THE Philippine stock market could struggle to sustain last week's rebound as investors weigh easing inflation against lingering geopolitical and economic uncertainties.
The benchmark Philippine Stock Exchange index (PSEi) closed at 5,938.38 last Friday, climbed 2.94 percent week-on-week as bargain hunting lifted oversold stocks after inflation slowed more than expected in May.
The market drew support from the inflation reading of 6.8 percent, down from April's 7.2 percent and below market expectations, easing concerns that the Bangko Sentral ng Pilipinas (BSP) could deliver an off-cycle interest rate hike.
Online brokerage 2TradeAsia.com said investor attention was on monetary policy signals from both the BSP and the US Federal Reserve, particularly ahead of the latter's June 16-17 meeting under new Fed Chairman Kevin Warsh.
The BSP will hold its own policy meeting on June 18.
2TradeAsia said markets remained caught between moderating inflation and persistent concerns over elevated borrowing costs, geopolitical tensions and slowing consumer demand.
While the decline in headline inflation is encouraging, it warned that key components such as food, housing and clothing costs continued to rise, suggesting remaining underlying price pressures.
"A single data point does not trend make," 2TradeAsia said, adding that portfolios should remain positioned for elevated costs and subdued consumer confidence heading into the third quarter.
Japhet Tantiangco, research manager at Philstocks Financial Inc., said the market's momentum was largely driven by bargain hunting following the softer inflation print.
However, the sustainability of the rally remains uncertain as investors continue to monitor developments in the conflict between the United States and Iran.
"Inflation rate slowed down from April's 7.2 percent to May's 6.8 percent, a development positively welcomed by the market. Still, the latest print remains above the government's 2- to 4-percent target. Hence, monetary policy tightening may still be on the table," Tantiangco said.
He added that while the peso also improved slightly against the dollar, it remains weak and could continue to influence market sentiment. Further appreciation may support equities while renewed depreciation could weigh on the bourse.
Tantiangco also cited the unstable situation in the Middle East, saying renewed military exchanges between the US and Iran have clouded prospects for a peace agreement and could trigger another bout of market volatility.
From a technical standpoint, he said the market remained in a downtrend despite last week's advance as the index continues to struggle against its 50-day exponential moving average and the 6,000 resistance level.
"Strong catalysts, particularly ones that point to a further slowdown of inflation and a re-acceleration of economic growth, are needed for the market to break out of its current resistances with conviction," Tantiangco said.
For the week ahead, investors are expected to monitor April labor force data and March foreign direct investment figures for additional clues on the health of the economy.
The BSP will release FDI data this Wednesday while the employment results will be issued by the Philippine Statistics Authority on Tuesday. NAZYLEN JOY MABANGLO
