Angelo Taningco
Economist, Treasury Group

Concerns over escalating trade wars and planned investment restrictions by the Trump administration are gripping US equity markets this week as evident by Monday’s drop in the Dow Jones (-1.33%), S&P 500 (-1.37%), and NASDAQ (-2.09%). Tech stocks were the worst-performer at the start of the week as market awaits the administration’s announcement later this week to impose limits on Chinese investment in US technology. We expect such move by the administration to be justified on grounds of national security and could provoke China to retaliate by imposing restrictive measures on US firms conducting business in China. Treasury Secretary Steven Mnuchin, however, stated on Monday that such investment restrictions are “not specific to China, but to all countries that are trying to steal our technology.”  Peter Navarro, National Trade Council Director, attempted to assuage market fears by saying that the administration is not restricting investments coming from the rest of the world, but to simply defend US technology when threatened. We however think such concerns by the market will be evident throughout this week.

Meanwhile, US economic growth in May has slowed as the Chicago Fed National Activity Index released on Monday dropped to -0.15 for the month from 0.42 in April. In contrast, new home sales rebounded more-than-expected with a 6.7% mom growth in May (market forecast: 0.8%) from -3.7% in April. For the rest of the week, upcoming US economic data include final estimates of Q1 GDP growth, which we believe would remain unchanged from its prior estimates; trade-in-goods balance, which we expect to remain in a deficit for May; personal income and spending which the market expects have grown by 0.4% mom in May; and headline and core PCE inflation, which we think would level off at 2.2% and 1.9% yoy, respectively, for May, consistent with market expectations.

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