Investors spooked by inflation surprise
Peso hits new 12-year low against the dollar; stock market drops by 1.65%
The peso and the stock market fell on Wednesday, weighed down by news that inflation had hit a new nine-year high and also tracking regional declines traced to concerns over emerging market economies.
The currency shed one and a half centavos to hit a fresh 12-year low of P53.55 against the greenback. While the drop was minimal, it was still the peso’s weakest close since a P53.57:$1 finish on June 28, 2006.
The Philippine Stock Exchange index (PSEi), meanwhile, plunged by more than 2 percent in intraday trade to touch the 7,600 level before limiting the day’s loss to 129.55 points or 1.65 percent to 7,752.27.
The broader All Shares tumbled 1.33 percent or 63.84 points to end at 4,732.02.
A key driver of the day’s declines was the announcement that August consumer price growth had blown past the government’s 5.9 percent estimate to hit 6.4 percent, significantly higher than the previous month’s 5.7 percent.
The result—the highest since the 6.6 percent recorded in March 2009—brought year-to-date inflation to 4.8 percent, over the Bangko Sentral ng Pilipinas’ 2.0-4.0 target for 2018.
Analysts traced the peso’s weakness to the inflation report and also pointed to concerns over emerging markets—precipitated by financial troubles in Argentina and Turkey with the latest worry that of South Africa’s having slipped into recession.
“We think inflation is becoming an issue … [and]that is driving currency weakness amid volatile global environment,” ANZ Research economist Shashank Mendiratta said.
Bank of the Philippine Islands Vice-President and lead economist Emilio Neri Jr. said the local currency had tracked the movement of most emerging market (EM) currencies.
“No surprises as most EM currencies have been under pressure since yesterday (Tuesday) and continue to be under pressure today (Wednesday),” he said.
Neri added that “a number of currencies in the Asian region were actually trading at or very close to all-time lows” early Wednesday.
Investors are worried that problems in emerging markets could spread and selling pressures on EM currencies is the US economy’s continuing strength, which has prompted the Federal Reserve to raise interest rates and subsequent fund placement shifts by investors looking for better and safer returns.
Among the EM currencies that have plunged in recent weeks, in addition to the Argentine peso and the Turkish lira, are the Indian rupee—sitting at a record low—and the Indonesian rupiah that has fallen to level last seen during the 1998 Asian financial crisis.
The EM fright has extended to equities, with investors already on edge over uncertainties over US President Donald Trump’s trade rows with China and Canada.
Jakarta led a sell-off in EM equities, diving four percent on Wednesday. Hong Kong shed 2.6 percent and Shanghai fell 1.7 percent, while Singapore gave up 1.2 percent and Seoul dipped more than 1 percent. Sydney fell one percent and Tokyo ended 0.5 percent lower.
For Manila, Regina Capital Development Corp. head of sales Luis Limlingan said that Wednesday’s plunge was primarily due to the August inflation report, which stoked fears that the BSP’s policymaking Monetary Board would again hike interest rates as early as this month.
Limlingan said latest inflation figures pointed to another 50-basis point rate hike during the next Monetary Board meeting on September 27.
Diversified Securities, Inc. trader Aniceto Pangan shared the same view, saying a 50-bps rate increase—which would bring year-to-date adjustments to a total of 150 bps—was possible.
“[I]nflation was well above estimates. It’s still on the upward trend so definitely we’re going to expect a rate hike,” Pangan said.
All sectoral indices ended in the red on Wednesday with financials down the most by 2.81 percent.
More than 1.69 billion issues valued at P5.8 billion changed hands.
Decliners beat advancers, 146 to 51, while 38 issues were unchanged.
FROM REPORTS BY MAYVELIN U. CARABALLO, ANGELICA BALLESTEROS and AFP
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