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THE PCG

ScreenPlay

Exposing trends from the technical and fundamental screeners that the PCG team monitors that may impact markets

September 15, 2016 / Thursday / 10:30 am

The Imitation Game
Global markets fell last weekend on bets that the US Federal Reserve will raise rates soon.

Boston Fed President Eric Rosengren said Friday that further inaction could cause an overheated
economy. On the other hand, Chicago Fed President Lael Brainard in a speech was of the opinion
that current policy rates are still appropriate. This has not helped discussions, and volatility spiked
after.

While the probability of a September rate hike has gone down, investors now expect a more than
likely chance of a rate hike before the year ends.
Rate Hike Probabilities
Sept FOMC
Dec FOMC
(Sep 20-21)
(Dec 13-14)
15%

56%

Source: CME Fed Watch Tool

We will be tracking and posting the CME Fed watch tool in our daily Fourplay reports until the
conclusion of the Sep 20-21 Fed meet.

Downside risk for stocks and bonds are back on the table. Bonds fell below its consolidation
pattern, gold is down, and the US dollar is back on the rise conditions which all forecast a possible
rate hike scenario.

Locally, the peso has weakened, and is above of its 1-month range (46.2 - 46.7):

And foreign selling has continued to pour. Based on our count, net foreign inflow for 2016 is now
only at Php 14.7 bn; from a high of Php 37.8 bn

The current political environment hasn't helped and brings forth additional uncertainty. Next
support levels for the index vis-a-vis valuations levels are as follows:

But while the market has taken a bearish turn in the short term, the PSEi is also oversold and has
corrected ahead of regional peers, which means a bounce may soon be forthcoming.

Be Opportunistic and Ready

As we mentioned in our previous piece (see: PCG Screenplay: Ber-market: Sep 2, 2016), August
and September are weak months for stocks, but present the some of the best opportunities to buy,
from a seasonality standpoint.

*Study covers period from 1987 - 2014

It may take the Fed meeting before any resolution is found, but the August -September portion of
the calendar has certainly followed the script.
Which actually makes us ask a theoretical question: Will the markets be ready to bounce and rally
back when the Fed meeting happens later on next week and no rate hike takes place?
Moreover, is it also possible that markets are already pricing in the December rate hike, so much
so that when it comes, the market refuses to fall, having already achieved its correction?
We shall see.

COL Private Clients Group

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