US-Mexico tariffs and markets

The return of Tariff Man set off another wave of selling on Wall Street, driving the Dow below 25,000 for the first time in four months.

The Dow fell 355 points, or 1.4%, on Friday as investors agonized over President Donald Trump’s threat to impose escalating tariffs on Mexico. The S&P 500 lost 1.3%, while the Nasdaq fell 1.5%.

The selloff capped the Dow’s sixth-straight losing week, the longest slump since June 2011. 

The Dow and S&P 500 declined nearly 7% apiece in May, their first losing months since December. The Nasdaq tumbled 8% on the month, its worst May since 2010.

Trump’s vow to impose tariffs on Mexico surprised investors, driving shares of auto companies, beer makers and apparel companies sharply lower. General Motors (GM) declined 4%, Corona maker Constellation Brands (STZ) dropped 6% and Levi Strauss (LEVI) lost 7%.

US oil prices plunged 5.5% to a three-month low of $53.50 a barrel, reflecting fear about the economic impact of the tariffs on China and Mexico. Crude tumbled 16% in May, snapping a four-month winning streak.

Investors fled to the safety of US government debt, driving the 10-year Treasury yield to 2.13%, the lowest level in nearly two years.

The Mexican peso declined 2.4% against the US dollar, while ETFs that track Mexican stocks plunged 4%. 

Among the many companies that would be hurt by tariffs on Mexican goods: Chipotle.

“If the announced tariffs are enacted, they would negatively impact our costs,” Laurie Schalow, the company’s chief corporate reputation officer, said in a statement. “We are monitoring the situation and working with our suppliers to minimize the impact,” she added. Shares of Chipotle (CMG) fell about 3% on Friday.

It’s not clear whether those costs could result in higher menu prices.

President Donald Trump threatened to impose new tariffs on Mexico if the country does not step up its immigration enforcement actions. He said the first round of tariffs would begin on June 10 at 5% “on all goods imported from Mexico.”

The Business Roundtable, an influential Washington lobby of corporate CEOs, called the tariffs a “grave error,” adding that they would “undermine duty-free North American trade that supports over 12 million American jobs.”

Levi Strauss (LEVI) is caught in the crosshairs of President Donald Trump’s plan to impose tariffs on Mexico.

Levi dropped 7% Friday.

The company says 15% to 20% of the jeans and clothes Levi sells in the United States are manufactured in Mexico and China.

Blue jeans makers are heavily exposed to Mexico.

Mexico is the largest supplier of men’s and boy’s jeans to America, according to an apparel industry trade group.

Mexico is also the eighth largest supplier of clothing and seventh largest supplier of footwear to the United States.

Beer and liquor companies slid Friday on President Donald Trump’s plan to slap tariffs on Mexican goods.

Constellation Brands (STZ), which owns Corona and Modelo Especial, lost 6%. Brown-Forman (BFB), the owner of El Jimador and Herradura tequila brands, fell 2%.

The United States imported $3.5 billion worth of beer from Mexico last year, according to the USDA. It was the top agricultural product imported from Mexico, ahead of avocados and tomatoes.

More than two-thirds of the beer that the United States imported in 2018 came from Mexico, up from around 35% two decades ago, according to the National Beer Wholesalers Association.

Uber (UBER) may be still losing a LOT of money. But investors didn’t seem to mind. The stock rose about 1% Friday even as the broader market sank. What’s more, Uber’s rally even helped “lift” shares of its smaller ridesharing rival. Lyft (LYFT) stock somewhat curiously rose 5%.

It’s a bit odd that Lyft would pop after Uber executives indicated in the company’s earnings call that competition is still tight between the two. But there are hopes that Uber and Lyft will start to rely less on huge promotional discounts to lure riders. That would bode well for both companies as they each do their best to one day eke out a profit.

It’s also telling that another Uber rival, GrubHub (GRUB), was up about 2% too. GrubHub, which also owns food delivery service Seamless, competes with the rapidly growing Uber Eats. Uber said in its earnings report that Uber Eats revenue surged nearly 90% from a year ago.

As stocks sank Friday, maybe investors were seeking some comfort food to keep their spirits up.

McDonald’s (MCD) shares were up ever so slightly while the other 29 stocks in the Dow were all lower. There was no company specific news. Investors were probably just flocking to so-called safe havens that pay steady dividends.

Then again, plant-based burger company Beyond Meat (BYND) also continued to defy gravity – and logic. Its shares were up more than 5% – and at more than $100 a pop, the stock has now quadrupled from its IPO price.

Volkswagen (VLKAF), the world’s largest carmaker, warned on Friday that tariffs imposed on Mexico could hurt US consumers and threaten jobs growth.

In a statement released to CNN, the automaker said:

Volkswagen said it has made significant long-term investments in the United States “that would be impaired by restrictive changes to trade.”

The company said it remains hopeful that the issue will be resolved “through constructive negotiations without the imposition of tariffs.”

Automakers have been hit after President Trump’s announcement as Mexico is a regional manufacturing hub for global automakers that assemble cars in Mexico and ship many of them to the United States.

Volkswagen shares are down almost 3% in Europe. Among the biggest decliners are Mazda and Nissan in Japan which plunged 7% and 5% respectively. In the US, Ford (F) shares are down 2% and GM (GM) fell more than 4%.

Costco (COST) is the latest retailer to warn that the US-China trade war will hit consumers.

“At the end of the day, prices will go up on things,” Costco CFO Richard Galanti told analysts on Thursday. Galanti said prices had already gone up on some items such as patio furniture.

Costco wasn’t the only retailer on Thursday to predict prices will rise for consumers.

“We believe our shoppers will be facing higher prices as 2019 progresses,” Dollar General’s (DG) CFO said on a analyst call.

Walmart (WMT), Target (TGT), Home Depot (HD), Macy’s (M) and others have also said recently that the tariffs have forced them to either alter their financial outlooks, remodel carefully-crafted supply chains or consider raising price tags for customers.

The Business Roundtable, an influential Washington lobby of corporate CEOs, says tariffs on Mexican imports would be a “grave error.” It urged the Trump administration to pull back on the plan unveiled Thursday night.

The Dow declined 300 points, or 1.2%, on Friday morning after President Donald Trump announced plans to impose tariffs on Mexico. The S&P 500 fell 1.2% and the Nasdaq lost 1.3%

Trump’s tariff threat against one of America’s largest trading partners amplified investor worries about how trade tensions will disrupt business and slow global economic growth.

Auto makers, which rely on Mexico as a vital part of their supply chain, retreated. Fiat Chrysler (FCA) lost 5%, while General Motors (GM) and Ford (F) lost 3% apiece.

The news also rocked the Mexican peso, which tumbled 3.4% against the US dollar.

The rising trade tensions spilled over into the energy market, driving US oil prices 2.8% lower to $54.93 a barrel.

Uber (UBER) jumped 4% after its debut earnings report as a public company revealed a loss of $1 billion during the first quarter. Gap (GPS) plunged 15% after reporting poor earnings and sinking sales at its namesake and Old Navy brands.

All three major US indexes have declined more than 6% in May. It would be their first negative month of 2019. The Dow is also on track to decline for the sixth week in a row, the longest slump since June 2011.

We’re entering a new phase of President Donald Trump’s trade wars. As political economist Greg Valliere wrote this morning in a note, “These tariffs break new ground – they’re political, a punishment to Mexico for not stopping the surge of immigrants from Central America.”

Republicans haven’t pushed back on Trump’s trade strategy. Until now. This is from Iowa Senator Charles Grassley: “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority.” Retaliation from Mexico, of course, could hurt Iowa’s farmers and pork producers.

Meanwhile, the fear around the world this morning is that tariffs will hurt both countries. Weakening the Mexican economy, of course, could have the opposite effect on illegal immigration than Trump wants. But the president is clearly devoted to his tariffs-as-punishment strategy. “This finally could awaken the slumbering U.S. Congress,” Valliere wrote.

I’ve said for some time that markets have been resilient in the face of what could be a years-long trade war with China, potential tariffs down the road on European and Japanese cars, and now new tensions with Mexico. But the past month has been a different story. For investors, May has been a reckoning.

New York Times columnist and Nobel laureate Paul Krugman weighed in on the new tariff threat.

Welcome to the last day of May. It’s been a lousy month in markets. From two of my favorite market data geeks, CNN Business’ Christine Romans and David Goldman:

The Dow is on track to close lower this week — for the sixth week in a row. That would be the worst losing streak since summer 2011.

With one day left, the Dow has fallen 5.35% in May. The last time stocks fell in May was in 2012, when the Dow fell 6.21%. It’s the worst month since December, when the Dow fell 8.66%. Remember December?

The US Chamber of Commerce, the most powerful business lobby in Washington, wasted no time responding to President Donald Trump’s threatened tariffs on Mexican imports.

Neil Bradley, the chamber’s chief policy officer:

Shares in global automakers slumped sharply on Friday after President Donald Trump said he would impose a 5% tariff on goods from Mexico, a move that could affect a huge number of vehicle exports.

Companies including Volkswagen, Fiat Chrysler, Nissan, Kia, Toyota, Mazda and Honda have plants in Mexico, which produce cars for export markets including the United States. US automakers Ford and General Motors also have factories in Mexico.

Shares in Mazda (MZDAF) plunged more than 7% in Japan. Nissan’s (NSANF) stock dropped over 5%, while Honda (HMC) dipped 4% and Toyota (TM) shed nearly 3%. Volkswagen stock plunged 3.6% in Frankfurt and Fiat Chrysler gave up nearly 5% in Milan.

According to Goldman Sachs, the United States imports roughly $93 billion of goods related to autos each year from Mexico. That’s by far the most valuable category shipped north from Mexico.

A tariff threat from President Donald Trump is roiling markets again.

US stock futures and global stock markets, including shares of Asian and European automakers, tumbled Friday after President Donald Trump said the United States will impose a 5% tariff on all Mexican imports.

US markets finished modestly higher yesterday, recovering a small portion of the week’s losses. But despite the gains, all three major indexes are still down on the week.

The Dow is on track for its sixth consecutive weekly decline, its longest streak of that kind since June 2011.

A tough week for US retailers drags on.

Even so, a recent string of bad results from retail companies, including Abercrombie & Fitch (ANF) and Canada Goose (GOOS), are sparking fears about consumer spending.

New data could provide more information. US personal income and personal spending data for April comes out at 8:30 a.m. ET today.

And a final read of the University of Michigan’s consumer sentiment index for May hits at 10 a.m. ET.

Crude oil prices are on track for their first monthly loss of the year.

Brent crude oil, the global benchmark, dropped 3.5% today to $64.52 on new global trade fears. US oil fell more than 2.5% to $55.16.

Driving the decline: concern that an escalating global trade fight will ding economic growth. Investors are also nervous about excess supply.