Mexico reprieve lifts stocks, Canada and China tariffs still loom
Make us a preferred source
Make us a preferred source on Google
The news: Wall Street pared losses on Monday after US President Donald Trump delayed 25% tariffs on Mexico for one month following a conversation with Mexican President Claudia Sheinbaum.
Earlier in the session, stocks had dropped nearly 2%, as Trump’s 25% tariffs on Mexico and Canada and 10% on China were due to take effect on Tuesday.
The S&P 500 was down about 0.8% at around midday local time, the Nasdaq was down 1.26%, and the Dow was 0.33% lower.
The Mexican peso rebounded, erasing earlier losses and leading gains among major currencies after the announcement. The Bloomberg Dollar Spot Index rose 0.3%.
Levies on Canada and China are still set to take effect on Tuesday. But shares of Chinese e-commerce giants JD.com and Alibaba Group rebounded after initially falling, as the US decision to postpone Mexico tariffs raised speculation that China could secure a similar agreement.
The Cboe Volatility Index retreated from a one-week high.
Mexico agreed to deploy 10,000 National Guard members to its northern border to curb fentanyl smuggling.
Trump tariffs trigger global market slide
The news: Global markets fell after US President Donald Trump imposed tariffs on the country’s closest trading partners, with the S&P 500 dropping 1.8% in early trading and European and Asian markets also declining.
The dollar strengthened against almost every currency while the Mexican peso lost 2% and the Canadian dollar fell 1.1%. Oil prices rose, with US crude surpassing USD74 per barrel, while gasoline futures rose nearly 3%.
The context: Trump over the weekend announced import duties of 25% on products from Mexico and Canada – except for oil which will be taxed at 10% - and 10% on products from China, linking them to immigration and fentanyl.
Canada and Mexico are the top sources of US crude oil imports, and the new tariffs threaten to disrupt North America's tightly integrated oil market.
Canada responded with an immediate announcement of retaliatory tariffs, Mexico said it would detail its own measures on Monday (Tuesday AEDT), and China vowed "corresponding countermeasures."
Trump repeated threats indicating tariffs on EU products could be next, but suggested Britain might avoid them.
Trump is expected to speak with both Canada Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum on Monday (Tuesday AEDT).
The numbers: The S&P 500 dropped 1.8% and European markets fell up to 1.9%.
A UBS Group AG index of stocks exposed to tariffs fell 4.2%, as hedge funds sold off US equities while retail investors bought in. Shares of automakers, semiconductor companies and energy companies all declined.
The Nasdaq lost around 2%. Tokyo stocks closed nearly 3% lower, while Australia's ASX 200 fell 1.8%, its worse day in five months.
Treasury yields moved in opposite directions, with short-term yields climbing and longer ones falling.
What they said: Goldman Sachs strategists said there is a risk of a 5% slump in US stocks over the coming months from the impact of the Trump administration's tariffs makes its way into company earnings forecasts.
Analysts warned of inflation, economic slowdown and potential recession in Canada and Mexico, while Deutsche Bank economists estimated a 0.5% GDP hit to Europe’s GDP should Trump impose 10% tariffs on the bloc.
"The uncertainty at this stage is tremendous—not only of how these eventual negotiations will play out, but worries about how this is only the tip of the iceberg and more tariffs are on the horizon," said BMO Wealth Management CIO Yung-Yu Ma.
