The local stock market may trade sideways this week as concerns over rising inflation and interest rates offset hopes for a peace pact between the United States (US) and Iran.

“The local market is still expected to deal with lingering uncertainties, which could keep its movement tempered this week. The bourse is expected to take cues from the developments between the US and Iran, as well as the movement of the local currency and bond yields,” said Philstocks Financial Inc. research manager Japhet Tantiangco.

While the US and Iran are seemingly closing in on a deal, he urged investors to remain cautious amid this optimism since recent developments show that the US-Iran situation is volatile, and a regression of the situation is expected to weigh on the local market.

With the progress in the US-Iran situation, the peso has regained some lost ground against the US dollar, but Tantiangco said the currency remains weak and inflationary.

“Moving forward, a further appreciation of the local currency is expected to strengthen the market. A depreciation is expected to drag the bourse, however,” he noted, adding that rising inflation and interest rate expectations may also continue to weigh on the market this week.

Local yields are rising as increasing inflation expectations strengthen the case for another policy rate hike by the Bangko Sentral ng Pilipinas (BSP).

For its part, online brokerage 2TradeAsia.com said recent diplomatic overtures in the Middle East have done little to ease supply fears as Iran consolidates control over the Strait of Hormuz through checkpoints and agreements.

“The current global bond rout attests to the rapidly accelerating global inflation fears as expectations become firmer that even a resolute deal will not revert supply chains back to pre-Iran war conditions,” it noted.

As a result, 2TradeAsia.com expects continued pressure on sovereign and corporate yields, and for central banks to respond more aggressively.

“The macro picture at home is transitioning to an acute policy crisis, case in point, the BSP now openly weighing aggressive off-cycle rate hike,” it said.

It advised investors that, “To mitigate inflaming credit risk, rotate out of highly leveraged growth sectors and lock into cash-defensive names amid compounding domestic costs.”

For stock picks, Abacus Securities Corp. favors Atlas Mining after its first-quarter report showed that its mine rehabilitation will be completed in the second half of this year while copper prices have recently gone up to a new high.

Meanwhile, Unicapital Securities Inc. has BUY ratings for Century Pacific Food Inc. (CNPF) and Manila Electric Co. (Meralco) after both firms’ first-quarter earnings came within expectations.

Unicapital research analyst Peter Louise D. Garnace said Meralco’s revenues are seen to rise with higher power consumption during El Niño, while its power generation business will get a boost from its liquefied natural gas (LNG) and Terra Solar units.

For CNPF, Unicapital research analyst Jeri R. Alfonso said, “Management guided for revenue growth to remain at double-digit levels, which we believe is achievable given resilient consumer demand and CNPF’s strong positioning in staple and value-for-money food categories that typically outperform during periods of elevated inflation and weaker discretionary spending.”