SYDNEY (Reuters) - U.S. stock futures slid and sovereign bonds surged on Friday as investors feared President Donald Trump’s shock move to slap tariffs on Mexico risked tipping the United States, and maybe the whole world, into recession.
The outlook darkened further when a key measure of Chinese manufacturing activity disappointed for May, questioning the effectiveness of Beijing’s stimulus steps.
Markets moved aggressively to price in deeper rate cuts by the Federal Reserve this year, while bond yields touched fresh lows and curves inverted in a warning of recession.
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.
“The threat of U.S. tariffs on Mexico to take effect inside two weeks is a sharp blow to investor sentiment,” said Sean Callow, a senior FX analyst at Westpac.
“Mexico is the U.S.’s largest trading partner and a flare-up in trade tensions was definitely not on the market radar,” he added. “This is obviously a major setback for CAD, MXN and the thousands of US businesses that use Mexican-made products.”
Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.18%, while the dollar jumped 1.7% on the Mexican peso. E-Mini futures for the S&P 500 slipped 0.7% and FTSE futures 0.4%.
Asian shares slid at first but soon drew month-end bargain hunting having suffered a torrid few weeks. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up
