The Philippine Stock Exchange Index (PSEi) slipped to 5,898.08, down 0.74%, as investor sentiment turned cautious following a hotter-than-expected inflation print of 7.2%.

The April headline inflation figure exceeded most projections, as spillover effects from the Middle East conflict proved stronger than anticipated, reinforcing concerns that interest rates may remain elevated for longer.

The Bangko Sentral ng Pilipinas (BSP) recently raised rates by 25 basis points in response to mounting inflationary pressures. With the Federal Reserve holding rates steady, many analysts now expect further tightening, while BSP Governor Eli Remolona Jr. has signaled a more hawkish stance.

Rate hikes typically slow economic growth, as higher borrowing costs encourage saving and dampen consumption—the primary driver of the Philippine economy.

Risk appetite was further weakened by renewed geopolitical tensions in the Middle East, particularly escalating hostilities between the US and Iran in the Strait of Hormuz, a critical global oil chokepoint.

These developments kept investors on the sidelines, resulting in thin trading, with value turnover at P4.61 billion—around P2 billion below the year-to-date average. Foreign investors were modest net buyers, posting P38.59 million in inflows.

Sector performance was largely negative. Property (+0.19%) managed to eke out gains, while mining and oil (-2.07%) led the declines amid volatile commodity sentiment. Market breadth was weak, with only seven index gainers, led by ACEN (+7.91%), while Century Pacific Food, Inc. (CNPF) (-5.87%) was the biggest laggard.

On the currency front, the peso closed at P61.55 per US dollar, slightly firmer than the previous session but still near all-time lows.

The US dollar remains supported by rising Treasury yields and safe-haven demand amid geopolitical uncertainty, while oil prices—hovering above $110 per barrel—continue to pressure oil-importing economies like the Philippines.

Recent reports of military exchanges near the Strait of Hormuz have reignited fears of supply disruptions, pushing oil prices higher and strengthening the dollar.

This dynamic typically weakens the peso, as higher oil prices widen the country’s trade deficit and increase dollar demand. Structural pressures remain intact: the Philippines’ heavy reliance on imported oil makes the peso particularly sensitive to sustained energy price spikes and global risk-off sentiment.