Angelo Taningco
Economist, Treasury Group
US equity markets were in negative territory at the start of the week as the Dow, S&P 500, and NASDAQ closed Monday lower by 0.50%, 0.40%, and 0.25%, respectively. Risk-off sentiment triggered the selloff on escalating US-Turkey tensions and concerns that the sharp Turkish lira depreciation of 19% since 10 Aug may spark a market contagion and financial crisis. Most sectors were in the red with energy and materials being the worst performers. Due to Friday’s selloff, the Dow and S&P 500 incurred w-o-w declines of 0.6% and 0.2%, respectively. In contrast, NASDAQ posted a 0.3% w-o-w uptick last week.
US-Turkey relations have worsened in connection with the detention of an American priest in Turkey that led US President Donald Trump to double US import tariffs on Turkish aluminum and steel last Friday. This US action led Turkish President Recep Tayyip Erdogan to lash out at the US over the weekend. On Monday, US National Security Adviser John Bolton met with Turkey’s Ambassador to US, Serdar Kilic to discuss the detention of the American pastor and US-Turkey relationship.
Last week also saw an escalation in US-China trade war. On 7 Aug, the United States Trade Representative released a list of $16b worth of Chinese goods imports that will be imposed 25% additional tariff, effective 23 August. China immediately retaliated by finalizing its own list of US goods imports to be impose tariff lines, which include 25% tariffs on US refined products.
US economic data released last week includes US headline CPI inflation for July which recorded a steady 2.9% yoy, as expected. Moreover, core CPI inflation unexpectedly edged up to 2.4% yoy for the month versus market expectation of a flat 2.3%.
This week’s additional US data releases include i) US retail sales, which the market expects to inch up 0.1% mom in July after its 0.5% increase in June; ii) US industrial production growth, which is expected to moderate to 0.3% mom in July from 0.6% in June; and iii) housing starts, which is expected to rebound 7.4% mom in July following its 12.3% contraction in June. Furthermore, US company earnings to be released this week include Cisco, Home Depot, and Walmart. Meanwhile, US Congressional Budget Office revised down its US GDP growth forecast for 2018 by 0.2pp to 3.1% and maintained its 2019 projection of 2.4%.
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