By Wayne Cole
SYDNEY (Reuters) – US stock futures worn out and government bonds rose Friday when investors feared President Donald Trump's shock threat of tariffs on Mexico risked tipping the US, and perhaps the whole world, into recession.
The investor mood darkened even further when a key goal of Chinese manufacturing activity in May was disappointed, raising questions about the effectiveness of Beijing's stimulus steps. [1[ads1]9659004] Markets moved aggressively to price in deeper interest rate cuts from the Federal Reserve this year, while bond yields affected new downturns and curves conversely further in a recession warning.
Washington will impose a 5% tariff from June 10, which would then rise evenly to 25% until illegal immigration across the southern border was stopped.
Trump announced the decision on Twitter late on Thursday, capturing markets completely by surprise.
"Mercurial President Trump has signaled via Twitter this morning that his thinking is shifting longer than reaching commercial offers," warned Eleanor Creagh, strategist at Saxo Capital Markets Australia.
"It seems that market participants finally realize that the story of a H2 / 19 recovery is fast," she says. "As growing trade tensions around the world cause growth expectations to be recalibrated, the risk of emotion will remain and volatility will increase. "
10-year government bond yields fell rapidly to a new 20-month low of 2.17% while the dollar jumped 1.7% on the Mexican peso.
E-Mini futures for wear 0.8% and futures 0.4%, Germany shed 0.7%
Asian stocks fell first, only to pull the month-end hunting after experiencing a tough few weeks, MSCI's widest index of Asia-Pacific stocks outside Japan increased by 0 , 3%, even though it was still down 7.3% for the month.
China's blue chip index remained firm, partly speaking, Beijing should now boost its stimulus, but again, the nursing was lost at 6.8%. May
Japan fell 1.3%, pulled down by large declines in automakers, which d a 7.1% for the month. ()
Investors clearly believed that opening a new front in the trade 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 of Fed relief this year and next, futures no less than 44 basis points of cuts at year-end in the current effective fund price of 2.38%
YIELD INVERSION = RECESSION RISK
Bonds Expanded its 10-year tax return tariff down steeply 33 base points for the month and decisively below the daily fund rate.
Such an inversion of the yield curve has prepaid enough setbacks earlier that investors are betting the Fed will be forced to ease policy just like "insurance"  Nevertheless, the tax authorities are barely alone in rallying, with bond yields across Europe, either at or near The yields in Australia and New Zealand have also taken a full-time creep on expectations of price reductions there.
These declines have kept the US dollar relatively attractive from a dividend point of view and it traded close to a two-year high against a basket of currencies of 98,115.
The euro was huddled at $ 1,1129, having cut 0.7% for the month. The security port improved when the dollar lost 0.6% a day to a three-month low of 108.94.
Sterling was ready for the biggest monthly downturn in a year as the impending departure of Theresa May as the prime minister reinforced fear of a chaotic divorce from the European Union.
The pound was last at $ 1,2611 and caring for a 3.2% loss for the month so far.
In the commodity markets, 0.4% tightened to $ 1,293.33 per ounce.
Oil prices fell to the lowest for almost three months of fear a global economic downturn would demand demand. [O/R]
was last down 55 cents at $ 56.04 a barrel, while futures lost 91 cents to $ 65.96.