Stocks retreat on Fed caution

Local stocks slid in sync with other markets in Asia yesterday after Wall Street retreated following a chorus of Federal Reserve officials saying that interest rates are set to go higher, capping risk sentiment.

The 30-company Philippine Stock Exchange index (PSEi) closed at 6,842.79, down by 80.29 points or 1.16 percent, while the broader All Shares index slipped by 31.51 points or 0.86 percent to end at 3,643.50.

Total value turnover thinned to P5.62 billion. Market breadth was negative, 112 to 81, while 45 issues were unchanged.

Luis Limlingan of Regina Capital said Philippine equities retreated after foreign investors turned their focus on the latest results of corporate earnings.

Likewise, Unicapital Securities said investors are monitoring major companies that are reporting earnings, looking for indications if prior interest rate hikes have hurt company finances.

Adding to the cautious mood, Fed officials said more interest rate rises are on the cards as the US central bank moves ahead with efforts to control inflation. None hinted though that January’s strong jobs report could drive more aggressive policy actions.

“Now that inflation has passed its peak and many central banks have begun to slow the pace of policy tightening, markets are back to scouring their communications for evidence of what’s to come,” said Jennifer McKeown, chief global economist at Capital Economics.

“But despite the strong push for transparency over the past two decades, central banks are struggling to convey the right message with conflicting data adding to confusion about the inflation outlook in a post-pandemic world.”

On Wednesday, New York Fed president John Williams said moving to a federal funds rate of between five and 5.25 percent “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.”

Governor Christopher Waller said the battle to reach the Fed’s two percent inflation target “might be a long fight.” But Governor Lisa Cook said the big job gains in January with moderating wage growth increased hopes of a “soft landing.”

Investor focus will now switch to the US jobless claims later in the day and inflation data due next week on Tuesday.