluation of its currency and economic slowdown on the US.

FOMC members base their decisions primarily on the jobs market and inflation. The former has been strong, the unemployment rate falling to 5.1% in August, the lowest since April 2008. Inflation, which the Fed wants to see climb to around 2% as a sign of steady economic growth, has sagged.

“The question is will the market be happy [if the rate hike is pushed back]. Some are saying ‘we know it’s going to happen so just do it.’ If it doesn’t happen, the market may be disappointed,” COL Financial Group, Inc. Head of Research April Lynn L. Tan said in an interview.

Cautious and sentimentdriven trading may be seen, with the bellwether PSEi expected to move between 6,810 and 7,080 with a downward bias, BPI Asset Management said in a report.

Technical reading on the PSEi remains weak, with the main gauge trading below its 200-, 100- and 30-day simple moving averages, F. Yap Securities’ Mr. Escartin said.

“Corrective pressures are expected to persist this week as various technical issues increase the bearishness on the PSEi’s shortterm trend,” Luis A. Limlingan, business development head at Regina Capital Development Corp., said in a text message.

Prices need to stage a bounce and overcome resistance at 7,110 to confirm its higher low pattern and set up for a reversal,” Mr. Limlingan said. — with AFP