Pavlovian Response.

It was all about Mexico momentum early Monday as risk assets took their cues from the peso, which jumped the most in nearly a year after Donald Trump called off the tariffs, just a week after announcing them.

The president is now engaged in an aggressive Twitter campaign to refute reporting from The New York Times and Bloomberg, both of which have suggested the “deal” with Mexico is dubious. The Times says it’s nothing more than a rehashing of previous commitments made to former DHS secretary Kirstjen Nielsen and Bloomberg says there was no discussion of a farm agreement, contrary to the president’s (loud) assertions that Mexico will be buying more US agricultural goods.

Trump appeared to suggest on Monday that there is a secret agreement that can only be disclosed to the public once Mexico’s legislature passes it.

“We have fully signed and documented another very important part of the Immigration and Security deal with Mexico, one that the US has been asking about getting for many years”, Trump claimed, adding that “it will be revealed in the not too distant future and will need a vote by Mexico‚Äôs Legislative body!” As one netizen put it, “you almost have to admire this kind of unswerving commitment to a lie.”

In any case, the peso surged and the yen sank, as markets breathed a sigh of relief. Governor Kuroda on Monday suggested the BoJ could provide more stimulus if necessary, adding to pressure on the yen.

Massive protests in Hong Kong and a disappointing read on May imports in China weren’t enough to dampen equities, as both the Hang Seng and mainland shares jumped, catching up after a holiday.

The 8.5% dive in imports last month is an early warning on flagging domestic demand in China and a better-than-expected read on exports is generally being written off as a product of front-loading ahead of expected tariff escalations.

US stocks are gunning for a fifth consecutive day of gains, even as most folks seem wary of the nascent bounce off the May swoon. Last week, the S&P ETF enjoyed its largest weekly inflow since April.


“So the President had trumped the poor labour market data and triggered a sharp bounce in Asian equities, a rise in bond yields and a 2% gain for the Mexican peso. Oil prices are up, gold and Bitcoin prices are down”, SocGen’s Kit Juckes wrote Monday, recapping the market’s Pavlovian response to Trump’s tariff escalation/deescalation charade.

“The lessening of US/Mexican tension clearly helps the mood somewhat, and obviously helps the peso, but the US/Chinese trade conflict has much wider implications”, Juckes went on to say, adding that “US jobs data have been forgotten already, but the slowdown in aggregate hours points to weaker GDP growth or a productivity miracle.”


Draw your own conclusions.


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