The stock market is likely to weaken this week after US jobs data showed promising results, raising speculations that the Federal Reserve will hike its key interest rates, prompting some investors to dump their shares in exchange for safer investment in the bond market.
Alexander Adrian Tiu, senior analyst at AB Capital Securities Inc. in a phone interview, said that the local bourse’s performance this week would heavily depend on the US jobs data, which was released after the local market closed last Friday.
“The result of the US nonfarm payrolls is very important insofar as investors are concerned. Should it result in higher employment, then it could increase speculations that the Fed would likely increase their key interest rates,” Tiu said.
He added that an upward adjustment by the Federal Reserve would result in stronger dollar versus the peso.
Tiu explained that should the Federal Reserve, which is set to meet on March 16 and 17, opt to increase its rates as a result of a more robust nonfarm payroll result, more and more investors are likely to shift their interest from the equities market to the US bond market, which generally promises safer but higher yields.
In February, nonfarm payrolls increased by 242,000 jobs and 30,000 more jobs were added in December and January than earlier reported, the US Labor Department said last Friday.
The nonfarm data, Tiu said, is one of the main indicators of the US economy’s readiness for a rate hike. Thus, the more positive it becomes, the more likely the Federal Reserve would be to adjust its key interest rates upward.
On Friday, the benchmark Philippine Stock Exchange Index (PSEi) dropped by 0.92 percent or 64.37 points to close at 6,899.07, while the wider All Shares declined by 0.54 percent or 21.61 points to finish at 3,986.66.
“There were a lot of profit-takers during last Friday’s trading, they [investors]are positioning themselves ahead of the US non-farm data. In addition, it was also a result of the two-day rally during the middle of the week,” he explained.
Other news that would determine the local bourse’s performance this week is the country’s manufacturing data, which is scheduled for release on Thursday.
With respect to offshore news, Tiu said that investors are awaiting the European Central Bank’s new stimulus measures this week, which may include further cut in its interest rates and increasing its monthly bond purchases.
Last week, the PSEi gained 128 points up at 6,899 or 1.89 percent week-on-week, mainly propelled by holding firms with a gain of 5.3 percent, property companies with 4.78 percent, and the mining and oil sector picking up 4.34 percent.
The average total value turnover for the week advanced by 58 percent to P7.7 billion, while foreign investors were net buyers at P280 million. Winners prevailed over losers, 97 to 80.
“The first two trading days [this week]will be crucial because the index’s movements during that timeframe will dictate its trend direction for the next two to three weeks,” Luis Limlingan, managing director at Regina Capital Development Corp., said.
Limlingan noted that a convincing breach above 6,950 will allow further rallies toward psychological resistance of 7,000, extending to as high as 7,120 for the week, adding that “If technical weaknesses from MACD/DMI (moving average convergence-divergence/ directional movement index) are fixed, upside could even reach 7,300.”
“On the other hand, a continuous decline below trendline resistance [6,900] will pull prices towards 6,700 support. With an upward channel already established, a range trade strategy is raised while maintaining caution due to weak technical momentum and the threat of selling pressure as index draws near resistance,” he said.