While easing inflation in the United States (US) reduced concerns over an interest rate hike, the impact of renewed hostilities in the Middle East is seen weighing on investor sentiment in the local stock market this week.

“The US-Iran war remains the biggest downside risk to the local bourse. The re-escalation of tensions between the two countries, which affects passage through the Strait of Hormuz, is pushing global oil prices higher again, threatening our country’s inflation outlook,” said Philstocks Financial Inc. research manager Japhet Tantiangco.

Brent crude is trading above $80 per barrel again, while local fuel prices are expected to see a big increase this week.

Tantiangco added, “Relevant markets are still seen to be going against the local bourse, with the Philippine peso remaining weak against the US dollar and government bond yields at elevated levels. If their positions are maintained this week, it is expected to pose a challenge to the local market.”

While the PSEi rallied last week, Tantiangco said strong catalysts must emerge moving forward since, “Without such, and with the headwinds at play, we may see a pullback for the local bourse this week. For a possible impetus, the market is expected to look toward second-quarter corporate results.”

Online brokerage 2TradeAsia.com said the relief from the US June inflation print supported soft but steady rallies globally but, “While disinflation in gas and energy supported this view, it primarily reflects a temporary lag in energy transmission, capturing the lower oil prices of late May to early June. We feel this reprieve will be brief.”

Domestically, local retail pump prices are already pointing to accelerated headline inflation by September.

“Tactically, we recommend avoiding high-multiple consumer names vulnerable to late-third-quarter fuel price hikes. Instead, capitalize on the current currency and interest rate stability to accumulate high-conviction energy and digital infrastructure plays, including power-exposed holding companies and select telecom or property operators with active data center pipelines,” 2TradeAsia.com said.

For stock picks, RCBC Securities Inc. has a BUY rating on DMCI Holdings Inc., with Semirara Mining and Power Corp. (SCC), Maynilad Water Services Inc. (MYNLD), and DMCI Homes driving valuation, collectively accounting for approximately 85 percent of its gross asset value estimate.

Despite the reduced valuation due to lower coal shipments and power spot prices, as well as challenges in real estate, the brokerage said, “DMCI continues to offer the highest dividend yield among the names within our coverage.”