A sharp sell-off is seen likely this week with the market possibly readjusting its expectations that a strong US economy would prompt the Federal Reserve to hesitate in lowering interest rates.
“The assumption is a strong labor market means a strong economy, so the US Fed can cut back on rate cuts,” said Luis Limlingan, managing director at Regina Capital and Development Corp.
Data on Friday showed US nonfarm payrolls increased by 256,000 jobs in December, the most since March, while data for November and October were revised to show 8,000 fewer jobs added than previously reported.
Reuters reported that this prompted investors on Wall Street to revise their Fed rate forecasts.
Online brokerage 2tradeasia.com said it will continue to be a volatile trading period in the short term as markets “have yet to decouple from the Trump-interest rate-inflation news cycle.”
“We think the cutting cycle is over … Our base case has the Fed on an extended hold,” an analyst at Bank of America (BofA) Global Research said in a note.
Market participants see a 76.31 percent probability that the Fed will cut rates by 25 basis points in June, according to CME FedWatch tool, while J.P.Morgan and Goldman Sachs pushed their Fed rate cut forecast to June from March.
Morgan Stanley meanwhile said that the jobs report should reduce the probability of near-term Fed cuts.
Emerging market equities are already in correction territory as measured by the MSCI EM index, since losing 10 percent from its October high, according to online stockbroker 2tradeasia.com.
The recent report reinforced what 2tradeasia said reflected the prevailing conviction toward a slower policy easing, complemented by disadvantageous currency spreads, as US yields have rapidly risen since late 2024.
“The release of Fed December minutes spelled the direction of global fund movements this week, as it put on paper a lot of market anxieties that are beginning to unfold in 2025,” 2tradeasia.com said.
There is also a significant probability of higher upside risk to the inflation outlook, because of likely changes in the US policies on trade and immigration, the online brokerage said.
However, the Philippine inflation outlook leaning toward a slowdown “should help support optimism” for issues listed on the Philippine Stock Exchange, it added.
Prices of goods and services in the country went up a bit faster at 2.9 percent last December, but well within the government target between 2 percent and 4 percent.
While the Bangko Sentral ng Pilipinas is likely going to take its cue from the Fed, similar to other central banks in the region to maintain parity, lower inflation risk is helping prop up the domestic consumption narrative this year, against the backdrop of weakening China, European Union, and emerging markets.
Forex exposure and imported energy and commodity risks are real detriments to earnings potential in the short-term, said 2tradeasia.
“Expect a shift towards corporates that have some resistance if not immunity to these risks,” it added.
Investors are likely to track US December inflation figures out this week for clues on the Federal Reserve’s policy outlook, Japhet Tantiangco, analyst at Philstocks Financial Inc.
Long-term US treasury yields may also affect the local market. A decline in yields will help lift the market, but an increase may weigh on it.
“The peso’s movement could also be another factor on the market’s performance. A strengthening of the peso could help the market while a weakening of the local currency could drag the bourse,” Tantiangco added.
