US - Mexico Tariffs are Canceled, Riskier Assets Gain Ground

US - Mexico Tariffs are Canceled, Riskier Assets Gain Ground

10 Jun 2019

The dollar is stronger against most major currencies on Monday as riskier assets gain traction. Asian shares were higher led by a rally in the Hang Seng which surged 2.27%. European shares are higher mid-day and US futures are pointing to a higher open. The dollar was under pressure last week as Fed easing forecasts point to a risk of recession. US jobs data on Friday was weaker than expected leading to a rally in bond prices as well as equities.

US Tariffs on Mexico have Been Canceled

President Trump has decided to call off tariffs on Mexico that were scheduled to kick-in on Monday. The two countries have reached an agreement, though there is still confusion as to what was agreed upon.  President Trump claims that Mexico agreed to large-scale purchases of US agricultural goods, but Mexico would not confirm.  Press reports suggest that many aspects of the deal had already been agreed upon. 

The ease in tension allowed the peso to rally and US rates also backed up allowing the dollar to gain traction as well.   The markets now see a 20% chance that the Fed will cut rates at its upcoming June 19 Fed meeting, down from 25% last week.  The Atlanta Fed’s GDPNow model is now tracking 1.4% growth for Q2, down from 1.5% previously.  The New York Fed’s Nowcast model is tracking 1.0% for Q2 versus 1.5% the previous week. 

The UK reported April GDP which contracted -0.4% month over month which was weaker than expected. UK Industrial production also declined more than expected dropping -2.7% month over month and construction output also declined by -0.4% month over month.  The trade gap was narrower than expected at -2.74 billion points.  These negative numbers have led the market to believe that the Bank of England will not hike rates anytime soon despite hawkish comments from BoE head Governor Carney.

Chinese Trade Data Surprised

Japan reported April current surplus was larger than expected at 1.6 trillion yen. China reported May trade data.  Exports rose 1.1% year over year versus expectations that exports would decline by -3.9%. Imports contracting -8.5% year over year versus expectations that imports would contract by -3.5% year over year. 


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