Angelo Taningco
Economist, Treasury Group
US equity markets started the week on a positive note fueled by more robust manufacturing expansion. ISM’s Purchasing Managers’ Index (PMI) for manufacturing unexpectedly rose to 60.2 in June (market forecast: 58.5) from 58.7 in May. Likewise, construction spending grew 0.4% mom in May, albeit less than market’s forecast of 0.5% and April’s 0.9%. Against this backdrop, Dow Jones, S&P 500, and NASDAQ recorded gains of 0.15%, 0.31%, and 0.76%, respectively, on Monday.
This was a rebound from previous week’s losses in which Dow Jones and S&P 500 fell 1.3% w-o-w each while NASDAQ dropped 2.4% largely due to risk-off sentiment amid trade war concerns. Also, economic data released last week showed the third and final estimate of US Q1 GDP growth was at 2.0%, an unexpected downward revision from 2.2%; personal income growth unsurprisingly flat at 0.4% mom in May; personal spending growth slowed more-than-expected to 0.2% mom in May (market forecast: 0.4%) from 0.5% in April; and headline and core PCE inflation rates for May higher-than-expected at 2.3% and 2.0% yoy, respectively.
This week, we think the market will still be hounded with risk aversion arising from tariff retaliations. Canada imposed on Sunday new tariffs on $12.5 billion (b) worth of US goods as retaliation to US tariffs on Canadian aluminum and steel. Moreover, investors are awaiting the US imposition of 25% tariffs on $34b worth of Chinese goods by 6 July as well as China’s retaliation of 25% tariffs on $34b of US agro-based products, including pork and soybeans.
Meanwhile, incoming economic data this week may bode well for equities especially if it showcases positive economic outlook amid strong labor market. Similar to market consensus, we expect average hourly earnings growth and the unemployment rate for the month of June to level off at 2.8% y-o-y and 3.8%, respectively. Moreover, we think June’s non-farm payroll (NFP) employment totaled 200k, slightly higher than market forecast’s 195k. Also, the Fed will release this week the minutes of the FOMC’s 12-13 June meeting, expecting it to emphasize a more upbeat US economic outlook and growing uncertainties arising from the global trade wars.
Disclosures Appendix
This material is confidential and intended for suitable counterparties. The data and information provided in this report accurately reflect the personal views of the specialists or were obtained from public sources believed to be reliable. No representation or warranty as to its accuracy or completeness, express or implied is hereby made, and the investor should not rely thereon without making any independent analysis or research on any topic therein. Any opinion or advice expressed herein may change without notice.
This report is not to be taken as an offer to sell or buy securities or any investment. Security Bank Corporation denies any liability that may arise out of any loss or may result in actual, direct or consequential damage from the use or reliance on any material hereof. Reproduction of this material, whether in whole or in part, is strictly prohibited without the prior consent of Security Bank Corporation. Security Bank Corporation, its directors, officers or staff or any of its subsidiary or affiliates may have taken a short or long position in any investments or securities mentioned herein upon the presentation of this report and may buy or sell the investments or securities at any time in the open market or otherwise, either as broker, dealer, principal or agent. You hereby acknowledge that you have read and understood this Disclaimer and agree to be bound by the conditions therein.
