Stocks on Wall Street pared their losses after the US and Mexico reached a last-minute deal pushing out the introduction of tariffs on the southern border for a month.
Investors were immediately spooked by the likely disruption to supply chains, with many manufacturers using Mexican bases to sell products in the US.
That eased after the Mexican deal was announced, with the Wall Street’s &P 500 down 0.8% in late trading, while the UK’s FTSE 100 declined 1%. Germany’s DAX 30 fell 1.4% and France’s CAC 30 declined 1.2% with Europe firmly in the sights of US President Donald Trump, who said the European Union will definitely face tariffs, although the UK might be able to avoid them.
“While President Trump deemed ‘tariff’ as the most beautiful word in the dictionary, the early market reaction was ugly,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “It is fair to say that the situation remains fluid.”
The kiwi dollar fell to a two-year low 55.16 US cents, recovering to 55.88 cents at 7am in Auckland from 55.43 cents yesterday.
Boston Federal Reserve president Susan Collins said the tariffs might increase prices, but that there’s no urgency for the central bank to adjust the course of monetary policy.
The heightened uncertainty spurred gold prices to a record, with gold futures up 0.8% at US$2,857, while Bitcoin staged something of a recovery, up 1.5% at US$99,181.
Deals to come?
Canada’s prime minister Justin Trudeau – whose initial response to level a series of retaliatory tariffs on the US – will talk with Trump later today, while The Wall Street Journal reported that China is preparing to negotiate with the US to head off steeper tariffs.
Trump also signed an executive order to stand up a sovereign wealth fund within the next 12 months, saying it will fund major infrastructure projects and might purchase TikTok.
Automakers were among the hardest hit in Europe, such as Porsche, BMW and Mercedes-Benz, while luxury goods makers exposed to China were also weaker, including LVMH and Kerang.
The Mexican reprieve may provide some breathing room for New Zealand’s biggest listed company Fisher & Paykel Healthcare, which led a slump on the S&P/NZX 50 index yesterday. Skellerup was another to decline yesterday, and it’s been investigating moving more of its manufacturing to Vietnam as an alternative to China.
And investors anticipate a recovery in the antipodes, with Australian futures indicating a 0.9% gain for the S&P/ASX 200 index.
Locally, Statistics New Zealand is due to release building consents for December, with labour data out on Wednesday the main event for the week.
Reporting by Paul McBeth. Image from Alexander Schimmeck on Unsplash.