trending Market Intelligence /marketintelligence/en/news-insights/trending/MIzkR2l2dRpIeTcvSCzQ9A2 content esgSubNav
In This List

Treasurys rally as Trump's tariff threats on Mexico rattle global stocks

Case Study

Powering the markets of the future with data and AI


Analyzing Sentiment in Quarterly Earnings Calls — Q3 2023

Case Study

An Alternative Investment Team Harnesses Textual Data Analytics to Find New Sources of Alpha


Battery metals - unbated long term need for supply security despite short-term headwinds

Treasurys rally as Trump's tariff threats on Mexico rattle global stocks

➤ U.S. to impose 5% tariff on Mexican imports June 10.

➤ China manufacturing activity shrinks in May.

➤ Italy has until today to reply to EU's debt warning.

➤ Treasurys rise ahead of Fed's preferred inflation gauge.

Global stocks retreated as investors looked for safe-haven assets after President Donald Trump ratcheted up global trade tensions with an unexpected tariff threat on Mexico.

The U.S. will impose a 5% tariff on Mexican imports beginning June 10 and will gradually raise the rate to as much as 25% by October if Mexico fails to clamp down on illegal immigration. The decision comes as the Trump administration took the first step to spur a vote in Congress on the United States-Mexico-Canada Agreement, starting the clock for consideration of the deal that would replace the North American Free Trade Agreement.

The "surprise" tariff threat "could well upend the whole agreement," said Michael Hewson, chief market analyst at CMC Markets UK, in a daily note. "It also makes it much more difficult for countries to take the U.S. at its word when it comes to trade negotiations if its president can so easily lob a hand grenade into the path of an already agreed deal."

With the U.S.-China trade spat still unresolved, the planned Mexican tariffs signal that the U.S. "is not afraid of a multifront trade war," said ING analysts in a note. "This in turn keeps the threat of auto tariffs on [eurozone] car exports very much alive."

European stocks retreated May 31, with German automakers Volkswagen AG, Bayerische Motoren Werke AG and Daimler AG among the worst performers in the DAX index, which fell 1.8% at 6:30 a.m. ET. The FTSE 100 and CAC 40 fell 1.0% and 1.5%, respectively.

In Asia, Japan's Nikkei 225 and Hong Kong's Hang Seng sank deeper into the red to end the session down 1.6% and 0.8%, respectively, while the Shanghai SE Composite index closed down 0.2% as China's manufacturing activity contracted in May. Separately, China will reportedly set up a list of unreliable foreign entities that could harm domestic interests, in signs of potential further retaliation after the U.S. moved to blacklist Huawei Technologies Co. Ltd.

U.S. equities look set for a weaker open on Wall Street as futures for the S&P 500 and Nasdaq 100 declined more than 1% each amid the risk-off sentiment in stocks. Gold, traditionally regarded as a safe-haven asset, rose 0.9% to $1,303.80 per ounce, while the Japanese yen gained 0.8% against the dollar.

The Mexican peso tumbled 3% versus the dollar following the White House's announcement. The dollar index dipped 0.1% to 98.0 as the euro advanced 0.2% versus the U.S. currency, while sterling dipped 0.2%.

U.S. bonds rallied as yields on 10-year Treasurys shed 6 basis points to just under 2.16% ahead of the release of the Fed's preferred inflation gauge. Fed Vice Chairman Richard Clarida said yesterday that the central bank would consider cutting interest rates if incoming data were to show a "persistent shortfall" in inflation below the 2% target.

Meanwhile, yields on 10-year German Bunds fell 4 basis points to negative 0.21%, while those on Italian bonds with the same maturity added 7 basis points to 2.72%. The Italian government has until today to send an explanation to the EU regarding its excessive debt levels.

Brent crude oil dropped nearly 3% to $64.90 per barrel on the ICE Futures Exchange.

More from S&P Global Market Intelligence:

Congress could run out of time to pass these bills as election season nears

Trade war propping up Chinese rare earth shares, commodity prices

US housing market: Housing starts rise, home sales fall MOM in April

Defaults on the rise in metals and mining sector, S&P Global Ratings data shows

A closer look at the potential Fiat Chrysler-Renault merger

Global i-banks see weakest Q1 in three years with revenue drops across the board

The day ahead:

8 a.m. ET — Germany consumer price index (Econoday consensus: 0.3% month over month, 1.6% year over year)

8:30 a.m. ET — U.S. core personal consumption expenditure price index (Econoday consensus: 1.6% year over year)

8:30 a.m. ET — Canada GDP (Econoday consensus: 0.7% annualized)

8:30 a.m. ET — Canada industrial product price index

9:15 a.m. ET — U.S. Fed's Raphael Bostic speaks

9:45 p.m. ET — U.S. Chicago purchasing managers' index (Econoday consensus: 53.6)

10 a.m. ET — University of Michigan's U.S. consumer sentiment index (Econoday consensus: 101.5)

12 p.m. ET — U.S. Fed's John Williams speaks

1 p.m. ET — U.S. Baker-Hughes rig count

3 p.m. ET — U.S. farm prices