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tv   Bloomberg Markets Americas  Bloomberg  May 31, 2019 1:30pm-3:30pm EDT

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will instead push for dialogue. president says they have been taking steps to slow illegal immigration and wants a good relationship with the united states. he has pushed for a longer-term immigration fix, focused on raising living standards and increasing opportunities so fewer people choose to leave the country. united nations atomic watchdog says iran is complying with the terms of the nuclear deal reached in 2015 with major powers. but the international atomic agency international atomic energy agency says stockpiles of low-enriched uranium and heavywater are growing. it is the first time tehran announced it is increasing low-enriched uranium production. theresa may was the first foreign leader to visit donald trump after he was born in. next week, he will become the last four leader to meet may before she resigns as the head of the conservative party.
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is expected top end as it began, with a lack of personal chemistry. pope francis or may -- arrived in romania today for a three-day pilgrimage. the visit comes 20 years after john paul ii made the first ever papal visit to a majority orthodox country. this is the latest of history at to poor countries were catholics are a minority. in romania, they are a divided minority. he stressed the two churches can have a common path despite their respective differences. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg.
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live from bloomberg world headquarters in new york, i'm vonnie quinn. amanda: live in toronto, i'm amanda lang. we are joined by our bloomberg and bnn bloomberg audiences. here are the top stories that we are following from around the world. president trump threatens higher tariffs on all imports from mexico unless that country fixes in the will immigration to the u.s. the trade war turned into a foreign policy within. beijing is preparing a blacklist for foreign companies as trade tensions reach a fever pitch. and we break down have all of these trade tensions are spilling over into facets of the including bonds, commodities, and equities, as we finish out the mercyme in six years. a check on the markets. -- the worst may in six years.
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interest rate sensitive stocks moving. gold stocks standing out, helping the toronto market. the flight to safety is the theme here. across-the-board declines. we are seeing tech and telecom leading. it is broad-based. autos with the big exposure to agriculturalarket, industry, rail industry, that is falling. bonds on the move. u.s. treasury once again a destination. that has the inversion even sharper. we are seeing it across the globe. in germany, a flight to bonds. folksn see a reaction as look for a place to hide in these markets. vonnie: i'm looking at the fx markets, and the trade really hit home. the loonie maybe not as much as the peso, trading at 1.25.
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the peso really took a hit today by about 3%. now backing off of the lows, , after the19.63 president's tariff threats. michael mckee is here to take us through everything that happened today and continues to happen as we get more republican reaction. grassley coming out against this. summarize what the plan is and what the president wants to do on monday? mike: the president says he will impose tariffs on all mexican products across the board until mexico satisfies him that they are doing enough to control illegal immigration into the united states from the mexico side. each month, tariffs will go up 5%, until we reach 25%, in october, and that would be applied across the board to
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about $346 billion worth of imports from mexico, that was last year's total. 25% would amount to an 85 billion dollars terrace -- $85 billion tariff. amanda: the on the damage that those tariffs would cause, just the message that you cannot be trusted, among your trading partners. mike pence in canada and the president is making this call. how much does this jeopardize the future of tariffs across the board? mike: even if they reached a quick agreement with mexico and tariffs were only applied for a short amount of time, it raises questions in other negotiators mines whether you can trust the united states, the trump administration negotiators. they are working with the japanese right on a free-trade agreement. they are working with the european union in theory, although they have not got that done yet.
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they have not even started yet. you have the countries of canada and mexico which has signed on to the new nafta and just this weekend and put forth legislation to ratify it. do they lose ground on all of these other trade deals because of what has happened here? not to mention, what do the chinese think of all of this? vonnie: reports suggest lighthizer and mnuchin are opposed to these mexican tariffs . now we are hearing from rob portman, pat toomey, chuck grassley all saying congress must take action. can congress do something to stop the president unilaterally applying tariffs? using a law from 1977 to declare an emergency and then say, here is my remedy to help the economy. it has never been used in a trade sense before. there is some question about whether he can do it.
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legal experts say he has the power under the law, but congress could change the law. he is much more limited in his ability to impose tariffs. members of the house and senate have criticized him for using national security grounds for the potential auto tariffs, steel tariffs, so this may bring new momentum to that. still a question about whether the republican senate would defy donald trump. amanda: michael mckee, thank you so much. we thought we would talk about global trade tensions escalating when it comes to beijing, now saying it will create a list of unreliable entities, and order those that violate the rules. scott kennedy joins us now. we do obviously expect china to retaliate when we see a blacklist on the side of the u.s. they signaled there could be
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some other issues coming. , in a ways is this that hasn't already been absorbed by the market? >> i think it is a very big deal. it shows that the chinese are going to be comfortable explicitly going rogue and picking on individual american companies, companies from other countries that support the u.s. actions against huawei and others. individuals are also identified. it gives us a chance to use our imagination about which companies they may pick on. that will cause a lot of speculation about their stock, and the chinese will be able to have that hanging over everybody as long as they want. vonnie: how is china gaming this out? is escalation the answer to escalation? the u.s. has escalated, but do we continue in this manner until it is too late? >> it is certainly possible.
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the reason the chinese were interested in negotiations with united dates and trump administration, they want to find a way to stabilize the relationship. they were not going to get anything positive out of the deal, but they could stabilize the relationship. the trump administration is showing them, intentionally and otherwise, that even if they sign on the dotted line, tomorrow bad things could happen to them. they may have concluded that they just need to escalate proportionally until the trump administration ends. we will see a continued ratcheting up on both sides until one side feels enough pain to signal that they want to talk. are nowscott, we hearing from people, and michael mckee alluded to this, at a certain point, donald trump will need to be reined in. he could go so far that he limits his own ability and people say you cannot do that. not help as far as chinese negotiations are concerned? cooler heads saying we have to
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take all of us down in temperature? >> i think it depends on the day of the week and whether it is cloudy or sunny. the administration has had people talking to it from the outside and inside arguing for cooler heads. before we did the first $34 billion, after the next 16, you pick your time. there have always been those conversations. but the administration really has deep-seated conflicts within it related to the chinese. as long as the american economy looks relatively stable, and the voters in the most important states that the president needs for reelection are still with him, cooler heads will not prevail. vonnie: the markets took a hit on this, down 1% for the major indices. the dollar is reacting, the 10 year yield is reacting. at one point will the market decide the president's next move
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for him? >> it could be a while. the president's reading of the market is not like your average analyst on wall street. his data and analysis is quite distinctive. i think we will see the chinese raise tariffs tomorrow. the u.s. preparing for tariffs on $300 billion. we will see what happens at g20. then we get to mid-august and then you have the entity list expiration, and then that would be the nuclear option going to pull completion against huawei, and then i don't see things turning around. we have about two and half , or weto find a way down are really cooked for the rest of the trump administration. vonnie: scott, thank you for that. center for strategic and international studies senior advisor. we dig into all of the asset
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classes being affected by trade and tariff talks. the s&p 500 on pace to post its biggest losing streak in five years. take a look at treasuries. the 30-year yield fell below 2.6% today, the first time that has happened since november 9, 2016. you know what day that is, the day after president trump was elected. justpath to exceed 3.4% last year. what a turnaround. this is bloomberg. ♪
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amanda: it has been a volatile month across asset classes. we will dig into equities, bonds, and commodities. starting with stocks, u.s. major
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averages set to post their worst month of the year. luke kawaith us -- -- is with us. at what point do you think it is possible to imagine these equity markets could price in cuts from the federal reserve in a way that makes them happy? pricing innt we are an economic slowdown, which doesn't make them happy. >> that is the question people are wrestling with. jonathan ferro has been having people wonder about the potential easing, being an impetus on risk assets. it's been consistent since the first curve inversion we had in late march. good news has been good news, bad news has been news consistently for equities. i don't know if there is going to be a point where markets are really and truly happy with the idea that we are pricing in rate
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cuts. maybe it comes from the asymmetry of stocks, bonds yields, perhaps not a lot. vonnie: some of these tariff headlines have hit stocks a lot, some are completely ignored. why are we seeing such a reaction today? does it have to do with how bad it's been in may? >> that is part of it. 5er the weekend, the may 4, weekend, nobody was expecting every escalation in china trade. we had a reaction, it all settled down, and then we have seen for the past two weeks, traders pricing in the g20 event premium. at least they could prepare for something. then again you have something that nobody expected, coming out of left field in terms of this market reaction. what we have here is kind of interesting. that bottom panel, the white
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line is the score of equity volatility. teal is the bond volatility. right now, bond volatility is running hotter than equity earlylity since 2017. that is a really weird dynamic. if you think about all options having the price of money baked into it in some ways, this could be a catalyst for asset vol. kawa, thank you. alarm bells ringing by the day. let's bring in catherine greifeld.- katherine the 30 year yield back to where it was the day after the election. how does that happen? >> it has been a white knuckle
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week. you mentioned the 30-year yield. to see the 10 year yield hit 2.41% overnight -- we entered may at 2.5%. it has been wild. it speaks to how those markets on chinathese tariffs and the mexico. treasuries are overbought on a number of different measures right now but people still want to own bonds. just u.s.t treasuries, we have inversion in canada. one thing i was noticing, in this hunt for a place to be, munis have been a beneficiary. it was not long ago that we were talking about munis as a concern. forwe seeing people move safety and may finding themselves in riskier places again? >> that is a great question. it has been a global fixed income rally. at the same time you are here alarm bells on corporate credit,
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pimco coming out and saying we are in the riskiest credit market ever. vonnie: what are economists and strategists now saying? if we got to 2.14 overnight, and we thought 2.20 was low, could we get to 2? >> i am seeing pencil it in other possibility. but let's not forget we have an important data week coming up. monday, i said many fracturing, and we close out with may's job report. there are a few make or break data releases there. havens have been in a driver's seat, but that could act as a really check -- reality check. amanda: thank you so much katherine greifeld. coming up, we turn to commodities. the breakdown of how trade tensions are hitting every corner of the commodities market. here is a look at how trump's
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mexican tariff announcement is affecting etf's. slumping the most since november. 75,000 shares worth more than $3.4 million traded even before the market opens. this is bloomberg. ♪
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amanda: this is "bloomberg markets." i'm amanda lang. vonnie: i'm vonnie quinn. atant to point to the yen, its lowest since january 16. 108.44 we just hit on dollar-yen. 1% stronger. u.s. oil refiners could get hit it crude is included in the tariff threats against mexican goods. everything from solar panels to avocados and the asparagus could
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be caught in the crosshairs. with an in-depth look on how trade tensions are hurting commodities is tina davis. the places these are where consumers will feel it costs, the costs on your breakfast and lunch plate. 5% goespens if this ahead in a weeks time? >> one of our bloomberg economists have said, this is potentially the most real impact we could see in the economy right now. this will hit you at your breakfast table, lunch table, wherever you eat your avocado toast. mexico is the single largest supplier of agricultural products to the united states on a country basis. a lot of that is fruits and vegetables. you mentioned avocados, asparagus. these are the things that you will see in the grocery store and you can see the real fx of the tariffs. obviously, other
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technical things that move the price of oil. given what it is doing, what does that say as a proxy for expectations of economic growth globally? >> the oil price is largely a macro play. the we're seeing today is decline, because of the uncertainty, every time you see a new trump tweeted on a trade war, you see oil prices decline. it is a risk off play from the perspective. if you are looking at u.s. refiners, there are other places where they can get their oil from. canada is one of those places. this will potentially put more of that heavy crude into the market, which have been taken out by opec and its allies in the last month. 54.08 now. at could that offset some of the higher costs that we might see, if it makes it to gas prices? >> if you are trying to do the
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full basket of inflationary measures, it remains to be seen what the ultimate outcome will be. what we have seen across the board is commodity prices are down. if you look at the grain prices, those prices are down as well. that is not necessarily what trump is doing to mexico, but a fear of what mexico could do in retaliation. we sell a lot of corn to mexico. that is causing a great deal of angst in the markets. even though the trump administration is announcing year-round use of 50% ethanol for gasoline, which -- 15% ethanol for gasoline, which should be good news for them. stocks certainly, gold doing pretty well today. could there be other places in the commodities space that could represent safety? >> i think gold is the primary winner here. a lot of red across the board in commodities. we will have to see what shakes out.
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what is interesting is how this adjusts trade flows. there will be differing trade flows with corn and other products if these tariffs are implemented by the u.s. and if there is retaliation from mexico. it may change the customers and buyers of various commodities. overall, you are seeing gold as a haven once again, providing that certainty to investors that want to get out of riskier assets. amanda: great to have your thoughts, tina davis. you can catch all of our interviews on the bloomberg. the function is tv . from toronto and new york, this is bloomberg. ♪ . .
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mark: i am mark crumpton with bloomberg's first word news. the pentagon says it is reviewing reports the white house asked the navy to move the uss john mccain for president
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trump's recent trip to japan. patrick shanahan told reporters in singapore today he is waiting to get all the facts for passing judgment. president trump told reporters he was not a big fan of senator mccain's but that he was not involved in the matter. a st. louis judge is weighing whether to grant an order allowing missouri's only abortion clinic to remain open. planned parenthood has asked for a temporary restraining order that would prevent the clinic's license from expiring at midnight to make. missouri's health department cites concerns about patient safety and legal violations. planned parenthood says missouri is weaponizing the licensing process. german chancellor angela merkel took aim at president trump's policies in a speech at harvard graduation without ever mentioning mr. trump by name, she checked off the list of policy issues where she has clashed with the president from trade to immigration and climate change.
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she told graduates they should tear down the walls of ignorance and reject isolationism and protectionism. the japanese prime minister and philippine president held a bilateral summit in tokyo today. the leaders discussed trade, investment, and growing chinese activity in disputed regional seas. the president reaffirmed the need to keep up the level of cooperation in a changing world adding he was pleased with the growing interest and he was confident the philippines is a preferred trade and investment destination for japanese businesses. prime minister abe pledged japan will continue to strongly support the philippine's sustainable economic development including what he called quality infrastructure projects and politically -- in the politically unstable self. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries.
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i am mark crumpton. this is bloomberg. ♪ scarlet: it is 2:00 in new york, 7:00 p.m. in london. i am scarlet fu. caroline: i am lisa abramowicz. prepares aina sweeping list of foreign firms retaliating after the u.s. shut while way. trade tensions had south of the border. announcedtrump's terrace on mexico -- tariffs on mexico. u.s. stocks limping to the worst week in months while treasuries build on the rally. we have all that and more coming up. lisa: let's get a check on the markets. it has been an ugly day,
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although unclear to see how ugly we will end up. the russell 2000 i wanted to highlight because it has been underperforming the broader indexes which i think is interesting because it was more immune to trade wars. that was the idea earlier in the year. last year. not so much this month. scarlet: one argument could be smaller companies may not have as much ability to house on the cost -- pass on the cost to consumers. people say they are more expensive than the big caps. lisa: gold having its best day since january 25. copper lowest since january 3. lowestar yields at the level since 2016. scarlet: we keep saying five basis points every day but it keeps grinding lower. let's take a closer look at the action with our reporters. abigail, get us started. abigail: let's look at the
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railroads. this sector of the s&p 500 getting hit more on the tariffs against mexico. look at the index. not major underperformance. union pacific and northern southern part of that. the big underperformer kansas city southern. its worst day since 2016. the question is whether or not investors should be buying the dip perhaps. is it a buying opportunity or is there more selling ahead? here are some reasons it is down more than the other railroads. it has far more exposure to mexico. 48% of its revenue is related to mexico. 31% directly related. unless the tariffs start at 25%, there currently expected to start at 5%, we do have bloomberg intelligence saying the weakness is largely priced
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in. valuations are attractive. trading at a discount to this group. they do have room to improve profitability. these shares could consolidate more. the fundamentals in valuation look attractive. emma: i'm looking at another sector that could be impacted by more threats of tariffs on mexico. that is the avocado market. the last time the president threatened mexico over tariffs in april, the price of avocados skyrocketed. froman see it skyrocketing april. we are looking at the price of avocados propound. her pound. -- should the president follow-through with the 5% and 25% tariffs on mexican imports,
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there is the potential for these prices to spike again. we are seeing a number of companies climbs today. chipotle down 2.4%. 6% brewers were down earlier. it is a u.s.-based avocado grower and processes most of its guacamole south of the border. romaine: we have been looking at the trade tariff issue through the lens of what is happening in the u.s. let's look at what is going on in mexico. 2% bolsa was down as much as earlier. this is the company that operates most of the starbucks and dominance franchises -- dominoes franchises down there. down about 5%. walmex down 2%. they are one of the biggest
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decliners. they are getting hit hard today. main etf that tracks mexican stocks. the head of fixed income strategy at morgan stanley saying since the tariff level is conditional on a vague target of immigration reform, they are saying investors have to price in something greater than the 5% base case. the idea is there is so much uncertainty around this you have to bake in the worst-case scenario. that is why you are seeing a lot of pain today. he is saying this could carry over for the next few weeks until we get more clarity either from the u.s. government or some sort of resolution precipitated by the mexican government on their side of the border. lisa: thank you so much. tensions are rising between the u.s. and mexico. president trump threatening to slap tariffs on all mexican
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goods beginning june 10. the move could have major applications for automakers and manufacturers and other global markets. joining us from mexico city is justin. give us a sense of what mexico's response has been thus far. >> this is a good question. the primary response is markets are down across the board. you have talked about this. the peso is 2.5% down. it has been followed of the stock market with a 1.3% drop. it is carnage in the mexican markets today. mentioned a few businesses. they are really panicking. people are uncertain about what is happening right now, what the future looks like. not just in the market but with trade relations between the u.s.
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which have for years been very strong. nobody really knows what is going on. they are looking for clarity from the u.s. and mexican government which has not been forthcoming. scarlet: the president did hold a news conference this morning and stressed he will continue with his policy of diplomacy, talking to the u.s. there has not been much evidence talking will work. 10 days is not a lot of time. do we know of any plans by a mexican delegation to visit washington and hold talks with someone at a high level? >> that is absolutely right. i was in the conference this morning. it was crazy. everybody was waiting for the president to say something in direct response to these trump allegations in the plan of levying tariffs. the only thing that came out of amlo said we are
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continuing down our same path, we want continuity, we think we can do this through negotiation. he did mention there are legal avenues they could pursue within existing trade frameworks and the wto. he said we are not looking at any of that right now. he's focusing on negotiations. we know he sent the foreign minister to washington. he is arriving today. he said him to set up meetings. we have heard in the local press he has had difficulty. jared kushner is not there, mike pompeo as well. he is having trouble setting up meetings with u.s. counterparts. we don't know where this goes from here. but the delegation is in washington. we don't know where we go from here. much,t: thank you so reporting from mexico city. how far will president trump's proposed tariffs confiscate the u.s.-china -- complicate the
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u.s.-china trade relations? when you heard this, obviously beijing is thinking through what this means for their current state of discussions. is this a game changer for the resumption of talks eventually? >> it could be a game changer. on the other hand, i'm thinking about richard nixon in 1969. get the northy to vietnamese to the negotiation with the to act crazy nuclear option to drive them to the table. i'm hoping trump is rational and he understands a lot of tariffs will hurt the economy. irrational as a way to strike fear in the opponent and drive them to a compromise. that is the best hope here. lisa: i was about to say i have
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been talking to a number of people including might madonna -- might madonna -- mike mcdonough. he was saying the chances of a deal between the u.s. and china have plummeted. would you agree with that? >> i think the prospect of a near-term resolution has plummeted. the best case is xi jinping and donald trump will meet in osaka in late june to restart the dialogue similar to what they did in argentina last december. that is the best case. china will celebrate its 70th anniversary of the founding of the country on october 1, so they will be rallying the nationalism. it is typical for them at this point to make compromise. you have to save face on both sides. i'm hoping after both sides experience some pain, there should be some resolution. trump can still control how
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tariffs onfaces the the $300 billion of additional chinese imports. it is important to watch. it is inright now, review where they will get feedback from companies. speaking of pain, let's talk about the chinese data. you have a weakening yen which helps exports it is a problem for the chinese government when it comes to capital flight. what does the reading of the economy suggest about a second-half stabilization of the economy, especially china getting ready to celebrate the anniversary? >> i think they will have to pump a lot more stimulus into the economy. at the same time, it is a warning both sides should resume negotiations. neither country is in a strong economic backdrop. even with the u.s. having 3.2% growth in the first order -- quarter, some estimates are
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dropping it to 1% or below for the second quarter. we will get the ism number next week. i think the data will slide below 50. lisa: i think the market response to disappointing chinese data was incredibly telling. it was not a big selloff at all. basically, people were saying they will come in with even bigger stimulus so we will be safe. i have to wonder if they have the ammunition the markets are baking in. is that what you are saying, don't fight the pboc? >> the pboc can only do so much. they will have to do more fiscal spending. there is also the issue with confidence. non-discussion drags on, the lower the confidence goes. that will affect investment and spending. you are seeing auto sales in china being week for several
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months now. that is a clear sign even consumers are lacking confidence. scarlet: what to get your thoughts on rare earth. that is something china can weaponize if he chooses to. what is the likelihood it will follow the u.s.' lead and weaponize this resource to achieve something different -- to address other grievances, to strike back? >> i hope we do not get to that stage. that is crossing the rubicon. that will be a very strong signal pushing back to the u.s. it will be difficult to make a deal in the end. i'm hoping they will dangle the threat of it in front of us, and hopefully they will not go all the way. lisa: as a portfolio manager, how are you arranging your portfolio in response to all of this? >> in the near term, we don't see much upside potential. we are not yet in earnings season so you have this vacuum
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of information. i think potentially between now and the resumption of the talks between xi jinping and donald trump, there is a vacuum of information. we are likely to see more volatility with risk skewed to the downside. scarlet: is it a matter of when, not if, that we see the 10-year yield below 2%? >> in the near term, it could happen. who knows? the bond market is clearly sending a message with the inversion and collapsing yield that there is a potential policy mistake on the horizon were already made and that corrective actions need to be done. it is also putting pressure on the fed. it is sending a message to the fed that 2.5% is too high. at some point, the fed will have to react. i think they will say they will allow inflation to go higher, a
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more dovish gesture that can potentially support the market. lisa: the july rate cut potential is priced into the market nearly 50%. thank you so much for being with of rockefeller and company, senior portfolio manager. u.s. autos hit hard by president trump's terror threats -- tariff threats. worstpills towards its performance in seven years. listed two weeks ago are suddenly back on. this is bloomberg. ♪
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scarlet: pumping the brakes. president trump's threats of tariffs are hitting the automakers. here with more is david welsh. this is a big concern since auto sales have already peaked. >> that is right. sales have been going down for two years. the first five month of the year, they have been softer as well. vehicles are at record prices right now. there is not a lot of space where you can bury the extra money or pricing if there is a tariff pushing vehicle prices up. the market is already soft. 29% otherthat get sales on vehicles made in mexico , vehicles get hit. $60 billion worth of parts coming from mexico to the u.s. for vehicles built in the u.s. so that will be a price increase
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as well. tough for the is carmakers to thorpe any kind of tariff -- absorb any kind of tariff. if you're getting up to 25%, that is a catastrophe for them. lisa: president trump said if he imposes these tariffs on products from mexico, companies could leave mexico and bring operations to the united states. is that feasible? >> no. it takes too long to do that and requires a lot of investment dollars. take general motors. they have a few plants in the u.s. that are underutilized. you still need metal stamping's that make the bodies. you need tools, lies shipping engines and transmissions. these are big networks shipping parts all over the place. plants have expensive machinery in mexico you have to move appear. it can be done. but it is costly and
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time-consuming you are talking a year typically to move something. if you will build a new plant, it is several years to get that done. lisa: we know you will be busy. thank you for spending time with us. the minneapolis fed president speaks to bloomberg about why he believes the u.s. economy has more room to run. we will have more on that, coming up. this is bloomberg. ♪
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scarlet: it is late may, the season for high-profile commencements beachin -- speeches including one from angela merkel at harvard university. >> tear down the walls of ignorance for nothing has to stay as it is. [applause] on tot: she went basically tear down a lot of president trump's policies.
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the amazing thing is you never mention him by name. she just talked through all the policy mistakes she thinks he is making. lisa: it makes it harder for him to attack on twitter when she is just alluding to him. what i think is angela merkel is thought of as head of the liberal classic order of democracy. now that she is leaving politics in 2021, she is reaching the sunset of her tenure and trying to engender a new generation of people who adhere to her kind of policies and thoughts. the passing of the baton, in other words, which is interesting to me. scarlet: the other thing i thought was interesting is this is the first trip she has made to the u.s. without visiting washington. i read that somewhere. that is by design. she flew in and went to harvard, gave the speech, but did not make a pitstop in washington. lisa: speaking directly to the
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people. interesting she spoke at harvard. president trump has gone after ivy league universities. scarlet: the elites. lisa: oil has for its biggest with the threat of mexican imports. we will have more on that. there seems to be a pricing in of rate cuts. scarlet: a one-day drop of 5%. nymex crude has taken it hard. lots of supply issues. the demand concerns have overwhelmed them. you see crude oil off by 16% for the month of may. incredible we are at $53 a barrel. from new york, this is bloomberg. ♪
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take your business beyond. i am mark crumpton with bloomberg's first word news. missouri's only abortion clinic can continue to provide the service. the judge made the ruling hours
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before the st. louis planned parenthood facility's license was set to expire. missouri's health department has cited concerns about patient safety and legal violations. planned parenthood says missouri is weaponizing the licensing process. president trump and turkey's president have agreed to form a study group on the russian missile defense system. turkey wants to buy the system. the u.s. is opposed. bloomberg has learned president erdogan wants to jointly examine any risks the missile system might pose to american-made f-35 fighters. north korea's kim jong-un reportedly took harsh measures after the failed summit with president trump. according to a south korean newspaper, north korea executed its former top nuclear envoy to the u.s. and four other foreign ministry officials. the envoy was charged with espionage. it will be the battle of the north american billionaires tomorrow when liverpool squares
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off in the soccer final in madrid. joe lewis has controlled it since the turn-of-the-century. john henry is the principal owns of the group that liverpool and the boston red sox. the winning team gets an additional $4.5 million and a big increase in its value. global news 24 hours a day on air and on twitter powered more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. ♪ scarlet: from bloomberg world headquarters in new york, this is "bloomberg markets: the close." lisa: oil is plummeting heading into the close.
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it is currently poised for its worst month this year. we have to point out that right now, if you look at how much it has tanked heading toward the change, because --the close. is pretty remarkable the meltdown we have seen this afternoon. lisa: this is on fears the u.s.-china trade war will hurt demand as political tensions rise in the persian gulf. these are kind of conflicting issues. let's bring in the head of energy and natural resources. why are will prices tanking so much today? >> in general, everyone is worried about global demand. that is having an impact on commodity price and equity's overall. the sentiment is borne out by a survey released yesterday.
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94% of all global ceo's surveyed were confident in their company's growth prospects but only 62% were confident in the global economy. interestingly enough, i think the trade tensions are having an effect across the board. i don't think this is picking on oil in particular. scarlet: it is not but you have to pay attention to the declines, off 8.8% over four days after falling almost 7% last week. it is down in five of the last six weeks. that is a lot of downside momentum. what is the argument for nymex $50e finding support at versus revisiting the lows of 2015? >> you are correct. it is off the high of $66 from april 23. we are seeing a plummeting. i think the supply-side economics are going to have to come into play in the next few
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weeks. i don't anticipating it dropping not below $50 because i do think the supply and demand dynamics that. we are just getting the hangover from global tensions. the tariffs with mexico just announced do not help since mexico is the fourth-largest provider of crude oil to the united states. $53.48, where is the floor? >> my personal floor is in the high 40's. we still have supply-side tension. a couple of weeks ago, we were talking about the challenges with the tanker sabotage in the pipeline drone attack. we don't have the level of transparency on some of the big opec providers that provide a lot of the volume. venezuela, iran, iraq. with the lack of transparency, any minor bobble is causing a huge gyration. we are seeing changes in crude
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price up and down by 15% month over month in the last 12 months alone. this is not unusual. i think we will see it spike up. scarlet: china has a massive import bill when it comes to oil. with trade tensions worsening, beijing has moved energy security to the top of its political agenda. it is reportedly preparing for worst-case scenarios like being cut off from overseas supply. what does a china trying to assert energy independence look like and what does it mean for oil prices? >> china has a lot of options. demand is projected to grow by 60% by 2023 as they convert from coal to gas. there are plenty of sources. australia, mozambique, qatar. i think it makes u.s. oil production more vulnerable because the chinese have so many options. i think the extent to which the
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extent continues to push the tariffs and trade disputes, we will see global oil price fall more precipitously. i am hopeful the market will realize some of the supply dynamics i am talking about and will lift it back up shortly. lisa: talking about the supply and demand dynamics in the high 40's -- and the floor in the high 40's, does that come down if some tensions get resolved more? >> i think you are right. you could see more downward pressure. but that is when opec might make a more decisive move in their meeting which could be at the end of june or the first week in july. that is the governor to keep us from going much below $44 which was the low at the end of last year. scarlet: regina mayor, great to get your take on a day in which crude oil has rounded off an
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8.8% drop for the week. coming up, president trump is changing his mind on tariffs for mexican metal. this is bloomberg. ♪
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lisa: our stock of the hour is computer hardware maker dell technologies. salesmpany reported a fall in its server unit for the first time in 10 quarters claiming the economic slowdown in china is weighing on his revenue. here with a look is dave wilson. we are seeing shares down 9.5%. ugly day for dell. >> it really is. it really is focused on the server business. it has been a mainstay the past
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companiesyears as have increasingly moved toward data centers and cloud computing. what happens in the past quarter? down 9%. it is something that gets your attention, especially when dell is trying to move beyond its roots as a hardware company and put together hardware and software. you see how the business breaks down at this point. servers a big chunk of where dell is right now and not doing so well in the latest quarter. scarlet: half of its revenue comes from hardware. is the first quarter weakness specific to dell or part of a broader industry narrative? >> you can argue the latter. think back to ibm's results a few weeks ago. what was the story? the cloud computing business did not come through the way people expected. dell has three publicly traded units. all the shares are down about 6%. we are talking about pivotal
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software for developers, secure works which focuses on cybersecurity, and dmware which runs networks. you put it all together and you can see it is not just a dell story per se but goes beyond that. lisa: i have to wonder if this comes at a bad time given we do have escalated trade tensions and a potential retaliation by china putting certain u.s. companies on a no-go list. how much is that playing into the selloff? >> what is interesting is dell talked about how they moved some production of china to avoid what might happen on the tariff threat -- front. you know where some of that ended up? mexico. lisa: mexico is supposed to be the big winner from the tariffs on china. i don't know. we will see. scarlet: not at this moment. thank you for getting us caught up. we've talked about mexico in tariffs. just two weeks after announcing
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he was lifting tariffs on imports of metals from mexico, president trump is threatening to increase the duty until the illegal immigration problem is remedied. we are talking about all mexican imports now. it is hard to keep track of what is going to get tariffed and not at this point. >> two weeks ago, the tariffs were taken of mexico and canada. 25% tariff on steel is off. 10% on aluminum also gone. overnight, we have the threat there could be 5%. added on. the question this morning was whether it will have a big impact on the steel industry. it would go back on steel. 5% back on. a 5% tax on imports of mexican steel. no 25% yet. if you get the 5%, the question is how much is this an impact. it is not that huge. maybe mexico is the
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third-largest supplier into the united states of foreign metal but it barely registers more than 3% in terms of our total consumption in the u.s. lisa: the fact that there were tariffs on the metals industry serves as an interesting test case ahead of other tariffs on other industries. what has the consequence been on the steel industry in the united states? >> the steel industry initially benefited. the stocks went up, prices went up. consumers had to readjust where they were getting metal if they did not want to pay 25% tax. they were buying a little more from the u.s. the supply chain in the steel industry is so integrated between mexico, canada, and the u.s., and that is why he became a critical component to get rid of those to pass the new usmca. two weeks ago, we were reporting 25% and 10% were taken off mexico and canada. that is great for those
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industries. but on a broader economic scale, it was to allow for usmca to pass. suddenly two weeks later, we are finding out mexico is possibly going to have another 5% import tax. the question is, does that put the entire usmca at risk which two weeks ago was on the line to have all of these tariffs taken off? canadian steel and aluminum not subject to these tariffs. they are back to zero. >> they are back to zero. scarlet: what are they going to win at the expense of mexico? >> they could, but that assumes would not line up with mexico on a diplomatic level. suddenly go back to politics. how do the canadians react to the fact the u.s. will place a whenport tariff on mexico all three are trying to get the usmca past? lisa: let's say they get more
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business as a result in the u.s. what about the slowing growth in response? >> i was asking a steel analyst this morning that question. he said look at the u.s. steel stocks. they are down because the dollar is up. demand globally is slowing. u.s.ltimately, you see the producers bringing in more capacity. u.s.d, do you think the steel industry would be ok with a 5% tax coming back on steel imports from mexico? he said i really don't think so. this is the same group that benefited from the tax in the first place and the 25% tariffs. he said he does not think u.s. steelmakers will be excited about that. the integration with the auto industry is huge. there is so much margin on the automotive sector. if you say usmca will be out the
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door and there is no agreement because mexico is no longer in on this, that is a big concern in the steel industry which already has many other concerns now fundamentally. lisa: you're going to draw a diagram for us all the tariffs being put on and off. we really appreciate your insights. coming up, why neel kashkari believes trade tensions are more annoyance than action. that is coming up next. this is bloomberg. ♪
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lisa:ensions swirl with china and mexico, the minneapolis fed president is confident the u.s. economy still has room to run. he spoke earlier today. take a listen. >> on the trade front, it has been more noise and rhetoric than real big actions that have
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impacted the u.s. economy. obviously, tariffs with mexico intentionally could be damaging to the u.s. economy. if the trade fight with china goes down a bad path, that could also be troubling for the u.s. economy. i am trying to separate out what is noise, rhetoric, what will really affect the economy. so far, the fundamentals have been quite strong. >> i think a lot of people are saying how much of it was clouds on the rise and -- horizon and how much was a thunderstorm about to come through. your vice colleague had something to say about when the fed might have to step in. this is what he said. incoming uncaring -- data were to show a consistent shortfall below our 2% objective, reports indicate global developments present material downside risk to our outlook, these are developments the committee would take into account assessing the appropriate stance for monetary
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policy. >> the question is, what data do we need? he referred to below the 2% target. that is already being delivered. what data specifically would you look at to determine whether it is clouds were a thunderstorm about to hit? >> i would separate out the fundamentals of the economy and what is happening to inflation. for 10 years as we had the 2% inflation target, we have been consistently under the target. my reading in minneapolis is inflation expectations are anchored around 1.7% which does not seem like a big mess, but that saps our ability to respond to future, downturns. that is one issue. second, overall fundamentals. it looks like the economy were slowing, if job growth were slowing down, if the tariffs and trade fights were causing businesses to retrench, that
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could put the real economy on a slower trajectory. either of those could because for changing the path of monetary policy. i am not quite there yet. i take a lot of comfort from the fact the job market continues to be strong. i want to see that continue. we have to see how the data comes in. lisa: there was a great column at bloomberg this morning that talked about trump. president trump may have found a way for the fmo seek to cut c to cut rates through trade threats. cut?that mean you have to how do you do that when there is still the pressure from trump to cut. how do you get the cover to do what you need to do for the economy? >> one thing i have product is i think everybody on the committee has been totally focused on doing right thing for the economy based on data and
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analysis and not focusing on politics and rhetoric. that is the best we can do. we cannot worry about who said what or how it will be perceived . the only way through the political noise is to focus on the data and analysis and our goals of stable prices which we define as 2% inflation and maximum employment. i think that is what my colleagues and i are focused on doing. lisa: that was neel kashkari, minneapolis fed president. what i think is interesting now is markets are trying to call the fed's hand. he is not sold on another rate cut but the market is. you are seeing the probability of a july rate cut going near 50%. thecan see by the end of year, it is nearly a 100% chance of a rate cut. the question is how much. j.p. morgan said they are expecting two rate cuts. barclays saying it could be 75
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basis points which could be three rate cuts. the federal reserve is probably going to have to respond or markets will fight back. scarlet: what has changed fundamentally that would necessitate a rate cut aside from the bond market pushing for one and rates going down? is there anything that indicates we are on the cusp of recession? lisa: interesting you say that. there are certain inefficiencies and costs companies have to bear as they rejigger supply chains. scarlet: isn't that transitory. lisa: dave was talking about that. scarlet: i'm glad you mentioned supply chains. part of president trump's efforts with the tariffs is to reverse the offshoring of jobs in the last 20 years. there is a lot of enthusiasm for the global supply chain. companies are seeing the risks
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of that with this president in office. let's listen to what the ceo of go-pro told emily chang in march. >> i have been very vocal about our need to come out with exciting new products every year. that was one of the lessons learned. in years where we did not come out with something new and exciting for customers, sales dropped. we learned you either have to come out with exciting new products every year or lower the price of your older products were as you cannot keep growing your business. scarlet: he did say he has started moving some production from china to mexico. moving production for some companies is too expensive. lisa: this is something dave was saying about doubt. they moved some of their supply chain to mexico to get away from china. now there is a potential tariffs on mexico.
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there is a question of how you get away from what is turning into a metastasizing trade skirmish. scarlet: no other country has the ability to scale production like china. no one else has the built-in expertise that china does because it has done it for years and built entire cities around a certain industry. let's get the latest business flash headlines. shares of tesla have dropped 43% this year. that has cut 4.9% from the value of elon musk's stake. 29thet worth is down from at the start of the year. conferenceeloper monday will move the company closer to a future in which the iphone is no longer the central cog. the company will highlight growth areas such as ar and personal health care management. and that is your business flash
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update. lisa: a quick look at how trade is impacting the avocado market. we have seen a swift reaction to president trump's threat to impose tariffs on all mexico imports. it wiped out two months of share gains for the leading avocado supplier. more on this ahead. i heat avocados -- i eat avocados all the time so this will definitely affect me. in the markets, red across the board. highly risk-off heading into the close. absolute worst month of the year. to $53 a barrel. remarkable. this is bloomberg. ♪
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mark: missouri's only abortion clinic can continue to provide this service. a judge made a ruling hours
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before the st. louis planned parenthood facility's license was set to expire. missouri parts health department cited concerns about patient safety and legal violations. says hispresident country won't respond to president trump's friend of tariffs with desperation, but instead will push for dialogue. he says mexico has been taking steps to slow illegal immigration and wants to have a good relationship with the united states. he pushed for longer-term increasing and opportunities so fewer people choose to leave the country. an inspection at an el paso border patrol station where detained migrants are being held found what officials are calling dangerous overcrowding. the office of inspector general for the department of homeland security said there were 900
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people crammed into the 125 person facility at one point. inspectors also found migrants held in standing room only spaces for days. and some standing on toilets. acting defense secretary patrick shanahan was in singapore today with a meeting of defense ministers with asia pacific nations. >> i think what it illuminated were a number of issues. korea, weabout north talked about violent extremist organizations. it was a very consistent theme in those meetings. he isretary shanahan says looking into reports that the white house sold u.s. navy -- told u.s. navy officials to hide the ship uss john mccain so
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president trump wouldn't see it when he was in japan. global news 24 hours per day --global news, 24 hours a day, on-air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton, this is bloomberg. ♪ >> apm in london, alive from bloomberg world headquarters i am scarlet fu. >> this is bloomberg markets the close. china prepares a sweeping blacklist of firms retaliating hard -- president trump threatens tariffs on imports from mexico unless the country halts illegal immigration into the u.s..
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trade fears rattle markets. u.s. stocks limping to their worst week and month since december. we have all that and more coming up. >> today has been a day of superlatives. let's walk you through what some of them are. the nasdaq at the lowest since march after today. falling 1.4%. the dollar weakening the most since -- the most against the yen. have that yield curve that everyone is watching, the new york fed, which is the gap between 10 year and three month treasury yield. it has gone the most negative since 2007, seven consecutive days. >> you pointed out the yield there. it is notable that the moves are on the 10 year side. in may atr started
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2.5%. it's just been remarkable. falling morer is today, starting to price and increasing chances of a rate cut. dive deeper into today's action with our markets reporters. romain, get us started. >> a big part of the story is what is going on in the oil market. down 6.5% today, but 9% on the week. that created a huge downdraft for energy stocks. this is the weekly decline. index down 3.6%. also lower, though that is not the right ticker. shares, they lost about
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twice as much as the broader market. s&p 500, down 6.5%. the energy sector down 12% or so. 14% sincer down about the year to date peak. it's the only one of the major 11 s&p sectors to be in a bear market. in on the s&p 500. 500 as have the s&p scarlett and lisa were mentioning. first down month of the year. balls in thehe bears over the last year and a half or so. neither side is in control. i will say out of the volatility, the big monster many, many were --
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expectations were for this all-time high to produce a new leg higher. now we are decisively below that 200 day moving average. a look at the rsi going be someard -- there may reason to think it could stabilize in the near term. overall this chart does suggest we will continue to see stocks trade lower in the month of june and july. down a good 8% and lagging the broader s&p 500 index. only a handful of s&p 500 retail -- i'm talking the 23 other members in the red across the month of may. they have been hit -- have been hit with a combination of tariff concerns.
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if we look at the three main laggards within the s&p 500 retail sector, that is emblematic of those concerns. next on the list of chinese imports to be tariffs. facing the secular check -- facing the secular challenges. gap also they reported their earnings last night. we saw them having a problem get their product right. >> now stocks at the close out their worst week since december. investors are laser focused on global trade headwinds.
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meantime china said to be preparing a list of so-called unreliable entities in response to the u.s. blacklisting of huawei. it altogether and give us much-needed perspective, that's welcome the former u.s. secretary of commerce under president george w. bush. thank you so much for speaking with us. how do you read what is happening right now? this something more? shock to the real business community. distant from trade. her it is applying tariffs out of nowhere and a country where we just closed a free-trade agreement. because oftariffs on
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an immigration problem. there are people wondering why would we do that? is it a way of changing the news cycle? there are a lot of questions. what this is created is uncertainty. we think north america is taken care of. now we open up another front. >> you have incredible experience with the government and 30 years where you became the chief executive officer. as the head of a multinational do iny, what does this terms of the decision-making? how pivotal are these issues? some companies don't change their supply chain, because some .ay want to wait 5% isn't enough. they begin to hold back on capital expenditures.
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if they are going to spend $500 million in capital, they may spend $300 million. they are not sure where to put the plant. uncertainty that is eventually going to get into the macro numbers we haven't seen yet. china, it is getting worse. we all thought we were close. now we are further apart than we have ever been. tohave seen companies moved southeast asia. the biggest beneficiary is vietnam. -- destruction has been costly. i'm not sure what we are getting for. >> part of the president's goal is to get manufacturing back to the u.s. to a first the off
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shoring of jobs. do something else that is perhaps cheaper than china. what would it take for these companies to move back to the u.s.? costs, because the labor the regulatory costs are just too high? >> that is the tough part, you start with wages. be 5, 6, seven times higher than the u.s.. a lot of the components come from overseas. in some cases because of globalization. you can't buy all of the components in the u.s.. it seems like our strategy is one to prevent china from achieving their strategy. onber two is we are focused industries -- i don't want to
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call them old industries, but they are old industries that made up our economy in the past. us on 5g.a leg up on be talking we should about, and not necessarily to bring manufacturing back. we need to protect workers. >> you served as u.s. secretary of commerce from 2005 2 2009. -- 2005-2009. see out you hoping to of congress or other members in response to this that you think it is a flawed policy? i'm not sure they have jurisdiction. the president probably chose this tactic because he can do it through executive order, but
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congress can pass a law for future executive actions. that weecome obvious have overplayed our hands with tariffs. it is a misuse of tariffs. solve an tariffs to immigration problem, how do you get that through the wto? i think whole world agrees and the members of congress agree that the president has overused tariffs. china, i regret we may have overplayed our hand. former u.s. secretary of commerce and head of kellogg company. moran president trump's mexico
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trade threat. -- writereak down our down how trade tensions are hitting the dinner place. plus mexico's president pushing back with former mexico ambassador to the u.s.. impactwill dig into the of all this on markets with global advisors. this is bloomberg.
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the terrace may be poised to hit people where it matters, which is food and drinks. the trade with mexico could on populars to rise beer brands. theysts say that makes
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alcohol giant particularly sensitive to a potential tariff increase, and wait until you hear what is about to happen to the price of avocados. here with a roundup of how trade tensions will spillover, we are joined by bloombergs sterling and -- i want you to give an overview of how much the united states relies on mexico for agriculture. >> 80% of mexico's avocado production in the united states, they are by far the largest producer. going to see that directly affect consumers. there is no markup, there is no extra space. there is not any room for absorption. you are going to see prices go up. you are going to see that for
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tomatoes and green beans. a lot of our fruits and vegetables come from the seasonality. these are the sorts of things you can't ramp up. avocados are grown on trees. it would take three to five years at least. nobody wants to take that risk of uncertainty. something you are not going to notice so much. people are going to see it in the grocery store and they are not going to like it. >> let's go with the alcohol side. the thing is a lot of people can switch out of corona. there are options here. why they areat's down so much today. the big brands have been declining. modelo has been up and up.
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they probably could absorb those prices. they are going to pass those along those consumers. and they would drive constellation. >> are there any other companies that are suffering disproportionately in the food and beverage space? >> this is the one that came to mind. mexico.ila comes from it's one of the origin of destination things. really where the focus was today. roundup.tic to get a as her markets remain in the red, we are looking at losses of at least 1.2% here for the s&p, dow and nasdaq. 6% of this is down
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month. second-worstthe may since 1962. a lot of superlatives. we are counting down to the close .
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joining me from california's cio of headwaters volatility. happy friday. what a friday. what a month of may. the s&p 500 down the worst month of the year. there are so many different factors at work. where are you at now? >> we have had a big move in the spot rate.
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this story isn't over. we have an executive branch that likes to take credit for putting it out. i would expect nothing less on this. >> if we bring the skew index into the conversation, the vix is elevated but it is not spiking true fear or panic. those twelve-month month lows so just think the real put call buyers are not worried. how do you factor that into the situation? >> i think that has a lot to do with why people were underwhelmed with the performance of volatility. that historical snap response. there are a number of reasons that is the case. thereggest one we see is are a lot of institutions --ling volatility and see there is a supply demand
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imbalance that takes place. there are a lot of mechanics behind what works and doesn't work. >> over the last year and a half the indexes swinging between 2600 and 2900. overall based on what you were any callsn you make in terms of how that range breaks? >> one of the things i pointed out in the trade example today is the imbalance between call --atility what wee changes in refer to as implied distribution and what is the probability of
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an up move versus the probability of a down move. a lot of this comes into fort ability. they tend to think about it is a cost associated with portfolio insurance. there are a lot of things that go into it. i see more fear priced into the market, but it doesn't look alarming. >> super quickly i believe you by calls. >> and hedging them with short stock. they are at a significant a longe -- you can carry position with a lower cost structure and have lower payoff structure. taking advantage of that supply imbalance. that has been the case for the past year. >> thank you. back to you.
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check of theyou a latest business flash headlines. bloomberg has learned doj wants to resolve a probe that involves multiple banks within the next few months's -- months. disney likely to have a hit on its hand with the billion-dollar new stallworth land attraction in disneyland. it is now looking ahead to future attractions. disney will create land space on the characters in both california and paris. month,looking at a down off by 6% for the s&p 500. it's global.
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mark: i am markham to and bloomberg's first word news. pentagon says that it's viewing report as the white house -- move the uss john mccain out of you before the president recent trip to japan. patrick shanahan told reporters, he is waiting to get all the facts before passing judgment. president trump told reporters he was "not a big fan of senator mccain," but he was not involved in the matter. a watchdog says iran is confined with the terms of that landmark nuclear deal reached


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