· The Japanese yen jumped against the dollar and the Mexican peso plunged after U.S. President Donald Trump’s shock threat to slap new tariffs on Mexico, which risked tipping an already struggling global economy into recession.
The impact of escalating trade tensions between Washington and Beijing is starting to show up in economic data, with a key measure of Chinese manufacturing activity disappointing investors, and Trump’s latest salvo fueled a rush on Friday to safe-haven assets such as government bonds and the yen.
The U.S. dollar fell as much as 0.8% against the yen to 108.78, its lowest since early February, while the greenback slipped against the euro and a broad basket of its rivals.
The threat hit the Mexican peso, which fell 3% to a five-month low of 19.74 per dollar, putting it on track for its biggest daily drop since October last year.
The dollar’s losses were compounded by comments from senior policymakers, with the U.S. Federal Reserve vice chair Richard Clarida discussing the possibility of rate cuts should the world’s biggest economy take a turn for the worse, though he also said he thought the U.S. economy is in “a very good place”.
Clarida’s comments that he was open to a rate cut if the U.S. economy dims, coming on top of the tariff worries, pushed U.S. Treasury yields to their lowest levels since September 2017, further eroding the interest rate advantage between U.S. yields and other government debt.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.750 after seeing highs above 98.1 last week.
The Chinese yuan is set for its worst month since July last year and was heading towards the crucial 7 per dollar figure. It was at 6.9290 per dollar on Friday.
· U.S. government debt yields added to steep May declines on Friday after President Donald Trump’s new tariff threats on all Mexican imports took investors by surprise and aggravated an already-stressed U.S. trade outlook.
At 4:07 p.m. ET, the yield on the benchmark 10-year Treasury note was lower at around 2.135%, off a fresh 20-month low around 2.125% hit earlier in the session. A portion of the yield curve remained inverted as the yield on the 3-month Treasury bill held at 2.351%. The 2-year rate dropped 13 basis points to 1.926%, it’s lowest level since January 2018.
· China took a firm official stance against the United States on trade on Sunday, issuing a white paper that illustrates a widening gap between the two sides.
The paper argues that trade disruptions — which the document claims were launched by the United States — negatively affect the world. It claims that the United States is an untrustworthy negotiator and that the Chinese government wants talks that are equal, mutually beneficial and trustworthy.
At a press conference Sunday, Vice Commerce Minister Wang Shouwen said U.S. actions in the past month are the primary reason for the lack of progress in negotiations.
Wang would not confirm at a press conference Sunday whether Trump and Chinese President Xi Jinping would meet at the G20 meeting at the end of June. Wang said only that China will send representatives to those coming meetings in Japan.
· Renewed global trade tensions have led the airline industry’s top trade body to sharply downgrade its profit forecast for the year, underscoring the mushrooming impact of President Donald Trump’s trade war with China.
The International Air Transport Association, which represents about 290 airlines that account for more than 80 per cent of all air traffic, on Sunday cut its forecast for the industry’s overall profits this year to $28bn. That is down from the previous forecast in December of $35.5bn, and would represent a 7 per cent decline from 2018.
· Investors are overlooking the threat posed by the U.S.-China trade war, which could send the global economy into recession in less than a year, according to a research note published Sunday by Morgan Stanley.
“Investors are generally of the view that the trade dispute could drag on for longer, but they appear to be overlooking its potential impact on the global macro outlook,” wrote Chetan Ahya, the investment bank’s chief economist.
· Chinese authorities have filed a case to investigate U.S. parcel delivery service FedEx for allegedly undermining the rights of Chinese clients, state-run Xinhua news agency reported on Saturday.
According to Xinhua, FedEx failed to deliver express packages to designated addresses in China, “seriously damaging the lawful rights and interests of its clients and violating laws and regulations governing the express industry in China.“
The Chinese government’s move against FedEx comes after Chinese tech company Huawei said it was re-assessing its relationship with the U.S. parcel delivery service after several packages were diverted.
· Mexican and U.S. officials were preparing on Sunday for upcoming talks aimed at averting a major trade clash after U.S. President Donald Trump vowed to impose punitive tariffs on all Mexican goods in an intensifying dispute over migration.
Mexico’s Economy Minister Graciela Marquez said on Sunday she would meet US Commerce Secretary Wilbur Ross in Washington on Monday, two days before the neighbouring countries are due to discuss possible tariffs on Mexican goods.
· Mexico’s president said on Friday that he would respond with “great prudence” to threats by his US counterpart Donald Trump to slap tariffs on Mexican goods, and called on Mexicans to unite to deal with the challenge.
Market analysts warned, meanwhile, that US businesses that do manufacturing in Mexico would bear the brunt of the tariffs, with one saying the bottom line of General Motors would shrink by hundreds of millions of dollars.
President Andres Manuel Lopez Obrador said Foreign Minister Marcelo Ebrard would visit Washington in an attempt to persuade the US government that Trump’s measures were in neither country’s interest.
Meanwhile, Mexico plans to proceed with ratification of the new free trade accord with the US and Canada despite the tariff threat.
Lopez Obrador said both Mexicans and Americans are in favour of free trade and Trump’s shock announcement on Thursday would not change things.
· US President Donald Trump has waded once again into UK's Brexit debate, urging Theresa May's successor to leave the EU with no deal.
Trump said Britain should refuse to pay its 39 billion pound ($49bn) EU divorce bill and "walk away" from Brexit talks if Brussels does not give the UK what it wants, he told the UK's Sunday Times newspaper.
The intervention comes after Trump used another newspaper interview to declare that former foreign minister Boris Johnson would be an "excellent" replacement for May.
· The Italian government is confident it can reach a compromise with Brussels and avoid sanctions over its deteriorating public finances, the economy minister said as talk of a looming government crisis grew.
The European Commission wrote to Italy last week asking it to explain why its public debt rose in 2018 instead of falling as required, a move that set the stage for a possible legal clash with the ruling eurosceptic coalition in Rome.
· South Korea’s factory activity contracted at its fastest pace in three months in May, a survey showed on Monday, reversing the previous month’s brief expansion, as new orders fell amid an intensifying Sino-U.S. trade dispute, which hurt export demand.
New export orders from the world’s sixth-largest exporting nation shrank at a faster pace, extending the contraction for a 10th straight month, the longest decline since 2015.
New orders also contracted for a seventh straight month with the sub-index at 47.1, a sign of further deterioration in domestic demand.
The PMI survey also showed manufacturers cutting headcount as production fell on weak demand, both at home and abroad.
South Korea’s unemployment rate rose to a three-month high in April to 4.1%, close to a nine-year high of 4.4% reached in January, as jobs were shed in the manufacturing and construction sectors.
The PMI shows South Korean firms are scaling back their future output plans amid the increasing economic challenges.
· Oil slumped on Friday, on track for its biggest monthly drop in six months, after U.S. President Donald Trump stoked global trade tensions by threatening tariffs on Mexico, one of the largest U.S. trade partners and major supplier of crude oil.
Brent crude futures fell $2.40, or 3.59%, to $64.47 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 5.5% to $53.50 per barrel.
Session lows for both contracts were the lowest since March 8.
Reference: CNBC, Reuters, Financial Times, Business Insider, Euronews
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