THE stock market plunged on Thursday on continued fears of a US recession, but the peso closed at its strongest in over two months as rate cut expectations heightened.
The benchmark Philippine Stock Exchange index (PSEi) tumbled by 2.58 percent, or 170.57 points, to 6,434.73 while the peso gained 18 centavos to P57.9 against the dollar, its highest close since May 20.
The broader All Shares, meanwhile, shed 80.43 points, or 2.24 percent, to 3,516.47.
The currency opened at P57.85:$1 and ranged from P57.68 to P57.915. Volume surged to P1.762 billion from P1.356 billion last Friday.
Security Bank Corp. chief economist Robert Dan Roces said the peso appreciated after weaker-than-expected US economic data increased expectations of more aggressive rate cuts by the Federal Reserve.
“Current levels [are] actually supportive of earlier rate cuts by the BSP (Bangko Sentral ng Pilipinas),” he added.
The US central bank, initially expected to cut by 25 basis points next month, is now seen ordering a 50-basis point easing.
The BSP, meanwhile, has signaled that it could cut by 25 basis points on August 15, although its chief said on Monday that rates could remain steady “for the time being.”
Union Bank of the Philippines chief economist Ruben Carlo Asuncion also said the strength of the peso “bodes well for the potential BSP rate cut next week.”
“Plus, if second-quarter gross domestic product (GDP) print comes in as weaker-than-expected, a rate cut will certainly be welcome,” he added.
Preliminary April-June growth data will be released on Thursday.
Philstocks Financials Inc. research associate Claire Alviar, meanwhile, said the PSEi had joined other regional markets as the disappointing US data “raised fears that the Federal Reserve’s decision to keep interest rates unchanged [last week] could lead to a recession in the US.”
“Japan’s Nikkei has erased all its gains this year and is now trading at a loss [year to date], while South Korea’s Kospi briefly halted trading after triggering circuit breakers,” she noted.
“Back at home, sentiment was further dampened as the inflation rate in July could potentially be higher than the preceding month’s figure and the government’s target of 2-4 percent.”
All sector indices closed in the red, with industrial down the most by 3.53 percent.
Decliners overwhelmingly outnumbered gainers, 175 to 34, while 45 were unchanged.
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