July was only the second month in 2008 that the Philippine Stock Exchange Index (PSEi) managed a gain. The PSEi rose 6.5% in the month, as bargain hunters returned. Although concerns of still-higher inflation loomed like a dark cloud over the market, the bulls were brought back by: aggressive policy setting by the Bangko Sentral ng Pilipinas (BSP); a stronger Peso; and a consolidation in world oil prices. In July, the interest rates of Treasury Bills and Notes increased by between 1.8% and 2.2 %. The BSP's pre-emptive move allowed the Peso to strengthen from an intra-month high of PHP 45.80 / US$ to an intra-month low of PHP 43.80 / US$ during July. Meanwhile, crude prices have retreated from the US$ 145 / barrel level down to around the US$ 120 mark. Are commodity prices due for some consolidation as well?

These developments have improved sentiment for all equity markets. However, caution is still the order of the day. Although the market built some positive momentum in July, August promises to be a challenging month. The world stock markets are expected to be volatile, as higher inflation and slowing growth in the developed world will remain concerns. Second-quarter corporate results for Philippine companies will be mixed, with fewer surprises on the downside expected.