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Global stocks drop on fears of expanding trade war

Stock Markets May 31, 2019 01:26PM ET
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By David Randall

NEW YORK (Reuters) - Global equities tumbled and safe-haven sovereign bonds surged Friday after President Donald Trump's unexpected threat of tariffs on Mexican goods added to fears that escalating trade wars will push the U.S. and other major economies into recession.

The yield on Germany's 10-year government bond - regarded as one of the safest assets in the world - fell to a record low while U.S. Treasury yields slipped to 20-month lows.

Washington says it will impose a 5% tariff beginning June 10, which would then rise steadily to 25% until illegal immigration across the southern border is stopped. Trump tweeted the decision late Thursday, catching markets by surprise.

"Very clearly when we all thought that the main trade tensions in the world were between the U.S. and China or perhaps between the U.S. and Europe, we hadn't realized there will be another trade tension with Mexico ... and it raises concerns about who the next country may be," said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

A key measure of Chinese manufacturing activity for May also came in below expectations, raising questions about the effectiveness of Beijing's stimulus steps and the health of the global economy.

"It is a nasty slowdown, it looks likely to be taking longer than we thought. Many thought that the slow down would be in Q1 and the recovery in Q2, but clearly everything that we see in May is telling us this will be pushed back into Q3 or Q4," Milligan added.

MSCI's gauge of stocks across the globe shed 0.61%.

On Wall Street, the Dow Jones Industrial Average fell 249.63 points, or 0.99%, to 24,920.25, the S&P 500 lost 27.32 points, or 0.98%, to 2,761.54 and the Nasdaq Composite dropped 83.14 points, or 1.1%, to 7,484.57.

The benchmark S&P 500 is down 6.2% for the month, its first monthly decline for the year to date, after hitting a record high in late April.

The pan-European STOXX 600 index lost 0.81%. Carmakers led the retreat by dropping nearly 3%, while Volkswagen (DE:VOWG_p) and Fiat Chrysler - both significantly exposed to Mexico - tumbled 3.6% and 5%.

Spanish banks with exposure to Mexico - Santander (MC:SAN), Sabadell and Bilbao - also suffered.

Bonds extended their bull run with 10-year Treasury yields now down around a steep 35 basis points for the month and decisively below the overnight funds rate. U.S. 3-month yields were some 20 basis points above those on 10-year Treasury bonds, the biggest inversion since 2007.

In currency markets, the dollar suffered the biggest one day fall against the safe haven Japanese yen since March at 0.8%. Against a basket of currencies, the dollar pulled 0.1% lower to trade at 98.013.

The euro also fell sharply against the Japanese yen and was down nearly 0.6% at 121.23 after touching the lowest since a Jan. 3 flash crash.

China's yuan is set for its worst month since July last year and was heading toward the crucial 7 per dollar figure. Sterling was plumbing its lowest level in nearly five months and poised for the biggest monthly drop in a year as the imminent departure of Theresa May as prime minister deepened fears about a chaotic divorce from the European Union.

In commodity markets, spot gold firmed 0.7% to $1,297.30 per ounce. Oil prices fell to a near three-month low on fears a global economic slowdown would crimp demand. U.S. crude fell 3% to $54.83 barrel, while Brent crude lost 3.3% to $64.67.

Global stocks drop on fears of expanding trade war
 

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Comments (19)
Kevin smarte
Kevin smarte May 31, 2019 8:07PM ET
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change the headlines to trade dispute because it's not a war and you'll see the market recover thank you
Kevin smarte
Kevin smarte May 31, 2019 8:04PM ET
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would there be as much fear in the market if you called it trade dispute cuz it's not a freaking War
ATOMIQ ILYA
ATOMIQ ILYA May 31, 2019 5:24PM ET
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Creepy Donald
Name Less
Name Less May 31, 2019 1:19PM ET
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Mexico has profited from smuggling for decades now, & president after president has enjoyed protection under different cartels. Why would they want to stem the flow of illegal immigration?? Its a sad story for everyone.
Rob Chan
Rob Chan May 31, 2019 10:13AM ET
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Mexico needs a wall with it's southern neighbors
Matthew NT
MatthewBT May 31, 2019 8:12AM ET
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Trump failed to do his job to secure US own border... & expect Mexico to do his job for him. Mexican should president of USA.
Name Less
Name Less May 31, 2019 8:12AM ET
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He didn't fail, he was met with heavy heavy opposition that made it impossible to secure the border. & Mexico is in no position to enforce anything really, their country is a narco state with corruption up the ********
steve clark
steve clark May 31, 2019 7:59AM ET
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all i see is trump haters, what is your solution to all this issues, i can call names, i like positive solutions. lets all get focused on solutions
ATOMIQ ILYA
ATOMIQ ILYA May 31, 2019 7:59AM ET
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Biden is the solution
Al Vlaj
alvlaj May 31, 2019 7:59AM ET
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Bill Weld 2020
Suman Jutur
Suman Jutur May 31, 2019 6:49AM ET
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US consumers are going to pay for the tariffs. Basically Americans including deplorables will be paying for the wall.
Lucky Gougou
Lucky Gougou May 31, 2019 4:32AM ET
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Trump promised to build a wall and Mexico will pay for it. Now, this is what we see coming true.. . We are 18 months ahead of the next Presidential Elections, and Trump needs to deliver......something.. Mexico either builds some kind of wall, or obstacle, or Trump will start building the wall and Mexico pays for it in installments.
Kevin smarte
Kevin smarte May 31, 2019 4:28AM ET
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article forgot fake market rise on stock buy backs - corp. individ.n govt debt - sheets about to EXPLODE
 
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