Stocks extend losses on rate hike worries

Share prices extended their losses yesterday as the Bangko Sentral ng Pilipinas (BSP) signaled more rate hikes this year in a bid to neutralize stubborn inflation, which clocked in at a 14-year high last month.

The 30-company Philippine Stock Exchange index or PSEi shaved off 36.89 points or 0.54 percent to finish at 6,779.02 while the broader All Shares index fell to 3,621.69, down by 17.39 points or 0.48 percent.

BSP Governor Felipe Medalla hinted of another rate hike between 25 to 50 basis points in the next Monetary Board meeting next month, following a hefty 50-bps increase last Thursday which was in response to a surprising 8.7 percent inflation print in January.

Asian bourses likewise plunged as investor sentiment was dampened after a slew of strong economic data in the US reignited fears that the Federal Reserve would continue hiking interest rates in the future.

Data from US Labor Department overnight showed monthly producer prices had accelerated in January, while a separate report from the agency showed the number of Americans filing new claims for unemployment benefits had unexpectedly fallen last week.

“The rally in local markets has taken a pause as stronger-than-expected US growth-inflation dynamics have revived concerns over an extended rate-hike cycle. In our view, they are insufficient conditions to derail local markets performance in a more durable manner,” analysts at ANZ wrote in a client note.

“No matter how you cut it, (US) inflation was hot,” said Tapas Strickland, head of market economics at National Australia Bank. “The latest data supports the Fed view of needing to continue to raise rates and hold them there higher for longer.”

Two Fed officials said on Thursday the US central bank probably should have lifted interest rates more than it did early this month, and they warned that additional rises in borrowing costs were essential to lower inflation back to desired levels.

But since then economic data has pointed to a tight labor market and sticky inflation keeping the pressure on the central bank to remain on its tightening path.

“After the CPI (consumer price index) report this week brought back concerns on the pace at which inflation is cooling, January PPI (producer price index) also saw a hotter than expected print,” Saxo Markets strategists said.