Trump hits Mexico with tariff threat, China plans “major” retaliation, and bonds reach new records. Here are some of the things people in markets are talking about today.
President Donald Trump said he will impose a 5% tariff on Mexican goods, taking effect on June 10, if the country does not stop immigrants from illegally entering the U.S. The White House warned that the levy could rise as high as 25% by Oct. 1 if the issue is not remedied. The Mexican peso weakened by as much as 3% as investors mull the long list of goods that would be hit by the move. It all dims the prospect of a trade deal with China as the president shows he is willing to arbitrarily impose punitive trade measures, according to analysts.
Speaking of China, the Asian nation is progressing with plans to restrict exports of rare earth minerals to the U.S., if needed, as people familiar with the matter say it is ready to go as soon as the government gives the go-ahead. The editor of a ruling Communist Party newspaper said authorities in Beijing plan a “major” retaliation against the U.S. The news comes as economic data continues to show a worse-than-expected performance, with manufacturing PMI falling further below 50.
Everyone is buying bonds
The yield on Germany’s 10-year bond fell to minus 0.209% this morning, the lowest ever. U.S. Treasury yields are tumbling further, with the 10-year at 2.151% by 5:45 a.m. Eastern Time, and the two-year dropping below 2%. Even Greek bonds are getting in on the action with the 10-year yield below 3% for the first time on record. Analysts are quickly revising their bond projections, with some seeing the benchmark U.S. yield falling to 1.5%. The market is currently pricing-in three Federal Reserve rate cuts by the end of next year, with Vice Chairman Richard Clarida yesterday giving a hint that the bank would be open to reducing rates if the economy declines.
Overnight, the MSCI Asia Pacific Index was broadly unchanged, while Japan’s Topix index closed 1.3% lower as automakers fell in the wake of Trump’s latest tariff move. In Europe, the Stoxx 600 Index was 1.4% lower at 5:45 a.m. as companies with large exposures to Mexico such as BBVA, Banco Santander SA and Fiat Chrysler Automobiles NV bore the brunt of the selloff. S&P 500 futures pointed to a fairly substantial drop at the open and gold rallied.
With the Treasury market in full-on rally mode, today’s PCE report – the Fed’s preferred inflation gauge – will be closely read by investors when it is published at 8:30 a.m. Canadian first-quarter GDP is also due at 8:30 a.m. Atlanta Fed President Raphael Bostic and New York Fed President John Williams are scheduled to speak later. Consumer sentiment data is released at 10:00 a.m. and the latest Baker Hughes rig count is at 1:00 p.m.