Stocks fall on hawkish comments from Fed officials

SHARES tumbled on Wednesday as a Federal Reserve policymaker said the central bank could shrink its balance sheet at an aggressive pace and steadily raise interest rates.

The Philippine Stock Exchange (PSEi) benchmark index fell 46.81 points, or 0.65%, to close at 7,109.26 on Wednesday, while all stocks as a whole fell 16.94 points, or 0.44%, to 3,780.49.

“The local stock market declined for the second straight day after Federal Reserve Governor Lael Brainard last issued a hawkish statement saying the Fed will shrink the balance sheet at a rapid pace as early as May 2022 and the Fed will cut interest rates steadily increasing,” Michael L. Ricafort, chief economist for Rizal Commercial Banking Corp., said in a text message.

“Philippine stocks weakened as US Federal Reserve Governor Lael Brainard indicated that the central bank could take a more aggressive approach to its tightening policy. In addition, recession fears continued to spook investors as Deutsche Bank became the first major Wall Street bank to predict that a US recession was imminent and the Fed referenced that the Fed was becoming more aggressive to fight inflation,” he said Luis A., Regina Capital Development Corp.’s head of sales, Limlingan said in a Viber message.

Fed Governor Lael Brainard said on Tuesday she expects a combination of rate hikes and a rapid balance sheet outflow to move US monetary policy to a “more neutral stance” later this year, with further tightening to follow as needed, Reuters reported.

Ms Brainard said the central bank would “methodically” raise interest rates and reduce its nearly $9 trillion balance sheet to bring down inflation.

The hawkish tone from one of the Fed’s normally more dovish policymakers drove stocks lower and Treasury yields rose to multi-year highs, up about 20 basis points since Friday, as investors digested the impact of a more aggressive policy stance.

The Fed last month raised interest rates for the first time in three years and released forecasts that the federal funds rate would end the year at least in the 1.75% to 2% range, if not higher, implying a quarter-point rate hike on all six Points would require remaining Fed meetings this year.

All industry indices closed in the red on Wednesday. Holding companies declined 83.45 points, or 1.22%, to 6,715.53; Services declined 10.12 points, or 0.52%, to 1,929.69; Financials fell 5.69 points, or 0.33%, to 1,693.45; Real estate fell 8.51 points, or 0.25%, to 3,305.37; Mining & Oil declined 28.74 points, or 0.22%, to 12,541.67; and Industrials fell 5.25 points or 0.05% to 9,795.16.

Meanwhile, the MidCap Index improved 0.21 points, or 0.02%, to close at 1,205.03, and the Dividend Yield Index gained 1.91 points, or 0.11%, to close at 1,706.39.

Value turnover rose to 4.98 billion pesos, with 11.53 billion shares changing hands, from 4.17 billion pesos with 1.12 billion issues on Tuesday.

There were more rejecters than promoters, 102 versus 79, while 51 names remained unchanged.

Net overseas sales rose to P464.96 million from P181.09 million the previous trading day. — Luisa Maria Jacinta C. Jocson with Reuters