Stocks opened higher today after US & Mexican negotiators reached a tentative arrangement to avoid new trade tariffs. The Dow is currently up 174 pts and the SPX is up 1%. Consumer discretionary, financials and technology sectors are all up 1.5% or more in early trading. The VIX Index—a common gauge of fear among traders—sank back to 16. European stock markets closed up by about .5% and most Asian markets were up over 1% last night. In the wake of the Mexico headline, the dollar strengthened and gold & bonds fell. WTI crude oil is trading flat just under $54/barrel. Most areas of the bond market are down today, except for junk bonds. The 10-year Treasury yield climbed back to 2.14%.
In order to stave off tariffs on goods it exports to the US, Mexico conceded to taking a tougher stance on illegal immigration. According to Bloomberg, for a year now “American negotiators had been asking Mexico…to do more to stop the flow of migrants. But it was only in the past week, under the threat of tariffs, that they felt Mexico had begun negotiating seriously.” Mexico’s foreign minister said the country may deploy 6,000 troops to better secure the border.
This morning, President Trump threatened increased trade tariffs on goods imported from China if that country’s president won’t meet with him at the upcoming G-20 Summit in Japan. The worst-case scenario for this trade war has always been the full taxation of all $500bil worth of Chinese goods imported into the US each year. And through all the negotiations over the past year, that scenario seemed very unlikely and unnecessary. But that is exactly what the president threated this morning—new tariffs on the remaining $300bil of Chinese imports yet untouched. He predicted, “China is going to make a deal because they’re going to have to make a deal.”