Stocks bleed out, peso slumps after inflation data

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Metro Manila (CNN Philippines, September 5) — The day was unkind to the equities and financial markets.

The release of the August inflation data, which was at a nine-year low at 6.4 percent, spooked investors into pulling out of the stock and currency markets.

The Philippine Stock Exchange lost 1.64 percent on Wednesday, closing at 7,752.27, almost wiping out last week's rally when the market breached past the 7,800 mark.

All sub-indices were in the red.

The peso was also at a fresh 12-year low at ₱53.55 against the greenback. The peso last hit ₱53.55 on June 29, 2006, and was at ₱53.59 in December 7, 2005.

Inflation was the main reason for both market declines, as well as the looming interest rate hike from the Bangko Sentral ng Pilipinas.

"The negative surprise inflation report was the culprit of today's massive sell-off," Luis Limlingan, managing director of Regina Capital, told reporters. He added that the stock exchange was down by more than 100 points as of noon, Wednesday.

Ron Acoba, chief investment strategist for Trading Edge, explained the connection between inflation, interest rates, and the stock market.

"Inflation would mean higher interest rates," Acoba said in a phone interview with CNN Philippines. "Whenever you have an increase in interest rates, it would be more expensive for companies to borrow for expansion purposes. Consumption will also be affected."

Acoba added this slump could continue, given the current global risk in emerging markets like Turkey, Argentina and Venezuela, and domestic issues.

"So far there hasn't been a spill over. But with those in the background plus our domestic issues, that would be a concern in the near term," Acoba said.

Gio Perez, a trader for Papa Securities, said he expects the Philippine Stock Exchange to close at 7,500 this week.

"We should watch out if the negative sentiment will continue tomorrow especially since technicals are lining up with the index correcting after failing to push through its resistance level near 7,900. Initial support for the PSEi should it continue its downward move for the rest of the week is at 7,500," Perez told reporters. 

The peso was likewise affected by the surprise inflation report.

"The peso depreciated due to higher-than-expected inflation. It's the lowest level since June 29, 2006 when the peso also hit ₱53.55," said Guian Dumalagan, market economist for the Land Bank of the Philippines.

"There was heavy intervention observed from the BSP," he added.