Global stocks tank as investors react to Mexico tariffs
Global stocks declined sharply after the latest tariff threat by Donald Trump. In a tweet yesterday, the President said that all goods from Mexico to the United States will attract a 5% tariff starting June 6th. The tariffs will rise to 25% in October if Mexico does nothing to stop illegal immigration to the US. The biggest declines were in the auto sector because most cars sold in the US are manufactured in Mexico. In a letter to Trump, Mexico’s President called for ‘prudence and responsibility’ between the US and Mexico. He also asked for talks that will lead to an ‘agreement that benefits both countries.’ The new tariff threat is a major issue for the revamped NAFTA that the US reached with Mexico and Canada.
China was also in the spotlight today. This is because a report showed that the country’s manufacturing PMI for May declined to 49.4, which was lower than the 49.9 that investors were expecting. It was lower than April’s 50.1. The non-manufacturing PMI remained unchanged at 54.3. In addition, China said that in reaction to the US Huawei ban, the country will come up with a comprehensive list of companies to blacklist. In a statement, China’s commerce department said that it would take measures to list foreign companies that don’t obey market rules, violate contracts and cut off supplies for non-commercial reasons. This move could block companies like Qualcomm and Intel that have cut-off their supplies to Huawei.
The Japanese yen strengthened against the USD as investors moved to safe havens. Earlier in the day, the country released mixed economic data. In April, retail sales rose by 0.5%, which was below the expected 1.0%. The Tokyo headline CPI rose by 1.1%, which was slightly lower than the expected 1.2%. The core CPI rose by 1.1%, which was slightly lower than the expected 1.2%. The housing starts declined by -5.7% from the previous gain of 10% while the household confidence declined to 39.4.
In the United States, data from the Bureau of Economic Analysis showed that personal income rose by 0.5% in April. This was higher than the expected 0.3%. Personal spending data rose by 0.3%, which was higher than the expected 0.2%. In Canada, the economy expanded by 0.5% in March, which was higher than the expected 0.4%. The Industrial Product Price Index (IPPI) rose by 1.8%, higher than the previous 1.5%.
The euro rose against the USD after Trump aired his frustrations with Mexico. The pair rose from a low of 1.1115 to an intraday high of 1.1165. On the hourly chart below, the price is along the 25-day and 50-day moving averages. The price is also slightly higher than the middle line of the Bollinger Bands. With even loyal Republicans expressing their anger on the latest tariff policy, it is likely that the president will change his policy, which will lead to the pair resuming the downward trend.
The USD/JPY pair declined today as investors moved to havens. The Japanese yen is often viewed as a safe haven. The pair reached a low of 108.70. On the 30-minute chart, this price is below the 25-day and 50-day moving averages while the RSI remains at the oversold level. The accumulation/distribution indicator has moved slightly higher. It is likely that the pair will move slightly higher in the American session.
The USD/CAD pair continued to rise after the release of the GDP numbers. The pair reached a high of 1.3565, which is the highest level since January. On the daily chart, this price is above the 50-day and 100-day moving averages. It is also between the important channel shown below. The RSI has remained below the overbought level of 70. It is likely that the upward momentum will continue as the new month starts.