GDP, job reports to weigh on stocks

The local stock market may cautiously try to move further up this week on the back of good corporate earnings reports and after breaching its resistance level but investors will also get cues from the release of GDP and employment figures.

“Last week, the local market was able to get past its 6,400 resistance level. This coming trading week, the market could move on a cautious tone as investors continue to digest the corporate earnings reports while at the same time, deal with monetary policy concerns,” said Philstocks Financial Senior Supervisor for Research Japhet Tantiangco.


He added that, Investors are also expected to watch out for our second quarter GDP (gross domestic product) data and June labor data for clues on the health of our economy.”

“The robust second quarter and first half corporate results may still give investors’ sentiment a boost” said Tantiangco but he also noted “the market may deal with concerns over a possible aggressive policy action by the BSP in their meeting this August following the July inflation print which came in at 6.4 percent.”

Concerns over a possible further aggressive tightening by the Federal Reserve may also weigh on sentiment following the US’ strong July jobs report.

Stock brokerage said the 3-year high July inflation figure comes amid “drivers that have been volatile as of late” with although global commodity prices have been declining.

“This could be a function of supply finally catching up to extraordinary backlogs in first half of 2022 (such as wheat from Ukraine or metals from China) but there should be less pressure on the raw materials side of the equation in third quarter,” it noted.

However, said “local factory gate prices have surged in June which implies that there is some inflation still locked behind the value chain, only waiting to be passed on.”

It explained that, “This is a roundabout way of saying that, at the consumer level, medium-term inflation outlook remains elevated, even concerning (will gyrate on retail price adjustments), but at a long-term lens, supply drivers are looking to be more favorable for corporates and considering demand impact from global rate hikes has yet to be fully priced-in until 2023.”

“As the index seemingly moves from strength to strength, be reminded that there are timing differentials to macro-events, earnings, and asset prices; while this makes market diligence blurry, this opens opportunities to trade oversold but high-quality securities. Aim for hopeful--but informed-farsightedness,” said.

Based on first half performances, COL Financial has BUY ratings on stocks such as Semirara “given that we believe that the company is set to post record-high earnings this year due to the increase in coal prices.”

It noted that, for the first half of 2022, Semirara’s “earnings beat estimates due to the coal business’ better than expected earnings.”

Meanwhile, despite posting lower-than-expected earnings, COL is maintaining its BUY rating on Nickel Asia “given that prices for nickel will continue to be supported by the ongoing Indonesian nickel ore export ban, as well as the proposal by the Indonesian government to impose a levy on the export of some nickel products.”

“We also remain positive on the long term outlook for nickel due to the rising EV (electric vehicle) battery demand. Furthermore, we believe that NIKL’s expansion of its RE (renewable energy) power generation business comes at an opportune time given the strong cash flow generation of its nickel mining business, as well as the tightening of power supply in the country,” it added.

COL is also recommending SM Investments because “We are raising our full year 2022 income forecast for SM from P43.8 billion to P47.5 billion following the better-than-expected first half 2022 earnings from SM Retail.”

“We reiterate our BUY rating on SM given its solid fundamentals despite global headwinds. There is strong momentum in consumer spending which will benefit SM Retail and the malls of SMPH. Meanwhile, banks continue to have strong balance sheets and delivered strong core business growth,” the brokerage said.

For its part, Abacus Securities Corporation noted that, SM’s retail segment “grew far more than anyone expected and we believe earnings estimates for the conglomerate are likely to move significantly higher.”

It added that, “The firm believes improvements can be sustained moving forward which means earnings estimates for SM are likely to move significantly higher.”

Abacus is also recommending Puregold because “its first half 2022 net income is now ahead of reduced full-year consensus estimates. The stock deserves a Buy but with current conditions as they are, clients are advised to accumulate at current levels.”

“Overall, however, we liked that revenues and operating income growth accelerated sharply while profit expansion was stronger than it appears... Our view is the company is moving in the right direction and that investors have become too bearish on the stock,” it said.