The Dow Jones Industrial Average rose on Thursday on the possible delay for Mexico tariffs, adding to a sharp two-day rally on expectations of looser monetary policy from the Federal Reserve.
The 30-stock average gained 224 points after rallying more than 700 points during the week’s first three days of trading. The S&P 500 rose more than 0.7% while the Nasdaq Composite also gained 0.6%.
Stocks hit their highs of the day after Bloomberg News reported that the U.S. is considering a postponement to President Donald Trump’s threatened 5% tariff on all Mexican imports after the country’s negotiators asked for more time to hash out a deal. The tariff is set to kick in on Monday.
The talks between U.S. and Mexican officials resumed Thursday afternoon after they failed to reach an agreement on Wednesday. The U.S. had asked Mexico to keep Central American asylum seekers and require migrants without proper documentation to stay in Mexico “for the duration of their immigration proceedings,” CNBC previously reported.
Shares of companies with the most to lose from Mexico tariffs pared their losses on the new headlines. Shares of Ford, GM and Kansas City Southern took a noticeable jump, though the three were still lower on the day.
But the Bloomberg News report cautioned that one U.S. official still believed the tariffs would go into effect despite some progress in the talks.
Thursday’s gains followed the Dow’s 500-point jump on Tuesday, its second-best session of 2019. The index’s subsequent 200-point climb on Wednesday and Thursday’s gains have pushed its week-to-date performance up more than 3.6%. The S&P 500 and Nasdaq are up 3.3% and 2.1%, respectively, this week.
Trump tweeted on Wednesday that while progress between the two countries had been made on immigration, it is “not nearly enough.”
The market was lifted from a deep slump earlier this week when chairman Jerome Powell said on Tuesday the Fed will “act as appropriate to sustain the expansion, ” opening the door to rate cuts.
Powell’s comments are “helpful and the markets are expecting some rate cuts,” said Mike Baele, managing director at U.S. Bank Wealth Management. “The current data isn’t the problem; it’s the forecasts. The impact of what trade might do to the outlook has the attention of the Fed. It’s a highly fluid situation because we don’t know how any resolution on trade and tariffs will turn out. But to the extent that it affects the real economy, the Fed is willing to cut.”
Traders are now pricing in a more than 90% chance of a September rate cut and about 60% probability of three rate cuts this year, according to the CME FedWatch tool.
“Trump’s surprise threat to impose tariffs on Mexico has broadened the trade dispute beyond China. The drag from increased trade tensions is starting to show up in weaker economic data,” said Mark Haefele, global chief investment officer at UBS Global Wealth Management, in a note.
Trump also ratcheted up tensions with China on Thursday, telling reporters that tariffs on Chinese goods could be raised by another $300 billion if necessary.
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With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya
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