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Stocks fell in Asia along with Treasury yields, though the magnitude of the declines eased as trading progressed, after Beijing said it was ready to restrict the sale of rare earths to U.S. if needed and President Donald Trump threatened to place escalating import tariffs on Mexico.
The new front with Mexico and the threat of retaliation from China sent 10-year Treasury yields to fresh 20-month lows. Japanese shares retreated, while shares in Korea, Hong Kong and China fluctuated. Futures on the S&P 500 Index headed for their worst week since the global market rout in December. The latest move by the self-described Tariff Man would put 5% American duties on all Mexican imports on June 10, rising to 25% in October unless Mexico halts "illegal migrants" heading to the U.S. The tweet sent the Mexican peso down about 2%. The yen advanced and crude oil slid.
"We are seeing a Trump who is going all-out," said Kay Van-Petersen, global macro strategist at Saxo Capital Markets Pte. "This raises the bar not just for Mexico and Canada, but also for China."
Trump's Mexico declaration and plans from China to push back on rare earths leave markets set for a turbulent end to what's been a rough month for global equities, which are down the most since December. Markets have reeled in May amid the U.S. tariff escalation against China and the administration's moves to cut off China's tech giant Huawei Technologies Co. from American business. The move on Mexico comes after the Trump administration notified Congress it was moving forward to get the new Nafta deal approved.
Treasuries have benefited from haven demand, sending yields on 10-year notes down to 2.19% Friday compared with 2.50% at the start of the month. Speaking before the Mexico tariff news, Federal Reserve Vice Chairman Richard Clarida said the U.S. central bank is prepared to ease monetary policy if it sees mounting risks to the U.S. expansion. He stressed the economy was in a "very good place" with unemployment low and inflation muted.
How long it stays in that good place remains to be seen. Torsten Slok, an economist at Deutsche Bank AG, called the Mexico tariffs a "serious risk to the outlook" given the integration of supply chains -- especially in the auto industry -- across the U.S.-Mexico border. Further bad news on global growth came Friday with China's manufacturing PMI coming in below estimates.
Meanwhile, Mexican President Andres Manuel Lopez Obrador said he didn't want confrontation and was hoping for a long-term solution to the problem of migration, in a letter to Trump posted on Twitter.
The collapse in bond yields this week has seen the stock of negative-yielding sovereign debt climb to the highest since the global-slowdown worries of 2016. The possibility that Beijing may cut exports of rare-earth minerals, along with signs that U.S.-EU talks aren't going anywhere meaningful, have added to the negative sentiment. Oil has slumped below $56 a barrel in New York amid the concerns about global demand.
Here are some key events coming up:
And these are the main moves in markets:
--With assistance from Jeremy Herron, Vildana Hajric and Joanna Ossinger.
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