Global stock markets slump after Trump announces Mexico tariffs

European and Asian stocks unravelled Friday, resuming a midweek slump, with investors spooked by a ratcheting up of trade war clouds after US President Donald Trump announced tariffs on all Mexican imports.

The biggest faller among Europe’s leading indices was Frankfurt, down a hefty 1.8 per cent in midday deals.

And the yield on 10-year German government bonds hit a record low as investors piled into haven assets following the exacerbation of global trade tensions.

The rate of return for investors on 10-year German government bonds, or Bunds, hit minus 0.211 per cent in the secondary market Friday, breaking the previous record of minus 0.205 per cent set in July 2016.

Tokyo’s main stocks index meanwhile tumbled 1.6 per cent by the close as the yen rallied against the dollar, making Japanese exports more expensive.

The dollar hit a six-month low at 19.76 Mexican pesos.

Oil prices meanwhile dived to the lowest levels since early March on Trump’s intervention over Mexico and after a smaller-than-expected drop in US crude supplies, traders said.

“Showing up Thursday’s rebound as a display of investor naivety, the markets sank on Friday as a new front opened up in Trump’s trade war on the world,” noted Connor Campbell, analyst at Spreadex trading group. Trump on Thursday kick-started the process of ratifying the new North American trade pact, but he has now put the accord at risk, according to experts.

Trump’s Twitter announcement of a five per cent tariff on all goods from Mexico starting June 10 was aimed at tackling “illegal migrants” crossing the border into the US.

Mexico’s under-secretary for North American affairs called the move “disastrous” and vowed to retaliate.

Carmakers were among the hardest hit by Trump’s announcement, with shares in Mazda plummeting 7.1 per cent, Nissan tumbling 5.3 per cent, Renault shedding 4.6 per cent and Volkswagen losing 3.6 per cent.

Trump’s action comes amid a protracted trade war between the United States and China.

The president’s tariff hike on $200 billion in Chinese goods earlier this month “may already be undermining foreign demand”, analyst Julian Evans-Pritchard of consultancy Capital Economics wrote in a research note.

China is retaliating by raising tariffs on $60 billion worth of US goods on Saturday, while official data Friday showed that the Asian nation’s manufacturing activity contracted more than expected in May.

In Europe, figures showed Italy’s GDP grew just 0.1 per cent in the first quarter of this year, slightly revising downward an earlier forecast in bad news for the government as it locks horns with Brussels.

Data also showed that Turkey exited recession with 1.3 per cent growth in the first quarter.

Oil was on track for its biggest monthly drop in six months on Friday as US President Donald Trump ramped up trade tensions, weighing on the demand outlook.

Brent futures are heading for an 11% slide in May and WTI for a 13% drop, their biggest monthly losses since November.

“No notice was taken of data that were positive for prices, whereas mildly disappointing figures put prices under considerable pressure,” Commerzbank analysts said.

“This selective reaction is typical of a climate of severe pessimism, as is the fact that market players are currently focussing only on demand worries while ignoring the fact that supply remains limited.” Front-month Brent crude futures, the international benchmark for oil prices, were at $64.91 at 1116 GMT, down $1.96 from last session’s close.

US West Texas Intermediate (WTI) crude futures were at $55.31 per barrel, down $1.28 from their last settlement. Both grades earlier hit their lowest since March 8.

US President Donald Trump vowed on Thursday to slap tariffs on all goods from Mexico unless it stops illegal immigration, firing up fears over economic growth and appetite for oil.

“The decision, understandably, is sending shivers down investors’ spines,” PVM said in a note. “US refiners import roughly 680,000 barrels per day of Mexican crude. The 5% tariff adds an extra $2 million to the cost of their daily purchases.” The Mexico trade dispute adds to a trade war between the United States and China, which many analysts expect to trigger a recession..

China’s factory activity shrank more than expected in May, an official survey showed on Friday.

Crude prices have also been under pressure from a return in US oil production to a record 12.3 million barrels per day, and a much smaller than expected decline in US stockpiles.

The US Energy Information Administration (EIA) said crude stocks fell by around 300,000 barrels last week, to 476.49 million barrels.

That was much less than the 900,000-barrel decline analysts had forecast in a Reuters poll, and well below the 5.3 million-barrel drawdown seen by the API industry body.

Reuters