“Tuesday will be the make-or-break point. The resiliency shown by local stocks in the last two weeks will be put to the test as global markets face the inevitable Aug. 2 deadline for the US to come up with a solution to its debt ceiling woes,” said analyst Justino B. Calaycay, Jr. of brokerage firm Accord Capital Equities Corp. in a market report last Friday.
The Philippine Stock Exchange index (PSEi) rallied to 4,503.63 last Friday, up by 25.27 points from the week before. Similarly, the broader all-share index jumped to 3,123.06 on Friday, gaining 16.33 points from the week before.
The White House, Republicans and Democrats struggled to come up with a compromise solution to the country’s debt ceiling on Sunday.
Failure to do so would force the US to default on its obligations and lose its triple-A credit rating -- an event that would be equally disastrous as a default, Mr. Calaycay said.
US stocks sank last Friday after a government report showed how frail the US economy was, compounding the negative sentiment from the drawn-out stalemate over the debt cap. The US grew by just 1.3% in the second quarter, and the government slashed its first-quarter growth estimate to 0.4% from 1.9%.
Blue-chip Dow Jones industrial average dived by 0.8% or 96.87 points to 12,143.24, and the broader Standard and Poor’s 500 index fell by 0.6% or 8.39 points to 1,292.28.
Inflation would be the most pressing local economic concern this week in addition to the US crisis.
“Consumer prices have generally risen since October 2010’s 3.8% [year on year] to last June’s 5.2%,” said Mr. Calaycay.
The July inflation rate, expected to be released on Friday, will definitely be a market mover, he said.
Analyst Bonner C. Dytoc of brokerage firm Angping Securities, Inc., however, was emphatic the PSE’s resilience would hold, noting the local bourse had been bucking the Dow Jones’ downtrend lately.
“When our index dropped, it did not drop as big. This gives us more confidence to continue holding our stocks... and we will continue to look for bargains that have yet to break out,” he said in a market report yesterday.
Mr. Calaycay concurred. “The short term may be bearish, but we reiterate our belief that an end to the rally presents investors with an opportunity to redefine their portfolio by beefing up their equity components,” he said.
Corporate earnings will also influence trading this week.
“What we must focus on now is the quality of earnings that are scheduled for released [this] week,” said analyst Maria Arlysa E. Narciso of brokerage firm AB Capital Securities, Inc. in a market report last Friday. “In the absence of election spending that pushed profits higher last year, we can expect a moderate growth in results... this year.”
Most firms posted positive first-half earnings, including the country’s largest power distributor Manila Electric Co. (Meralco) and Pangilinan-led miner Philex Mining Corp. Meralco hiked profits by 26% to P6.09 billion, while Philex earnings surged by 188% to P2.84 billion.
“Moving forward, we give more weight to domestic economic fundamentals over the medium term, and to corporate earnings over the near term,” Mr. Calaycay said.
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