Stocks Slide as Trump Turns Tariff Gun to Mexico: Markets Wrap




 

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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:

On Friday, data is due on the Fed's preferred measure of price pressures; the gauge, which excludes food an energy, is forecast to be steady at an annual 1.6%.

And these are the main moves in markets:

Stocks

Japan's Topix Index fell 0.7% as of 11:45 a.m. in Tokyo.The Shanghai Composite rose 0.1%. Hong Kong's Hang Seng dropped 0.2%. Australia's S&P/ASX 200 Index declined 0.1%. Kospi Index gained 0.2%Futures on the S&P 500 fell 0.7%. The underlying gauge rose 0.2% Thursday.

Currencies

The yen rose 0.4% to 109.23 per dollar. The offshore yuan dipped 0.1% to 6.9333 per dollar. The Bloomberg Dollar Spot Index rose 0.3% to the highest in more than five months.The euro bought $1.1134, little changed.Mexico's peso fell 1.8% to 19.4875 per dollar.

Bonds

The yield on 10-year Treasuries decreased three basis points to 2.18%.Australian 10-year yields fell to 1.49% and Japan's were at negative 0.08%.

Commodities

West Texas Intermediate crude fell 0.9% to $56.11 a barrel.Gold rose 0.2% to $1,290.75 an ounce.

--With assistance from Jeremy Herron, Vildana Hajric and Joanna Ossinger.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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