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New Tariffs Tank Market, Recession Fears Stoked, China’s Economy Contracts

Thomas Hughes

New Tariffs Have U.S. Futures Lower On Friday

A round of new tariffs has the major U.S. indices moving lower on Friday morning. The Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite are all indicated to open lower by more than -1.0%. The tech-heavy NASDAQ Composite is in the lead with a loss of -1.40% although it is it the automotive sector that is getting hit the hardest.

The new tariffs are against Mexico and come as a shock to all. Mexico is the U.S. largest trading partner by far, the unexpected tariffs could send the U.S. into recession. The reason for the tariffs is border security. Trump says Mexico isn’t doing what it could to control illegal border crossings, the tariffs are intended to spur Mexico to action. Mexico’s President Obrador has responded saying he does not want confrontation, and that social problems can’t be fixed by coercion or taxes.

The new tariffs are 5% on all imports from Mexico starting June 10. If no action is taken the tariffs could be lifted to 25% by October first. Most think some action will occur relatively soon, enough to stop the tariffs, but shares of automakers fell -5.0% anyway. Ford, GM, and Fiat-Chrysler have enormous exposure to Mexican imports throughout the supply chain.

In economic news, Personal Income and Spending was much better than expected. Personal income rose 0.5% versus the 0.3% expected, personal spending rose 0.3% versus the 0.2% expected. On the inflation front, the core PCE price index came in as expected at a tame 1.6% YOY.

EU Markets Lower As Recession Fears Are Stoked

The major EU indices moved lower in Friday trading after Trump’s new tariffs stoked recession fears. The yield on the U.S. ten-year Treasury fell to a new low in response and sent global markets moving lower. All major indices are in the red at mid-day but the DAX has a substantial lead. The DAX is down more than -1.75% while the CAC and FTSE are down -1.45% and -1.05%. Autos are leading in the EU as well, most stocks in the sector are down nearly -3.0%.

Shares of Wirecard fell more than -11.0% after news alleged the company was involved with transactions for fraudulent trading platforms. The allegations include unregulated forex and even binary options scam brokers. In more positive news, Allianz announced the acquisition of two smaller insurers as it consolidates its position within the market.

Asian Markets Mixed, Chinese Data Is Weaker Than Expected

The major Asian indices were mixed on Friday following weaker than expected PMI in China. The official Chinese PMI fell to 49.4 from 50.1, lower than the 49.9 expected, amid escalating trade war rhetoric. The data is a sign that trade relations and the threat of global economic slowing are having an effect on China’s economy. The Shanghai Composite fell on the news but only -0.24%, the Hong Kong Hang Seng fell a more substantial -0.79%. The Japanese Nikkie led today’s market with a loss of -1.6% while others in the region traded near break-even.

This article was originally posted on FX Empire