Tariffs on Mexico unnerve investors
US stocks closed sharply lower on Friday, 31 May 2019 with the market logging its worst May since 2010, after President Donald Trump unexpectedly announced plans to impose tariffs on imports from Mexico in an attempt to pressure the country to stem the flow of migrants across the U.S. border. Meanwhile, reports said China may be readying fresh retaliatory moves against the U.S. in that trade dispute, while data showed a contraction in Chinese manufacturing activity this month.
The Dow Jones Industrial Average dropped 354.84 points, or 1.4%, to 24,815.04. The S&P 500 index fell 36.80 points, or 1.3%, to 2,752.06 and the Nasdaq Composite dropped 114.57 points, or 1.5%, to 7,453.15.
U.S. stocks, Treasury yields, and oil prices all dropped on Friday after President Trump surprised the market by threatening to impose a 5% tariff rate on all goods imported from Mexico. The 5% tariff rate will go into effect on June 10 and will increase incrementally during the summer to reach 25% on Oct. 1. The White House could remove these tariffs altogether if Mexico makes a concerted effort to curb the flow of undocumented migrants entering the U.S. Another trade dispute on top of a U.S.-China trade war with no clear end in sight fueled ongoing concerns that trade tensions will lower economic, and earnings, growth prospects
Investors were also digesting negative economic news out of China, as manufacturing activity contracted in May, weighed by weaker export orders amid escalating trade tensions with the U.S.
In the U.S., data showed April personal incomes rose 0.5%, while consumer spending rose 0.3%. The core personal-consumption expenditure, or PCE, index, the Federal Reserve's preferred inflation measure, rose 0.2%, in line with forecasts.
The University of Michigan's final consumer sentiment index reading for May came in at 100 versus an initial 102.4, but remained up from 97.2 in April.
Shares of auto makers with substantial production exposure to Mexico were under heavy pressure. Shares of General Motors fell 4.3%, while Ford Motor declined 2.3%. Japanese auto makers tumbled and French and German auto makers also took a beating.
The 2-yr yield dropped 12 basis points to 1.94%, and the 10-yr yield dropped nine basis points to 2.14%. The U.S. Dollar Index fell 0.4% to 97.76.
Bullion prices ended higher at Comex on Friday, 31 May 2019. Gold futures rallied on Friday, posting their highest finish in over seven weeks, as investors fled to the perceived safety of havens like precious metals amid fresh signs of escalation in tariff tensions between the U.S. and its global trade partners.
Gold for August delivery on Comex rallied by $18.70, or 1.5%, to settle at $1,311.0 an ounce. The metal saw its highest finish for a most-active contract since 10 April. The gains lifted prices, based on the most-active contracts, up 2.1% for the week, and up 2% for the month, after three-consecutive monthly losses. July silver added 7.6 cents, or 0.5%, to $14.567 an ounce, and saw a weekly rise of nearly 0.1%, but settled down 2.9% for May.
Oil futures dropped more than 5% on Friday, 31 May 2019 logging hefty losses for the week and month, as U.S. tariffs on Mexico heightened concerns for the global economy and demand for oil, while also sending the U.S. stock market sharply lower. At the same time, more evidence this week of solid U.S. oil supplies continued to complicate the management of the Organization of the Petroleum Exporting Countries' own production cut, a policy due for review later in June.
West Texas Intermediate crude for July delivery on the New York Mercantile Exchange lost $3.09, or 5.5%, to settle at $53.50 a barrel, the lowest finish for a front-month contract since Feb. 12. Front-month contract prices lost nearly 8.8% for the week and declined 16.3% for May. That was the worst monthly loss since November, when it skidded 22%.
On its expiration day, the July contract for global benchmark Brent crude fell $2.38, or 3.6%, to end at $64.49 a barrel on ICE Futures Europe the lowest settlement since Feb. 13. Front-month contract prices lost 11.4% month to date and wrapped up the week off 6.1% lower. August Brent the new front month, settled at $61.99, down $3.34, or 5.1%.
Oil futures dropped more than 5% on Friday, 31 May 2019 logging hefty losses for the week and month, as U.S. tariffs on Mexico heightened concerns for the global economy and demand for oil, while also sending the U.S. stock market sharply lower. At the same time, more evidence this week of solid U.S. oil supplies continued to complicate the management of the Organization of the Petroleum Exporting Countries' own production cut, a policy due for review later in June.
West Texas Intermediate crude for July delivery on the New York Mercantile Exchange lost $3.09, or 5.5%, to settle at $53.50 a barrel, the lowest finish for a front-month contract since Feb. 12. Front-month contract prices lost nearly 8.8% for the week and declined 16.3% for May. That was the worst monthly loss since November, when it skidded 22%.
On its expiration day, the July contract for global benchmark Brent crude fell $2.38, or 3.6%, to end at $64.49 a barrel on ICE Futures Europe the lowest settlement since Feb. 13. Front-month contract prices lost 11.4% month to date and wrapped up the week off 6.1% lower. August Brent the new front month, settled at $61.99, down $3.34, or 5.1%.
Looking ahead, investors will receive the ISM Manufacturing Index for May and Construction Spending for April on Monday.
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