Shares down on inflation estimate, Fed worries

STOCKS continued to decline on Wednesday as the Philippine central bank said inflation may breach 5% in May and amid expectations of aggressive tightening by the US Federal Reserve.

The benchmark Philippine Stock Exchange index (PSEi) fell by 62.47 points or 0.92% to close at 6,712.21 on Wednesday, while the broader all shares index dropped by 17.13 points or 0.47% to 3,589.78.

“Philippine shares closed the session in the red, underscoring fears that high inflation is weighing on economic growth,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

“The local market extended its decline this Wednesday as the BSP’s (Bangko Sentral ng Pilipinas) projection of a faster inflation in May dampened sentiment,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco added in a Viber message.

May inflation may have reached between 5% and 5.8%, BSP Governor Benjamin E. Diokno said on Tuesday. This is well above the 2-4% target of the central bank for this year.

The consumer price index last hit the 5% level in December 2018 and stood at 5.2% that month.

May inflation data will be released by the Philippine Statistics Authority on June 7. Headline inflation was at 4.9% in April, the highest in more than three years.

Regina Capital’s Mr. Limlingan said that June also marks the start of the Fed’s plan to reduce its balance sheet.

“Supply pressure might prevail, as sentiment glides to Wall Street’s weakness, given a Fed official’s comment on how the Fed should consider raising interest rates,” online brokerage 2TradeAsia.com said in a report.

The Fed begins shrinking asset holdings built up during the pandemic on Wednesday. Traders expect it will raise rates by 50 basis points at meetings this month to make a dent in an inflation rate running more than three times its goal, Reuters reported.

Fed Governor Christopher Waller on Monday said he is advocating to keep 50-bp rate hikes on the table until substantial reductions are seen in inflation, winding back expectations that the Fed might pause for breath after hikes in June and July.

Back home, majority of the sectoral indices ended in losses, except for mining and oil, which climbed 113.64 points or 0.95% to 12,033.86, and property, which gained by 6.04 points or 0.19% to 3,055.66.

Meanwhile, financials declined by 25.04 points to 1.51% to 1,633.58; industrials gave up by 137.81 points or 1.47% to end at 9,213.78; services dropped by 20 points or 1.06% to 1,850.55; and holding firms went down 37.40 points or 0.59% to 6,253.76.

Decliners outnumbered advancers, 108 versus 76, while 46 names ended unchanged.

Value turnover went down to P5.98 billion with 659.26 million shares changing hands from the P35.71 billion with 2.17 billion issues seen the previous trading day.

Net foreign selling increased to P552.88 million on Wednesday from P232.01 million on Tuesday. — Luisa Maria Jacinta C. Jocson with Reuters