Stock Markets Bullish on Trump’s Mexico Tariffs
US-stock index futures, as well as stocks in Europe and Asia, have demonstrated a bullish mood on Monday and Tuesday after US President Donald Trump said at the end of last week that he would give up his plans for tariffs on Mexican goods.
Trump’s decision to suspend tariffs comes amid Mexico’s offer to limit irregular immigration from Central America by monitoring the Southern border. However, the US President hinted on Monday that he would instantly go back to his old rhetoric if certain aspects of the deal with Mexico are not implemented.
Stock Markets Benefit From Trump’s Move
S&P 500 Index closed 0.47% higher on Monday, with the futures contracts on the index moving upward as well. NASDAQ gained 1.14% by the end of Monday. In Europe, the UK’s FTSE index added 0.59% on Monday and has gained another 0.40% on Tuesday as at 09:01 AM.
The stock markets react positively on Trump’s announcement that he would indefinitely suspend the plans for a 5% tariff on Mexican goods.
Ben Emons, managing director for global macro strategy at Medley Global Advisors, commented:
The news of the deal with Mexico is likely to power global equities higher. Averting tariffs on Mexican goods is a relief for the US economy because it reduces uncertainty. It is positive for auto companies and other corporations that are highly leveraged to the Mexican border supply chain.
On the European continent, stock markets in Italy, the UK, and France were up on Monday, even if several exchanges, including in Germany, were closed for a holiday.
The auto industry, which is regarded as more sensitive to trade tariffs, has been among the best performers on Tuesday. Thus, BMW, Daimler, and Volkswagen have gained between 1.8% and 2.00%.
US Markets Driven by Potential Rate Cuts From Fed
The US stocks are also driven by speculations that the Federal Reserve might cut interest rates to push the economy after Friday’s nonfarm payrolls report showed that the labour market had added fewest workers in three months. Thus, the rally started even before Trump’s decision to suspend tariffs.
Stephen Innes, who heads trading and market strategy at SPI Asset Management, said in a note:
If there is one constant that keeps the S&P ticking, it’s the Federal Reserve cheap money.
The American stock market showed a huge monthly decline in May, trimming about four months of gains. The bears were stronger amid the trade war between the US and China and weak earnings on technology stocks. Now the markets seem to revive.
However, if the trade negotiations with Mexico fail, the US auto industry is the most at risk, with retail, transportation, materials and industrial sectors coming next.
While investors are happy about the deal between the US and Mexico, Trump can revert his stance if the Mexican side doesn’t implement all the conditions. Mexican officials stated on Saturday that they didn’t know about any side accord in the works and that agricultural trade hadn’t been negotiated.
The deal is conditional upon farm purchases. Those were already agreed under the USMCA. So long as Mexico commits to cooperate in the asylum policy and uses additional forces and resources at the border to stem the migrant flow, markets will judge the deal as credible. That is what is playing out now.
The markets will refocus on the trade tensions between the US and China, as Trump threatened to double tariffs on Chinese goods if President Xi Jinping fails to meet him at the G20 summit.
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