ECONOMY
On Freaky Friday , Asian Indices extended a month-long slide and sovereign bonds surged after U.S. President Donald Trump ramped-up trade tensions globally by suddenly slapping tariffs on all goods from Mexico, sending the peso tumbling.
China's factory activity shrank more than expected in May, an official survey showed on Friday, heaping pressure on Beijing to roll out more stimulus to support an economy hit by a bruising trade war with the United States.
Washington will impose a 5% tariff from June 10, which would then rise steadily to 25% until illegal immigration across the southern border was stopped. Trump announced the decision on Twitter late Thursday, catching markets completely by surprise and sparking a rush to safe harbors as investors worried the escalation would upend an already fragile world economy.
Japan’s Nikkei fell 1.2% in early trade, to be down 7% for the month so far. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1% and was likewise off a hefty 7.7 for the month.
Investors clearly feared that opening a new front in the trade wars would threaten global and U.S. growth, and pressure central banks everywhere to consider new stimulus.
On Thursday, Federal Reserve Board of Governors Vice Chair Richard Clarida had said the central bank would act if inflation stays too low or global and financial risks endanger the economic outlook.
Trump’s tariff threat only added to the dangers and the market further narrowed the odds on Fed easing this year. Futures imply 42 basis point of cuts by year end in the current effective fund rate of 2.38%.
BONDS
Bonds extended their bull run with 10-year Treasury yields now down a steep 31 basis points for the month and decisively below the overnight funds rate.
Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.18%, while the dollar jumped 2.1% on the Mexican peso.
Yields in Australia and New Zealand are also hit an all-time trough on expectations of rate cuts there.
Bond yields across Europe either at or near record lows.
CURRENCY
U.S. dollar relatively attractive from a yield point of view and it was trading near a two-year high against a basket of currencies at 98.147.
The euro was huddled at $1.1139, having shed 0.73% for the month.
The safe haven yen has been faring better and was holding a small monthly gain on the dollar at 109.33.
Sterling was 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. The pound was last at $1.2609 and nursing a 3.2% loss for the month so far.
COMMODITY
Spot gold edged up a touch to $1,290.65 per ounce.
On Friday,Oil prices dropped 1.5% percent to their lowest in nearly three months after U.S. President Donald Trump said he would impose tariffs on imports from Mexico, stoking fears about global economic growth.
Brent crude futures, the international benchmark for oil prices, were at $65.86 ,their lowest since March 11. That was down just over a dollar, or 1.5%, from last session's close.U.S. West Texas Intermediate crude futures were at $56.11 per barrel, 0.83%, from their last settlement. WTI earlier marked its lowest since March 8 at $55.66 a barrel.
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