U.S. stock futures slipped as are global markets, even as sovereign bonds continued their surge on Friday. But in all these, investors are scared President Donald Trump’s threat to impose tariffs on Mexico could push the world into recession.
Investor outlook has grown a shade darker in the wake of data showing that Chinese manufacturing activity did not match expectation in May, a development that puts question marks on whether Beijing’s stimulus steps were effective at all.
Recession signals flicker as markets have continued to move sharply in an effort to price in Fed cuts. Furthermore, bond yields have touched new lows, while curves are inverted.
Mexico faces a 5% tariff hike beginning June 10 and is expected to rise to 25%, reportedly until all illegal immigration ends. Trump announced this via Twitter on Thursday, a move that has shaken markets and sparked a dash for safe havens.
Westpac FX analyst Sean Callow says the threat is “a sharp blow” given Mexico’s position as U.S.’s biggest trading partner and for the fact that the market did not expect any trade flare-ups.
The 10-year Treasury note yields fell by 2.18%, hitting a new 20-month, while the dollar/Mexican peso rate rose 1.7%. Meanwhile, E-Mini futures declined 0.7% as FTSE futures also dipped by 0.4%.
Investors have concerns that a new trade war front is likely to threaten global economic growth, forcing most central banks to consider implementing new stimulus plans.
That saw the Vice Chair of the Federal Reserve Board of Governors Richard Clarida hint on Thursday that the central bank would act if the inflation rates stayed too low.
Elsewhere in the currencies market, the euro remained knotted around $1.113, with its monthly gains 0.7% down. But the safe haven currency yen maintained its steady run at 109.33 to the dollar. Sterling is nursing prospects of hitting its highest monthly drop in over a year following Brexit fears amid Theresa May’s resignation. The pound exchanged at $1.2611, declining by about 3.2% over the month.