Donald Trump slaps Mexico with crippling tariffs – Recession fears ESCALATE

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President Trump vowed on Thursday to impose a tariff on all goods coming from Mexico, starting at five percent and surging until the flow of people crossing into the US ceases. The threat hit the Mexican peso, which fell three percent to a five-month low of 19.74 per dollar. This put the struggling currency on track for its biggest daily drop since October last year. The impact of escalating trade tensions, compounded with ongoing hostility between the US and China, has sparked an even greater widening in the bond yield inversion curve, seen by economists as a warning indicator.

Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.17 percent percent, down a steep 33 basis points for the month.

An inverted yield curve is traditionally seen as a warning sign of a recession by financial markets, with fears of a new financial crisis intensifying back in March when an inversion appeared for the first time since 2007.

While the spread might not indicate an immediate recession, an inverted yield curve is traditionally seen by economists as a sign one is likely over the next year or so.

The inversion curve between the 10-year Treasury note the three-month yield widened to its deepest level since the financial crisis on Wednesday.

President Trump announced the surprise move against Mexico on Twitter late last night, announcing the tariffs would come into effect on 10 June, 2019.

The US leader tweeted: “On June 10th, the United States will impose a 5 percent Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP.

“The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed. Details from the White House to follow.”

Eleanor Creagh, a strategist at Saxo Capital Markets Australia, said of the announcement: “The mercurial President Trump has signaled via Twitter this morning that his mindset is shifting ever farther from reaching trade deals.

“It seems now that market participants are finally realising that the narrative of an H2/19 recovery is fast dissipating.

“As escalating trade tensions across the globe cause growth expectations to be recalibrated, risk off sentiment will remain and volatility will increase.”

In a statement issued by the White House, President Trump said the tariff would increase to 10 percent on 1 July.

It will then rise to 15 percent on 1 August, 20 percent on 1 September and to 25 percent on 1 October.

The President said in a statement: “Mexico’s passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States.

“Mexico has very strong immigration laws and could easily halt the illegal flow of migrants, including by returning them to their home countries.”

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