INVESTORS are expected to take their cues from key economic releases this week, with July inflation and second-quarter gross domestic product (GDP) figures likely to determine the stock market’s near-term direction amid the continuing earnings season.
The benchmark Philippine Stock Exchange index (PSEi) ended July on a weak note, slipping 0.71 percent week on week to 6,236.44, as cautious sentiment and declines in index heavyweights offset gains in mining and oil shares.
Foreign investors, however, returned as net buyers after posting P178.11 million in net purchases during the week.
Philstocks Financial Inc. and online brokerage 2TradeAsia.com said this week’s inflation and GDP releases would be closely watched for clues on the domestic economy and the Bangko Sentral ng Pilipinas’ policy outlook.
Philstocks research manager Japhet Tantiangco noted that June headline inflation eased on the back of softer oil prices and improved food supply although core inflation continued to climb,
“A slowdown of both [headline and core inflation in July] is expected to bring optimism in the bourse. A sustained increase in core inflation is expected to be a cause of concern. An increase in both is expected to bring pessimism,” Tantiangco said.
2TradeAsia likewise said July inflation and second-quarter economic growth could influence the BSP’s interest rate path, noting that regional central banks are also expected to continue taking cues from the US Federal Reserve, which held off from raising interest rates last week.
The brokerage said that continued volatility in oil prices supported the case for a possible Fed rate hike in September, keeping interest rate expectations elevated.
Economic growth will also be under the spotlight after the Philippine economy expanded at a multi-year low in the first quarter.
Tantiangco said a meaningful second-quarter rebound could lift investor sentiment while another slowdown may put further pressure on the market.
Beyond domestic data, investors are also expected to continue monitoring developments in the Middle East.
Tantiangco said any escalation in the US-Iran war that drives global oil prices higher could weigh on the local market by reviving inflation concerns.
As earnings season continues, meanwhile, 2TradeAsia advised investors to remain selective.
The brokerage also recommended a defensive strategy by reducing exposure to policy-sensitive power distribution utilities amid regulatory uncertainty over system loss charges, while favoring banks that could benefit if interest rates remain higher for longer.
