The week ahead

These are bleak times on the PSEi. After teasing a breach of the 6,350 support level for several days, it finally punched through with an emphatic down day. We are back to where we were in November of last year.

> PH:  The big thing on my list is the BSP interest rate announcement on Thursday morning. We also get VREIT’s Q1 dividend payment on Thursday, and then PREIT’s Q1 dividend payment on Friday.

> International:  Nothing on the schedule!

MB BOTTOM-LINE: This is a week where the stock market itself is going to be the focus of our attention. We’ve had eight straight days of losses, which correlate to eight straight days of net foreign selling. During that time the PSEi has dropped over 5.5% and foreign investors have pulled approximately ?4 billion out of the market. The big question is whether the BSP will lower rates for the first time since the inflation crisis began and beat the US Federal Reserve in being the first of the two central banks to pivot away from a “tightening/increasing” framework to a “loosening/decreasing” one. The strength of the US job market and the “stickiness” of its CPI values have softened expectations that the US Federal Reserve will begin cutting rates at its next meeting, but the fact of the matter is that the BSP gets to “go first” regardless of what the Fed plans to do next. The BSP meets this Thursday, and the Fed doesn’t meet for another five weeks after that. The PHP/USD exchange rate could be a factor. It’s at ?58.8/$1 and has been flashing signs of continuing weakness. If the BSP does lower rates, this could put pressure on the value of the peso and push it closer to the psychological ?60/$1 level. The BSP has said that it will refrain from spending reserves to intervene in the forex market in order to allow the Peso to find its natural value, but BSP Governor Eli Remolona has also said that the central bank has intervened recently when our currency was “under stress” and moved in the “wrong direction.” Expect yields on fixed-income products to fall if the BSP does decide to pivot and that decision catches the market by surprise, which would result in modest share price increases for REITs and preferred shares. Let’s watch REIT prices this week and see if we can guess how the market expects the BSP to act on Thursday.
 

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