By Karin Strohecker
LONDON (Reuters) – European equities, tumbler and government bonds rose Friday when investors feared President Donald Trump's rates of shock on Mexico risking to tip the US to recession while disappointing China data was added to the woes.
Markets moved aggressively to price in deeper price fluctuations of the Federal Reserve this year, while US bond yields affected fresh downs and parts of the curve conversely, seen as a warning sign of recession in the world's largest economy.
Washington will impose a 5% tariff from June 1
"Very clear when we all realized that the most important trade tensions in the world were between the United States and China or perhaps between the United States and Europe, we would not have realized that there will be another trade tensions with Mexico … and there are concerns about who The next country could be, says Andrew Milligan, head of global strategy at Aberdeen Standard Investments.
The investor mood was further dark when a key goal of Chinese manufacturing activity in May was disappointed, and raised questions about the effectiveness of Beijing's stimulus steps. Concerns about the health of the global economy.
"It's a nasty decline, it seems likely to take longer than we thought. Many thought that the decline would be in the first quarter and the restoration in the second quarter, but clearly everything we see in May tells us that this will be pushed back to Q3 or Q4, says Milligan.
The yield on the 10-year government bond fell rapidly to a fresh 20-month low of 2.17%, while the dollar jumped more than 3% on the Mexican peso.
In Europe, pan-European fell by 1%, which fell to more than three months with the trading-sensitive German down 1.4%. All sectors were in red, but the falls were led by car manufacturers who dropped more than 2% while Volkswagen (DE 🙂 and Fiat Chrysler – both have significant exposure to Mexico – fell 4%.
Spanish banks exposed to Mexico – Santander (MC :), Sabadell and Bilbao – also suffer.
Wall Street – on the track for the first monthly decline in 2019 – also looked in line for significant falls, with e-Mini futures pointing to a 1% lower open.
Asian stocks fell first, but some pulled in the month of hunting after experiencing a dry few weeks. MSCI's widest Asia-Pacific stock index outside Japan increased by 0.2%, but is still down 7.4% for the month.
China's blue chip index ended a pressure lower in hope Beijing will now have to ramp up its stimulus containing loss. Japan's fell 1.6%, downed by major declines in automakers, and down 7.1% in the month. ()
Investors clearly believed that the opening of a new front in the commercial war would push central banks everywhere to consider new stimulants.
On Thursday, the Federal Reserve board chairman Richard Clarida said the central bank would act if inflation remained too low or global and economic risks threaten the economic outlook.
"What Clarida's comments have done is to clarify in many people's mind that the answer to the questions of low inflation proves more than transient would be enough to get the Fed to ease – the answer seems to be" yes, "Ray says. Attrill, head of the FX strategy at National Australia Bank.
"This served to strengthen the prevailing market expectations that the Fed will ease in the second half of this year. "
In fact, the case was that inflation co-operation was temporary when the core personal spending index, Fed's preferred inflation measure, was revised to 1% for the first quarter, from 1.3%.
Trump's tax threat was only added to the danger and the market further reduced the odds on Fed relief this year and next, futures no less than 44 basis points of cuts at year-end in today's effective 2.38% fund price.
BOND BID, YEN Surprise
Bonds expanded Its 10-month tax return is down steeply 33 basis points for the month and decisively below the overnight rate, while US 3-month returns were 20 basis points over the 10-year government bonds, the largest inversion since 2007.
Such an inversion of the yield curve has prepaid enough setbacks earlier that investors bet The Fed will be forced to ease the policy just like "insurance".
Nevertheless, Treasuries almost not alone in rallying, with Germany's reference 10-year bond yield flirting with fresh record laws.
In the foreign exchange markets, the dollar suffered the largest one-day fall against free Japanese yen port since March of 0.7%. Against a basket of currencies, the dollar pulled 0.2% lower to trade at 97.975.
The euro also fell sharply against the Japanese yen and was down nearly 0.5% at 121.34 after touching the lowest since a 3-year flash crash. 19659004] China's yuan is set for its worst month since July last year and was heading for the decisive 7 per cent. Sterling was ready for the biggest monthly drop in a year as the impending departure of Theresa May as prime minister deep fears of a chaotic EU divorce.
In the commodity markets, 0.4% tightened to $ 1,293.33 per ounce. Oil prices fell to almost three months with fears that global economic downturn would shrink demand. was down 57 cents at $ 56.22 a barrel, while futures lost 95 cents to $ 65.92. [O/R]