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Stocks sink as market expects aggressive Fed hike

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PHILIPPINE STOCKS sank on Wednesday ahead of the US Federal Reserve’s rate-setting meeting, where analysts are forecasting an aggressive 75-basis point (bp) hike amid rising inflation.

The benchmark Philippine Stock Exchange index (PSEi) sank by 155.11 points or 2.39% to close at 6,319.42 on Wednesday, while the broader all shares index dropped by 61.35 points or 1.76% to 3,409.70.

“Philippine shares fell ahead of the Fed’s decision later tonight, while carrying the negative sentiment from last night’s US market performance. The market is betting on a 75-bps rate hike, the biggest increase since 1994,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message on Wednesday.

“The PSEi declined today after US stock markets again mostly lower overnight. The Fed starts its rate-setting meeting with consensus building around a 75-bps hike,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

He added that the market is concerned that the Fed’s aggressive stance in fighting inflation would lead to a US recession.

Investors have dramatically raised their bets that the Fed will raise interest rates by 75 bps rather than 50 bps on Wednesday, a swing in expectations that has fueled a violent sell-off across world markets, Reuters reported.

Expectations for a 75-bp hike at the June meeting jumped to 89% on Tuesday from only 3.9% a week ago, according to CME’s FedWatch Tool.

Traders see the 75-bp rate increase negatively impacting the valuation of equities, particularly technology stocks, and possibly jeopardizing post-coronavirus disease 2019 (COVID-19) recovery.

The Fed ends its two-day Federal Open Market Committee meeting on Wednesday.

The US consumer price index (CPI) surged to 8.6% in May, the largest year-on-year increase in roughly 40 years.

Fed policy makers had signaled half-point interest rate hikes at their meeting next week and again in July ahead of the release of the May CPI report.

Back home, all sectoral indices posted losses on Wednesday. Holding firms fell by 225.41 points or 3.74% to 5,800.37; property declined by 79.31 points or 2.63% to 2,936.28; services gave up 27.12 points or 1.55% to end at 1,713.40; industrials dropped by 121.40 points or 1.35% to 8,853.30; financials went down by 11.95 points or 0.76% to 1,547.73; and mining and oil retreated by 36.08 points or 0.31% to 11,588.35.

Decliners beat advancers, 137 versus 40, while 53 names ended unchanged.

Value turnover surged to P11.03 billion with 3.65 billion shares changing hands from the P5.60 billion with 827.41 million issues seen on Tuesday.

Net foreign selling slipped to P1.22 billion from the P1.25 billion seen the previous trading day. — Luisa Maria Jacinta C. Jocson with Reuters

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