US Stock market Overview – Stocks Slide on Mexican Tariff Announcement

US stocks traded under pressure on Friday as yields tumbled to multi-year lows. The futures market pointed to an ominous trading session following an announcement by President Trump that he would levy a tariff on all Mexican imports. The auto sector crumbled led by declines in GM. Gold prices rallied as the Mexican Peso tumbled. The US Chamber of Commerce was so upset with the presidents decision it sued the White House. Volatility moved higher, and crude oil prices tumbled, as riskier assets continued to decline. Consumer prices were slightly higher which might allow the Fed to remain on hold.

 

Personal Consumption Expenditures Rose

The Commerce Department reported on Friday its personal consumption expenditures (PCE) price index increased 0.3% last month after rising 0.2% in March. That lifted the annual increase in the PCE price index to 1.5% from 1.4% in March. Excluding the volatile food and energy components, the PCE price index gained 0.2% last month after edging up 0.1% in March. On a year over year basis, the core PCE price index increased by 1.6% after rising 1.5% in March. The core PCE index is the Fed’s preferred inflation measure. The FOMC generally targets a 2% year over year increase. The government also reported on Friday that consumer spending, rose 0.3% as consumers spent less on services, including household electricity and gas.

Fear of Recession Hammers the 10-year Yield

The benchmark 10-year Treasury was hammered down to 2.16%, a fresh 20-month low. A portion of the yield curve remained inverted as the yield on the 3-month Treasury bill held at 2.36%. The 2-year rate dropped to 1.98%, it’s lowest level since January 2018.

Surprise Mexican Tariffs Roil Stocks

On Thursday evening, President Trump announced a new tarrif that will be levied on Mexico. Hard lining Steven Miller had President Trump’s ear during a trip to Japan which harded the Presidents stance. Trump said that he would introduce a 5% tariffs on all Mexican imports in response to the migrant inflows.  The tariffs will go into effect June 10 and will increase 5% on the first of every month to a 25% limit by October 1. The move comes just as press reports suggest Trump is making a push for passage of USMCA.  Its unclear how the administration believes that he will be able to threaten Mexico and get a bill passed through congress at the same time.

Automakers Were Hammered

Automakers were hammered on Friday, in the wake of the Mexican tariff announcement. The big three US automakers each have billions of dollars at stake due to both production and suppliers in Mexico. GM and Fiat Chrysler import 29% and 24%, respectively, of the total parts for its cars and trucks from Mexico. Ford has the second highest total imported vehicles from Mexico at 17%.