Trump's tariff threat on Mexico rattles Wall Street

Wall Street is on course for a fall of more than 6.5 per cent in May, its worst performance this year. — Reuters pic
Wall Street is on course for a fall of more than 6.5 per cent in May, its worst performance this year. — Reuters pic

WASHINGTON, May 31 — US stocks fell broadly today, hit by fears that President Donald Trump's shock threat of tariffs on Mexico could prove the trigger that pushes the world's largest economy into recession.

Washington will impose a 5 per cent tariff from June 10, which would then rise steadily to 25 per cent until illegal immigration across the southern border was stopped, Trump tweeted later on Thursday. Mexican President Andres Manuel Lopez Obrador said he would respond with “great prudence”.

“It is a very sticky situation,” said Art Hogan, chief market strategist at National Securities in New York.

“American companies needed to find supply chains outside of China when it looked like the (US-China) trade deal is going to take much longer and one of those countries that was pointed to outside the Pacific was Mexico.”

Wall Street is on course for a fall of more than 6.5 per cent in May, its worst performance this year and the trigger for a flood of money into the bond market that has encouraged expectations of a US recession.

US Treasury yields fell to new multi-month lows, while the yield curve, as measured in the gap between three-month and 10-year bond yields, remained heavily inverted. An inversion in the yield curve is seen by some as an indicator that a recession is likely in one to two years.

The broader financial sector was under pressure, falling 1.29 per cent, while bank stocks fell 1.50 per cent.

Carmakers and manufacturers also bore the brunt of Trump's Mexico threat. General Motors Co dropped 3.9 per cent and Ford Motor Co 3.2 per cent, pushing the consumer discretionary sector 1.46 per cent lower.

At 9:46am ET the Dow Jones Industrial Average was down 291.27 points, or 1.16 per cent, at 24,878.61, the S&P 500 was down 33.95 points, or 1.22 per cent, at 2,754.91 and the Nasdaq Composite was down 100.31 points, or 1.33 per cent, at 7,467.41.

Adding to risks was Beijing's warning on Friday that it would unveil an unprecedented hit-list of “unreliable” foreign firms, as a slate of retaliatory tariffs on imported US goods was set to kick in at midnight.

Tariff-sensitive industrials declined 1.37 per cent, while FAANG stocks - Facebook Inc, Apple Inc, Alphabet Inc, Netflix Inc and Inc - fell between 0.8 per cent and 2.6 per cent.

Data showed US consumer prices increased in April, which could support the Federal Reserve's contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.

Among other stocks, Gap Inc tumbled 16 per cent, the most among S&P 500 companies, after the apparel retailer cut its 2019 profit forecast.

Constellation Brands, which has substantial brewery operations in Mexico, slid 8.2 per cent.

Declining issues outnumbered advancers for a 5.31-to-1 ratio on the NYSE and a 5.28-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 49 new lows, while the Nasdaq recorded four new highs and 136 new lows. — Reuters

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