Angelo Taningco
Economist, Treasury Group

US equity markets started the week mixed: on one hand, Dow Jones inched up 0.2% while on the other hand S&P 500 and NASDAQ fell 0.1% and 0.3%, respectively, on Monday. Financials gained the most in the Dow Jones amid upbeat earnings from Bank of America, Blackrock, and Deutsche Bank. Energy was the laggard in S&P 500 as price of crude oil fell on news Saudi Arabia has offered additional oil supply to some Asian buyers. Tech stocks slumped pulling down NASDAQ with Netflix plunging due to lower-than-expected subscribers. Meanwhile, the mixed start in US equities this week occurred against the backdrop of July consumer sentiment waning more-than-expected and June retail sales within market consensus but down from May.

Last week witnessed positive growth in Dow Jones (+2.3% wow), S&P 500 (+1.5%), and NASDAQ (+1.8%). Positive sentiment in US equities was on the back of data showing better-than-expected small business optimism, stronger-than-anticipated producer price inflation, and expected upticks in consumer price inflation, all for the month of June.

The rest of the week would likely exhibit positive US economic activity and company earnings that could further boost US equities. Incoming data include June industrial production, which is expected to rebound from its 0.1% slip in May with a 0.5% growth. Moreover, the Fed’s Beige Book will be released later this week and is expected to report about US economic expansion and solid labor market. Fed Chair Jerome Powell will deliver his semi-annual testimony to US Congress this week, and we expect him to highlight positive developments in the domestic economy and the Fed nearing its dual mandate of price stability and maximum employment.

But trade war tensions will likely continue to hound US equities. Powell may lament the downside risk of trade war on growth. The IMF in its latest World Economic Outlook Update released Monday stated that escalating trade tensions pose as the “greatest near-term threat to global growth” with the US to be vulnerable amid global retaliation. Political tensions may likewise hamper the upward trajectory of US equities. US President Donald Trump in an interview over the weekend said that the US considers EU a “foe” amid the US-EU trade dispute; that China is a “foe economically”; and that Russia is a “foe in certain respects.”  On Monday, Trump met with Russia president Vladimir Putin, and standing near him said that he considers US Special Counsel Robert Mueller’s investigation of alleged Russian interference in 2016 US elections a “disaster”. He also said that he has “confidence in both parties” referring to his intelligence aide and Putin.

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