US inflation data and the result of a Philippine central bank rate-setting meeting will likely drive the stock market's overall direction this week, analysts said, as these could provide clues as to where interest rates are headed.
The 30-company Philippine Stock Exchange index (PSEi), which has now advanced for three straight weeks, ended 2.1 percent higher week-on-week at 6,850.16 last Thursday.
Last week's shortened trading — Friday was declared a holiday to mark the Lunar New Year — saw the bourse celebrate the Year of the Wood Dragon's start with its highest close in almost a year.
Juan Paolo Colet, managing director at China Bank Capital Corp., said this week's highlight would be the release of the US' January inflation data on Tuesday and the outcome of the Bangko Sentral ng Pilipinas' (BSP) meeting on Thursday.
"The BSP is very likely to keep its policy rate unchanged while maintaining a hawkish tone in view of upside risks to domestic inflation," he noted.
The US inflation figure will influence the "timing of a dovish shift in US monetary policy," Colet said, adding that many market participants do not anticipate the BSP cutting rates before the Federal Reserve.
Online brokerage 2TradeAsia.com said a slowdown in domestic inflation to 2.8 percent in January, the lowest since October 2020, had "strengthened" expectations that the BSP would reduce interest rates this year.
It said the BSP's actions would mirror those of the US central bank, which recently quashed hopes for an earlier-than-expected policy easing.
"Fed comments ... continue to support a mid-year cut, and the BSP is likely to parallel in that regard," 2TradeAsia.com said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort echoed this, saying the BSP could match the Fed rate pause to "maintain healthy interest rate differentials [and] help support and stabilize the peso exchange rate, import prices, and overall inflation."
He said markets had priced in a 19-percent chance of a Fed rate cut as early as next month and a 54-percent likelihood by May.
Philstocks Financial Inc. senior research analyst Japhet Tantiangco, meanwhile, said strong selling pressures could arise this week given the three-week rally.
"The favorable economic data we've recently seen, including the slowdown in inflation last January and the strong December labor force survey results, may help in sustaining the positive sentiment within the market," he continued.
"Wall Street's rally, if sustained, may also continue to provide positive spillovers to the local bourse."
Tantiangco, however, noted that investors would continue to look for further catalysts.
Chart-wise, the stock market's support is expected to be at the 6,700 level while resistance will be at 7,000, analysts said.
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