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First Metro Weekly Equities and Economic Outlook – January 29 – February 02, 2018

Outlook. We expect the market to continue its correction after a sell-off in Dow Jones amidst rising bond yields. Investors remain cautious ahead of the inflation reading, the BSP’s overnight borrowing rate and full-year 2017 earnings this week. Metrobank (MBT) released its FY 2017 core net income, up 10% to Php19.9bn.

Drivers. Two major economic events to watch out for: January inflation reading on Tuesday and BSP overnight borrowing rate on Thursday. The BSP surprised the market with a January inflation forecast of 3.5%-4.0% versus consensus of 3.5%. BSP rates are expected to remain unchanged.

Market review. After touching an all time high of 9,058 last Monday (year-to-date, +5.84%), the market dropped to 8,810 on Friday, -2.5% lower week-on-week (w-o-w) as the local bellwether tracked regional markets’ decline. MSCI indices likewise were in the red w-o-w: MSCI Emerging Markets ETF down -4.37%, and MSCI Asia Pacific Ex Japan down -2.5%. Today, the market erased its year-to-date (ytd) gains, up by only 0.7% to 8,616 following Dow Jones’ 666-point decline last Friday.

  • The Dow Jones’ fell -4.12% w-o-w on strong US jobs data: average hourly wages jumped 9 cents to $26.74, a yearly increase of 2.9% versus expectations of 2.6% (fastest wage growth since 2009); Non-farm payrolls grew by 200,000 in January, exceeding expectations of 180,000.
  • The strong jobs data signalled tightness in the labour market which means the Fed may tighten more aggressively this year. 10-year yield rose to a 4-year high of 2.85%.
  • As of date, the PSEi was the worst w-o-w performer in Asia, down by 5% from last Monday’s high. Ytd, the PSEi was the second worst performer.
  • Foreigners sold a total of Php6.77bn last week, worst weekly net foreign selling since Sept. ‘16. Ytd net foreign buying left with Php51.42mn.
  • Foreigners sold SM, SMPH, BDO, ALI and AC for a total of Php4.63bn while most bought names were TEL, GLO, BPI, MEG and MER.

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