Philippine stocks rallied after a modest pullback yesterday.  Sentiments turned positive with most major bourses rallying to fresh highs.   Investors are hopeful of a short recession and a major turnaround in the global economy by the middle of this year.   Market sentiments were further fuelled by the sharp drop in the country's inflation rate for the month of December.  

 

The PSEi soared 34.31 points or 1.74% to close at 2,003.89.  The broader All Shares Index also gained 25.93 points or 2.09% to 1,268.09.  The top index gainers for the day were Ayala Corporation (AC +4.55%) and Metropolitan Bank and Trust Company (MBT +7.07%).  All except for the services subindex were in the green.  The services index went down two points as telecom giant PLDT (TEL) declined by 1.37% today.   Market breadth was bullish as gainers beat out decliners 93 to 13 while 21 issues were unchanged.

The US benchmark Dow Jones Industrial Average rose back above the 9,000 level last night.  In Asia, share prices rose to their highest levels in three weeks after U.S. President Barack Obama said that stimulus spending will be utilized to boost U.S. consumption.   Obama is pushing for a stimulus plan of about $775 billion over two years, including tax cuts worth $500 for individuals and the largest infrastructure investment since the 1950s.   The MSCI Asia Pacific Index jumped 1.8 percent to 92.50, the sharpest gain since December 17. 

 

The country's inflation rate fell to its lowest level in nine months last December.  The National Statistics Office (NSO) reported that inflation came in at 8% percent, much lower than our forecast of 9%.  It was the fourth straight month of decline.  The drop in energy cost pulled down the country's month on month inflation rate last November and kept flat the December data.  This was uncommon as the last quarter of the year is usually accompanied by rising commodity prices.   For the full year 2008, inflation averaged at 9.3 percent, within the government's official target of 9.0-11 percent.  The low inflation data opens the window for the BSP to lower their benchmark interest rates further. 

 

The market's momentum may carry it higher again in tomorrow's trading.  However, we are expecting some profit taking to come in anytime now.  Most markets have been in extended winning streaks, which are not sustainable with the current fundamental backdrop.  Global economic data shows further deterioration while corporate earnings outlook remains shaky.  Notwithstanding, investors are becoming cautiously optimistic, buoyed by the strong start of the year.  Investors are hopeful that a change of leadership in the US will get the US economy back on track.   The PSEi will try to breakout from its current resistance level, which is its 50-day exponential moving average.  A break will probably help the main index move up to the 2,080 level.  The PSEi's immediate support is at 1,950.