Stocks rise as U.S., Mexico trade tensions cool

U.S. stocks rose Monday, as investors moved into global equities after the U.S. dropped plans to impose tariffs on Mexico.

How are benchmarks performing?
The Dow Jones Industrial Average DJIA, +0.68% rose 163 points, or 0.6%, to 26,149, while S&P 500 futures SPX, +0.92% added 21 points, or 0.7%, to 2,894. The Nasdaq Composite index COMP, +1.75% climbed 108 points, or 1.%, to 7,850.

On Friday, the Dow Jones Industrial Average rose 263.28 points, or 1%, to 25,983.94, while the S&P 500 index gained 1.1% to 2,873.34. The Nasdaq Composite Index advanced 1.7% to 7,742.1.

For the week, the Dow gained 4.7%, the S&P 500 returned 4.4%— its best since late November — while the Nasdaq climbed 3.9%, the biggest weekly gain Dec. 28, according to FactSet data.

What’s driving the market?
Late Friday, President Donald Trump tweeted that he had suspended plans to impose tariffs on Mexico after reaching a deal with that country over stemming the flow of illegal immigration. But he warned Mexico in a series of tweets on Sunday that if cooperation should fail, “we can always go back to our previous, very profitable, position of tariffs.”

As global equities rose, the Mexican peso USDMXN, -2.2095% moved up 2.2% against the dollar to 19.183.

Meanwhile, Group of 20 finance leaders on Sunday vowed to protect global growth from disruptions such as trade tensions. During a sideline meeting, U.S. Treasury Secretary Steven Mnuchin had a “candid” and “constructive” talk with People’s Bank of China Governor Yi Gang, the secretary tweeted Sunday.

But trade troubles between the U.S. and China appeared to be simmering away. Beijing cautioned global technology companies in a meeting last week that complying with a ban on Huawei Technologies would mean sector-wide complications, Reuters reported. Data Monday showed that China exports grew slightly in May, though imports fell sharply.

Stocks rallied Friday after much weaker-than-expected U.S. jobs growth in May appeared to strengthen the case for U.S. interest rate cuts this year. There is no economic data in the calendar for Monday, while the Federal Reserve is in its quiet period ahead of the June 18-19 interest-rate committee meeting.

United Technologies UTX, -1.61% announced an all-stock deal to merge with defense contractor Raytheon Co. RTN, +2.19% a move that would create the world’s second-largest aerospace-and-defense company by sales.

During an interview with CNBC Monday morning, President Trump appeared to dampen enthusiasm for the deal when he said. “I’m a little concerned about United Technologies and Raytheon,” adding that airplane manufacturers have all merged “so it’s hard to negotiate” with them.

After rising as high as 6.7% in premarket trade United Technologies fell 2.2% after the market opened. Raytheon shares has rallied 7.6% in premarket trade; they rose 2.1% in official trade.

Shares of Tableau Software Inc. DATA, +34.80% rallied 34.5% Monday, after the company said that it agreed to be bought by Salesforce.com Inc. CRM, -4.54% in an all stock deal that valued Tableau shares at $15.7 billion, or $177.88 each, a 42% premium to Friday’s close. Salesforce stock fell 4.4% Monday morning.

Merck & Co. Inc. MRK, -0.35% said Monday that it would buy privately held pharmaceutical company Tilos Therapeutics in a deal that could be worth as much as $773 million. Shares of the drugmaker rose 0.7%.

Shares of Tilray Inc. TLRY, +18.22% rose 9%, after the Canada-based cannabis company announced an agreement that extends the lock up, and provide for the orderly sale, of the 75 million shares, or 77% of the Tilray shares outstanding, held by its largest shareholder, Privateer Holdings.

Automaker’s Ford Motor Co. F, +1.54% rose 1.1% and General Motors Co. GM, +2.31% advanced 1.9% Monday, after the avoidance of new tariffs on Mexican imports. The U.S. auto industry relies heavily on a cross-border supply chain that would have been hit particularly hard by new duties on Mexican imports.

Shares of Tesla Inc. TSLA, +5.36% rose 2.5% Monday morning, after Baird analyst Ben Kallo said he believed demand concerns are “overblown,” and that a “favorable update” at the car maker’s annual meeting Tuesday.

What are analysts saying?
“The market is willing to be heavily on the Powell put,” Yousef Abbasi, global markets strategist at INTL FCStone told MarketWatch. There have been “small improvements with respect to trade, but that does not necessarily indicated that we’re close to resolution on trade with China,” he added.

“We’re in a far more uncertain place, but if anything the market has really shown it’s ability and wherewithal to put a bet on the strength on the Fed put.”
U.S. stocks “open higher after positive steps were taken in both the US -Mexican immigration disputes and after the US and Chinese held candid and constructive talks for the first time since negotiations fell apart a month ago,” wrote Edward Moya Senior Market analyst at OANDA wrote in a Monday note to clients.

“On Friday night, Mexico reaffirmed their commitments to reduce migration into the US by increasing enforcement on its borders and expanding a program to allow asylum-seekers to remain in Mexico while their legal cases proceed,” he added. “Mexico legislative body now has to pass the deal forward otherwise President Trump will reimpose the tariffs. Expectations are for the deal to pass and get done quickly.”

How are other markets trading?
The yield on the 10-year Treasury note TMUBMUSD10Y, +2.48% rose 5 basis points to 2.126%, rebounding from a 21-month low of 2.085% on Friday.

Asian stocks finished mostly higher, with Japan’s Nikkei 225 NIK, +1.20% rising 1.2% and Hong Kong’s Hang Seng Index HSI, +2.27% up 2.2%. In Europe, stocks were mostly higher, with the Stoxx Europe 600 SXXP, +0.20% up 0.2%

Crude oil CLN19, -0.06% was modestly lower, while the price of gold GCN19, -0.98% dropped 1% to $1,330.30 an ounce, as the U.S. dollar DXY, +0.25% rose 0.4%, relative to its peers.

MarketWatch

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
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 ‏
Ed Moya