US stocks fell after President Donald Trump threatened to impose import tariffs on Mexico, picking an economic fight with a neighbor while the trade row with arch-rival China continued unabated. The yen and gold gained as the negative gap between short and long-term bond yields widened the most in a decade.
By around midday, the Dow Jones Industrial Average (DJIA) had dropped by 272.59 points, or 1.08%, with the S&P 500 and the Nasdaq indexes down 1.02% and 1.17%, respectively. Consumer discretionary and consumer staples, as well as materials, were among the steepest decliners.
The US 10-year bond yields fell by 6.1 basis points to 2.164%, a new 20-month low. The three-month yields also declined by about 2 basis points to 2.354%, implying an inverted yield curve between the two maturities, a harbinger of a weaker economic environment in the months ahead.
The risk-off sentiment was reflected by the Japanese yen appreciating by almost 1% against the dollar, while the Mexican peso depreciated by 3% after the White House said Thursday the US would impose a 5% levy on all Mexican imports from June 10.
If Mexico fails to “reduce or eliminate the number of illegal aliens” crossing into the US, the new duties will be stepped up on a monthly basis to 25% on Oct. 1.
Meanwhile, China unveiled on Friday a plan to compile an “unreliable entities list” of foreign companies and people that fail to follow market rules and stop supplying Chinese companies for reasons other than commercial, and undermine the rights and interests of Chinese firms.
This apparently retaliatory move comes after the US Commerce Department blacklisted Huawei Technologies May 15 as the latest round of trade talks with China ended without an agreement. Gold touched its highest level in two weeks while European markets fell as investors globally evaluated the impact of the worsening trade environment.
In corporate news, shares of Gap (GPS) plunged almost 12% intraday after the company reported late Thursday first-quarter adjusted per-share earnings that missed the consensus estimate. Revenue was down from a year ago and below the market forecast. The stock is the steepest decliner on the S&P 500 Index.
General Motors Company (GM) fell more than 4%, Ford Motor Company (F) was down almost 3%, Honda Motor Co. (HMC) was 1.6% lower and Fiat Chrysler Automobiles (FCAU) slumped 5.3% on Mexican tariffs news. US government data show auto and auto parts, which account for the biggest chunk of US imports from Mexico, stood at $93.3 billion in 2018.
A worsening trade environment, which does not bode well for global energy demand, put downward pressure on crude futures — West Texas Intermediate — which fell $1.65 to $54.94 per barrel. The drop comes despite rebels in Libya, a member of the Organization for Petroleum Exporting Countries, unleashing a fresh offensive against the government, threatening crude supplies, which have so far held up relatively well.
Natural gas was down $0.07 to $2.48 per 1 million BTU. Gold was up $13.50 to $1,305.90 an ounce, silver was up $0.08 to $14.57 an ounce. Copper was down $0.01 to $2.65 per pound.
Among energy ETFs, the United States Oil Fund was down 3.02% at $11.40. The United States Natural Gas Fund was down 3.28% to $21.20. Among precious-metal funds, the Market Vectors Gold Miners ETF was up 3.47% to 21.40 while SPDR Gold Shares was up 0.96% to $122.86. The iShares Silver Trust was up 0.51% to $13.67.
Here’s where the markets stood at mid-day Friday:
NYSE Composite Index was down 89.41 points (-0.72%) to 12,304.25
Dow Jones Industrial Index was down 272.59 points (-1.08%) to 24,935.55
S&P 500 was down 28.73 points (-1.02%) to 2,760.22
Nasdaq Composite Index was down 89.62 points (-1.18%) to 7,477.72
FTSE 100 was down 56.45 points (-0.78%) to 7,161.71
DAX was down 175.24 points (-1.47%) to 11,726.84
CAC 40 down 41.28 points (-0.79%) to 5,207.63
Hang Seng Index was down 213.79 points (-0.79%) to 26,901.09
Shanghai China Composite Index was down 7.11 points (-0.24%) to 2,898.70
NYSE SECTOR INDICES
NYSE Energy Sector Index was down 67.89 points (-0.69%) to 9,734.62
NYSE Financial Sector Index was down 50.95 points (-0.66%) to 7,689.22
NYSE Healthcare Sector Index was down 36.26 points (-0.23%) to 15,426.86
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