Weekly Market Update: Trade war opens on new front
The holiday shortened week opened amid light volumes and continued hand ringing by investors. The US/China trade war showed no signs of letting up with rhetoric on each side only amplifying a growing narrative that not much should be expected if and when Trump and Xi meet at the G20 in late June. Economic data continued to decelerate, particularly outside of the US. Chinese PMI data deteriorated for the first time in 3-months and German CPI figures weakened. A raft of US retail earnings were nothing to cheer about either, raising doubts about the health of what to this point has been a resilient US consumer. By Wednesday investors were fleeing risk assets like stocks and commodities resulting in continued flows into the relative safety of government bonds and gold. Major US indices dipped back below their 200-day moving averages and interest rates retreated further. WTI crude futures dropped below $55 for the first time since February.
Those investors who pared back on risk assets were rewarded on Friday when the Trump administration announced a surprise move to slap tariffs on Mexico. The White House emphasized the move was intended to prod the Mexican government to help fight an illegal immigration, but the President himself said he also aspired to see more jobs and business move back to the US. The Mexican peso dropped 3% on the news while stocks with perceived Mexico exposure like autos got drubbed. A number of prominent Republican politicians and business trade groups came out in opposition to the tariffs as the wrong policy for the task.
Interest rates continued to plumb lower this week. The US 10-year Treasury yield slid to a 2-year low below 2.15% and the German Bund to a new record negative rate below -0.20%. Copper and oil fell while Gold prices rose sharply after the Mexico tariff announcement. Wall Street forecasters began incorporating multiple Fed rate cuts into their models for later this year which mirrored movements seen across futures markets. The Nasdaq dropped 2.4%,the DJIA fell 3%, and the S&P lost 2.6%, its biggest weekly drop since December.
In corporate news this week, Global Payments and Total System Services confirmed they would combine in a $21B all-stock merger of equals, notching yet another deal within the busy fintech space. Cypress Semi shares rose on a report that the company is working with advisers to explore strategic options, including a sale, though the company had no comment. Beyond Meat shares extended their meteoric rise on reports that KFC has held meetings with plant-based meat producers over the launch of a potential vegan version of fried chicken. Friday saw press reports speculate that both Amazon and cable companies could have interest in wireless spectrum and or assets that are likely to become available from required divestitures needed to get regulatory approval of the Sprint/T-mobile deal.