Markets rally as US Fed hints of end to rate hikes

The local financial markets rallied yesterday on speculation the US Federal Reserve may soon end a series of interest rate increases and after global oil prices fell to a three-week low.

The Philippine Stock Exchange (PSE) composite index surged 63.83 points, or three percent, to close at 2,247.40, its biggest gain since June 30. Yesterday’s advance brings the index’s gain this month to 3.1 percent.

Similarly, the peso gained by a strong 45.50 centavos to close at 52.29 from Wednesday’s close of 52.745 to a dollar.

The peso opened strong at 52.55 to the dollar and continued to gain quickly throughout the day, tracking the movements of other regional currencies after several days of losses. Trading volume was heavy at $588.5 million on an average rate of 52.383 to $1.

"There is optimism that the saga of interest rate increases in the US will soon come to an end,’’ Tynee Tan of the trust department of Rizal Commercial Banking Corp. (RCBC), said. "Sentiment is also getting a boost from the retreat in oil prices."

For his part, Banco de Oro strategist Jonathan Ravelas said yesterday’s climb may not be sustained unless the conflict between Israel and Lebanon, which pushed oil prices to a record high last week, is resolved.

"This is just a dead cat’s bounce," Ravelas said. "As long as the Middle East conflict isn’t settled, there will be risks on oil prices and inflation."

US Federal Reserve chairman Ben S. Bernanke signaled in a testimony to the US Senate that the central bank may be almost finished raising rates after two years of increases.

The Fed has hiked US interest rates 17 times running but opinion on Wall Street is evenly divided about what action the bank will take at its next meeting on Aug. 8. The Fed funds rate is currently pegged at 5.25 percent.

Separately, crude oil for August delivery fell 1.2 percent to $72.66 a barrel in New York, the lowest close since June 28.

The Bangko Sentral ng Pilipinas (BSP), on the other hand, said it was not surprised that the peso was resisting the volatility that would otherwise have been triggered by escalating violence in the Middle East.

BSP Deputy Governor Diwa Guinigundo told reporters that the peso was grounded on firm economic fundamentals, allowing it to resist outside pressures that in the past would have shaken the currency to its core.

"If this had happened, say, four years ago, the picture would have been dramatically different," Guinigundo said.

According to Guinigundo, the peso was also being supported by the country’s strong reserve position which sends a constant signal to the market that speculative attacks on the currency would not be tolerated by monetary officials.

Emerging market

The Philippines, which imports most of its oil, also relies on the US for its biggest source of overseas Filipino workers’ remittances.

"The US is the world’s biggest economy and emerging markets like ours follow its direction,’’ Tan said.

Philippine Long Distance Telephone Co. (PLDT), the country’s largest phone company, jumped P75, or 4.1 percent, to P1,900, its biggest gain since July 4.

Bank of the Philippine Islands surged P3, or 6.1 percent, to P52, its biggest gain since June 30.

Ayala Corp., owner of the country’s largest builder, the country’s second-biggest lender, and the No. 2 Philippine mobile- phone provider, added P20, or 5.3 percent, to P400, bringing this week’s gain to 1.9 percent.

Jollibee Foods Corp., the country’s largest fast-food company, rose P1.50, or 4.9 percent, to P32, its first gain in seven sessions.

Shares worth P1.16 billion were traded, 37 percent less than the six-month daily average. Gainers beat losers 59 to 12, with 50 stocks unchanged.