US-Mexico tariffs and markets
Costco (COST) is the latest retailer to warn that the US-China trade war will hit consumers.
"At the end of the day, prices will go up on things," Costco CFO Richard Galanti told analysts on Thursday. Galanti said prices had already gone up on some items such as patio furniture.
Costco wasn't the only retailer on Thursday to predict prices will rise for consumers.
"We believe our shoppers will be facing higher prices as 2019 progresses," Dollar General's (DG) CFO said on a analyst call.
Walmart (WMT), Target (TGT), Home Depot (HD), Macy's (M) and others have also said recently that the tariffs have forced them to either alter their financial outlooks, remodel carefully-crafted supply chains or consider raising price tags for customers.
The Business Roundtable, an influential Washington lobby of corporate CEOs, says tariffs on Mexican imports would be a “grave error.” It urged the Trump administration to pull back on the plan unveiled Thursday night.
Moving ahead with these tariffs would also jeopardize the prospects for the Administration’s top trade priority – the United States-Mexico-Canada Agreement – and would undermine duty-free North American trade that supports over 12 million American jobs.”
Unilateral tariffs on all Mexican imports will not solve the urgent problems of securing our border and fixing our broken immigration system. We urge the Administration to engage constructively with our neighbors and allies to resolve trade, migration and security issues in ways that will benefit Americans, not cause economic damage.”
Trump’s tariff threat against one of America’s largest trading partners amplified investor worries about how trade tensions will disrupt business and slow global economic growth.
Auto makers, which rely on Mexico as a vital part of their supply chain, retreated. Fiat Chrysler (FCA) lost 5%, while General Motors (GM) and Ford (F) lost 3% apiece.
The news also rocked the Mexican peso, which tumbled 3.4% against the US dollar.
The rising trade tensions spilled over into the energy market, driving US oil prices 2.8% lower to $54.93 a barrel.
Uber (UBER) jumped 4% after its debut earnings report as a public company revealed a loss of $1 billion during the first quarter. Gap (GPS) plunged 15% after reporting poor earnings and sinking sales at its namesake and Old Navy brands.
All three major US indexes have declined more than 6% in May. It would be their first negative month of 2019. The Dow is also on track to decline for the sixth week in a row, the longest slump since June 2011.
We're entering a new phase of President Donald Trump's trade wars. As political economist Greg Valliere wrote this morning in a note, "These tariffs break new ground -- they're political, a punishment to Mexico for not stopping the surge of immigrants from Central America."
Republicans haven't pushed back on Trump's trade strategy. Until now. This is from Iowa Senator Charles Grassley: "Trade policy and border security are separate issues. This is a misuse of presidential tariff authority." Retaliation from Mexico, of course, could hurt Iowa's farmers and pork producers.
Meanwhile, the fear around the world this morning is that tariffs will hurt both countries. Weakening the Mexican economy, of course, could have the opposite effect on illegal immigration than Trump wants. But the president is clearly devoted to his tariffs-as-punishment strategy. "This finally could awaken the slumbering U.S. Congress," Valliere wrote.
I've said for some time that markets have been resilient in the face of what could be a years-long trade war with China, potential tariffs down the road on European and Japanese cars, and now new tensions with Mexico. But the past month has been a different story. For investors, May has been a reckoning.
New York Times columnist and Nobel laureate Paul Krugman weighed in on the new tariff threat.
Welcome to the last day of May. It's been a lousy month in markets. From two of my favorite market data geeks, CNN Business' Christine Romans and David Goldman:
The Dow is on track to close lower this week — for the sixth week in a row. That would be the worst losing streak since summer 2011.
With one day left, the Dow has fallen 5.35% in May. The last time stocks fell in May was in 2012, when the Dow fell 6.21%. It’s the worst month since December, when the Dow fell 8.66%. Remember December?
The US Chamber of Commerce, the most powerful business lobby in Washington, wasted no time responding to President Donald Trump's threatened tariffs on Mexican imports.
Neil Bradley, the chamber's chief policy officer:
“Imposing tariffs on goods from Mexico is exactly the wrong move. These tariffs will be paid by American families and businesses without doing a thing to solve the very real problems at the border. Instead, Congress and the president need to work together to address the serious problems at the border.”
Shares in global automakers slumped sharply on Friday after President Donald Trump said he would impose a 5% tariff on goods from Mexico, a move that could affect a huge number of vehicle exports.
Companies including Volkswagen, Fiat Chrysler, Nissan, Kia, Toyota, Mazda and Honda have plants in Mexico, which produce cars for export markets including the United States. US automakers Ford and General Motors also have factories in Mexico.
Shares in Mazda (MZDAF) plunged more than 7% in Japan. Nissan's (NSANF) stock dropped over 5%, while Honda (HMC) dipped 4% and Toyota (TM) shed nearly 3%. Volkswagen stock plunged 3.6% in Frankfurt and Fiat Chrysler gave up nearly 5% in Milan.
According to Goldman Sachs, the United States imports roughly $93 billion of goods related to autos each year from Mexico. That's by far the most valuable category shipped north from Mexico.
A tariff threat from President Donald Trump is roiling markets again.
US stock futures and global stock markets, including shares of Asian and European automakers, tumbled Friday after President Donald Trump said the United States will impose a 5% tariff on all Mexican imports.
- Japan's Nikkei slumped 1.6%, while South Korea's KOSPI was mostly flat. Markets in Europe also opened lower. Britain's FTSE 100 index fell 0.9%. Stocks in Germany shed 1.7%, and in France they dipped 1.3%.
- Stock futures indicated that those losses would extend to the US. The Dow is poised to fall 260 points, or 1%, when markets open. The S&P 500 is tracking similar losses, while the Nasdaq could drop 1.3%.
- The Mexican peso is down more than 3% against the US dollar.
US markets finished modestly higher yesterday, recovering a small portion of the week's losses. But despite the gains, all three major indexes are still down on the week.
The Dow is on track for its sixth consecutive weekly decline, its longest streak of that kind since June 2011.