Angelo Taningco
Economist, Treasury Group
US equity markets started the week on a positive note as the Dow, S&P 500, and NASDAQ advanced 0.16%, 0.35%, and 0.61%, respectively, on Monday. Most sectors gained led by materials in the Dow and consumer discretionary in S&P 500. Strong earnings from Berkshire Hathaway resulted in better financial shares while increase in oil prices supported the energy sector.
This week will present earnings results from the likes of Adidas, Disney, and 21st Century Fox among others. US macro data to be released this week includes July producer price inflation, which is expected by the market to be steady at 3.4% yoy; and July consumer price inflation, in which the market expects its headline and core figures to be flat at 2.9% and 2.3% yoy, respectively. Meanwhile, US President Donald Trump signed an executive order restoring some US sanctions on Iran.
Last week witnessed little w-o-w change in the Dow but recorded upticks for the S&P 500 (+0.8%) and NASDAQ (1.0%). As expected, FOMC decided to keep the target range of its federal funds rate unchanged at 1.75% – 2.00%.
Economic data released last week showcased solid labor market; flat PCE inflation; Positive consumer confidence amid steady personal income and spending growth; growth slowdown in manufacturing and non-manufacturing activity; and widened trade deficit. Labor market continued to tighten in July as nonfarm payroll (NFP) employment grew less-than-expected, i.e., by 157k for the month (market forecast: 193k) after June’s upward revised 248k; the unemployment rate slid 0.1pp to 3.9%, as expected; and average hourly earnings growth unsurprisingly steadied at 2.7% yoy. Manufacturing and non-manufacturing sectors expanded at a slower clip in July: ISM’s manufacturing Purchasing Managers’ Index fell more-than-expected to 58.1 in July (market forecast: 59.4) from 60.2 in June while ISM’s non-manufacturing index dropped more-than-anticipated to 55.7 (market forecast: 58.6) from 59.1 during the same period. Personal income and spending both rose 0.4% mom in June, as expected. Headline and core PCE inflation steadied at 2.2% and 1.9% yoy, respectively, in June. Employment cost index growth cooled more-than-expected to 0.6% qoq in Q2 (market forecast: 0.7%) from 0.8% in Q1. Trade deficit widened less-than-projected to $46.3b in June (market forecast: $46.5b) from $43.2b in May.
Trade war concerns are still evident. US Commerce Secretary Wilbur Ross said that US will create a situation for China that’s “more painful” via exerting more tariff pressure to force China to stop its “bad practices” in trade.
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