Angelo Taningco
Economist, Treasury Group
US equity markets were on the green yesterday, positively responding to the US jobs report released Friday last week. Nonfarm payroll (NFP) employment grew above-than-expected at 213k in June (market forecast: 195k). The market perceived the jobs report as solid despite the unemployment rate unexpectedly rising 0.2 percentage point (pp) to 4.0% (market forecast: 3.8%) and average hourly earnings climbing less-than-expected, i.e., by 0.2% mom and 2.7% yoy in Jun (market forecasts: 0.3% mom, 2.8% yoy). Also, markets continued to advance despite the 6 July implementation of US tariffs on $34b worth of Chinese goods that saw an immediate retaliation from China. US consumer credit data released yesterday was at $24.6b in May, more than double what the market was expecting ($12b), and supports consumer spending for the second quarter (Q2).
Last week saw gains from the previous week for Dow Jones (+0.8%)), S&P 500 (+1.5%), and NASDAQ (+2.4%). Aside from the solid jobs report, markets benefited from the above-than-expected ISM’s manufacturing PMI (60.2 vs. market’s 58.5) and non-manufacturing index (59.1 vs. market’s 58.3) for June. Minutes from the FOMC’s 12-13 June meeting also showcased a more upbeat US economic outlook albeit has also documented participants’ concerns over growing uncertainty from the trade war. Overall, it appears that the market has shrugged trade war concerns and focused more on company earnings as well as positive developments of the US labor market and real economy.
Incoming economic data this week include CPI and PPI inflation. Overall, the market expects consumer and producer price inflation to have steadied in June. Market forecasts the month-on-month (mom) headline and core CPI inflation rates at 0.2%, similar to May. On a year-on-year (yoy) basis, the market expects headline and core CPI inflation to nudge higher by 0.1pp from May to 2.9% and 2.3%, respectively. As regards PPI inflation, the market expects its mom rate to ease to 0.2% in June from 0.5% in May whereas foreseeing the yoy rate to stay unchanged at 3.1%.
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