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On 31 May 2019 - Markets hit again as Trump threatens more tariffs on Mexico

Anne D Picker

Anne D Picker - Econoday

US threat to widen trade war triggers another risk-off move.

US markets

US shares slumped Friday as markets reacted to President Trump’s threat to raise tariffs on Mexican imports. US Treasuries rallied on a flight to quality, with the long end outperforming, typically a signal of an economic slowdown. Gold and the yen gained as safe-havens.

US shares slumped Friday as markets reacted to President Trump’s threat to raise tariffs on Mexican imports. US Treasuries rallied on a flight to quality, with the long end outperforming, typically a signal of an economic slowdown. Gold and the yen gained as safe-havens.

In other trade actions, China said it will compile an "unreliable entities list" of companies that harm its interests. This follows the US blacklisting earlier this month of Chinese telecom equipment maker Huawei.

The Dow Jones industrials fell by 1.4 percent, while the S&P 500 dropped 1.3 percent, and the NASDAQ was off 1.5 percent.

US automakers and manufacturers were the worst performers, but the losses were across the board, apart from defensive sectors like real estate and utilities.

In US economic news, the PCE price index excluding food and energy hit expectations at a 0.2 percent monthly gain in April with the year-on-year also hitting expectations at 1.6 percent. The overall PCE price index rose 0.3 percent with this yearly rate also rising 1 tenth, to 1.5 percent.

Personal income rose a stronger-than-expected 0.5 percent in April though growth in the wages & salaries component was softer at 0.3 percent. Consumer spending proved a little less modest than expected, at 0.3 percent though the increase is centered in non-durable goods which reflects price effects for oil.

Canadian economic growth was slower than expected in the first quarter as foreign trade partly offset consumer spending and business investment gains. A 0.1 percent quarterly increase in real terms (0.4 percent annualized) matched the growth rate of the previous quarter but fell short of consensus forecasts calling for an annualized quarterly gain of 0.7 percent.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was down US$2.02 to $64.47 while gold was US$17.00 higher at $1,305.60. The US dollar was mostly weaker against most major currencies, as its safe-haven status started to crack. The yield on the US Treasury 30-year bond fell 7 basis points to 2.58 percent while the yield on the 10-year note was down 9 basis points to 2.12 percent.

European markets

European shares sank Friday on President Trump’s threat to raise tariffs on Mexican imports, with automakers leading the selloff. US-Europe trade talks have been stalled over US threats against European automakers, and market concerns have been aggravated by the Mexico tariff threat.

The European STOXX 600 fell 0.8 percent, and lost 5.7 percent for the month. The German DAX was off 1.5 percent, and the French CAC and UK FTSE 100 were both down 0.8 percent.

Banks with exposure to Mexico suffered, with Santander, Bilbao, and Sabadell off 2 percent to 4 percent. Automakers also were hit, with Volkswagen down 3 percent, and Fiat Chrysler down 5 percent.

German economic news came in on the gloomy side Friday. German retail sales surprised on the downside in April, and significantly so. Although March's modest 0.2 percent monthly fall was revised away, the second quarter began with a hefty 2.0 percent decline, the second steepest drop in more than five years.

Having climbed sharply in April, German inflation declined almost as steeply in May. Consumer prices rose a smaller than expected 0.2 percent on the month, reducing annual inflation from April's final 2.0 percent mark to 1.4 percent. Taken together, the large falls already announced in France, Italy and Spain, today's German update all but guarantees a sizeable drop in overall Eurozone inflation this month. This suggests underlying inflation trends are still both flat and worryingly low.

UK house prices were soft and slightly weaker than expected in May. According to the Nationwide survey, a 0.2 percent monthly decline in the lender's HPI put annual inflation at 0.6 percent, down from April's 0.9 percent and its second consecutive decrease. This was the first monthly fall in prices since February and the second in the last half a year.

Asia Pacific Markets

A broadening of US tariff actions now targeting Mexico sent Asian indexes sharply lower Friday, especially Japanese automakers. The Nikkei fell 1.6 percent on the session for a 2.4 percent loss on the week, with Mazda, Nissan, Honda and Toyota posting losses ranging from 7 percent to 3 percent.

On the year, the Nikkei is now up 2.9 percent. Only a month ago, on April 25 and just before the extended Golden Week break, the Nikkei was up 11.5 percent.

Underscoring the threat to global trade, manufacturing data continue to slump. China's CFLP Manufacturing PMI index fell to a lower-than-expected 49.4 in May to indicate slight contraction for the sector.

Hong Kong's Hang Seng fell 0.8 percent Friday as did Singapore's Straits Times though Australia's All Ordinaries was unchanged. Like the All Ordinaries, the Shanghai composite continues to outperform, down only 0.2 percent on the day and still up a very strong 16.2 percent higher year-to-date.

Looking forward

Central Bank activities

Jun-04

Australia

RBA Announcement

Jun-06

India

RBI Announcement

 

EZ

ECB Announcement

The following indicators will be released this week...

Europe

Jun-03

Switzerland

CPI (May)

 

UK

CIPS/PMI Manufacturing Index (May)

Jun-04

EZ

HICP Flash (May)

 

 

Unemployment Rate (April)

Jun-05

EZ

Retail Sales (April)

 

UK

CIPS/PMI Services Index (May)

Jun-07

France

Industrial Production (April)

 

 

Merchandise Trade (April)

 

Germany

Industrial Production (April)

 

 

Merchandise Trade (April)

 

Italy

Retail Sales (April)

Jun-08

Germany

Industrial Production (April)

Asia Pacific

Jun-03

China

Caixan PMI Manufacturing (May)

 

India

PMI Manufacturing (May)

Jun-04

Australia

Retail Sales (May)

Jun-05

Australia

GDP (Q1)

 

China

General Services PMI (May)

Jun-06

Australia

Merchandise Trade (March)

 

Singapore

PMI (May)

Jun-07

Japan

Household Spending (April)

Americas

Jun-03

US

Construction Spending (April)

 

 

ISM Mfg Index (May)

Jun-04

US

Factory Orders (April)

Jun-06

Canada

Ivey Purchasing Managers' Index (May)

 

 

Merchandise Trade (April)

 

US

International Trade (April)

Jun-07

Canada

Housing Starts (May)

 

 

Labour Force Survey (May)

 

US

Employment Situation (May)

Global Stock Markets

 

Index

31 May 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

24815.04

-354.84

-1.4

 

NASDAQ

7453.15

-114.57

-1.5

 

S&P 500

2752.06

-36.80

-1.3

Canada

S&P/TSX Comp

16037.49

-51.75

-0.3

Europe

 

 

 

 

UK

FTSE 100

7161.71

-56.45

-0.8

France

CAC

5207.63

-41.28

-0.8

Germany

XETRA DAX

11726.84

-175.24

-1.5

Italy

MIB

19802.11

-145.81

-0.7

Spain

Ibex 35

9004.2

-153.60

-1.7

Sweden

OMX Stockholm 30

1510.46

-28.29

-1.8

Switzerland

SMI

9523.98

-17.99

-0.2

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6491.81

2.63

0.0

Japan

Nikkei 225

20601.19

-341.34

-1.6

 

Topix

1512.28

-19.70

-1.3

Hong Kong

Hang Seng

26901.09

-213.79

-0.8

S. Korea

Kospi

2041.74

2.94

0.1

Singapore

STI

3117.76

-25.24

-0.8

China

Shanghai Comp

2898.7

-7.10

-0.2

Taiwan

TAIEX

10498.49

115.50

1.1

India

Sensex 30

39714.2

-117.77

-0.3

*Markets closed

Data Source — Haver Analytics

Note: all releases are listed in local time.

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