Stocks to remain weak ahead of FOMC meeting

STOCKS may move sideways this week with a downward bias as investors wait for the US Federal Reserve meeting, where a rate hike is almost certain, to get a clearer view of the central bank’s pulse on the US economy.

The bellwether Philippine Stock Exchange index (PSEi) gave up 149.18 points or 2.04% to finish at 7,146.27 on Friday.

Week on week, the main index lost 1.39% compared to its 7,247.12 finish last March 3.

The index was dragged lower by losses in holding firms (down 3.51%), while services managed to register a 3% gain, as PLDT, Inc.’s decline was offset by mid-week buying, since investors factored in results for 2016.

Net foreign selling prevailed although at a slower pace at P11 million from the prior week’s P494 million. Losers outnumbered gainers at 98 and 85, respectively.

“Attention will revert to the FOMC’s ( Federal Open Market Committee) meeting this week, even as fund managers have seemingly priced in the possibility of [ a] rate hike. What should be underscored is the extent at which FOMC officials will acknowledge the pace of US economic growth, starting with labor data expansion, said online brokerage 2TradeAsia.com in its weekly market outlook e-mailed to reporters over the weekend.

Fed Chair Janet L. Yellen signaled two weeks ago that the US central bank would likely hike rates at its March 14-15 policy meeting. Rising inflation, together with a tighter labor market, stock market boom and strengthening global economy, has left some economists expecting that the Fed could increase rates much faster than currently anticipated by financial markets.

The US central bank lifted its benchmark overnight rate in December and has forecast three rate increases for 2017.

Expectations the Fed will hike rates this week rose to 92% after the jobs report released last Friday, according to Thomson Reuters data. Nonfarm payrolls rose by 235,000 jobs as the construction sector recorded its largest gain in nearly a decade due to unseasonably warm weather, the US Labor Department said.

“Most investors have already discounted that a rate hike will be announced when the Fed officials convene,” said Luis A. Limlingan, managing director at Regina Capital Development Corp. via text.

Mr. Limlingan said markets will look to other US data due out this week for trading leads, as well as the conclusion of China’s National People’s Congress conclusion and developments in Europe ahead of the Fed meeting.

Also, although US President Donald J. Trump has yet to unveil a more detailed blueprint to execute his economic package this year, investors are seen to remain on the sidelines until fiscal stimulus measures are announced.

“If this view is supported, we may see the greenback strengthening with peer currencies on the reverse side. Most might also track local monetary authorities’ revised stance on borrowing costs, and its effect on listed companies’ earnings growth,” added 2TradeAsia.com. •