USDJPY closed around 108.36 in the U.S. session Monday, edged down almost -0.08%. Earlier USDJPY surged to the session high of 108.72 amid “risk-on” sentiment on U.S.-Mexico immigration deal optimism coupled with renewed hopes of U.S.-China trade deal. But it faded on Trump’s bellicose comments about tariffs coupled with a renewed fear of a 9/26 like terrorist attack as a helicopter crash-landed accidentally on a Manhattan high rise rooftop and the building caught fire.
On early Monday, the “risk-on” trade got a boost and Dow jumped over 200 points as Trump announced late Friday that the “indefinite” suspension of planned tariffs on Mexican exports after reaching an agreement to tackle illegal immigration. But Trump also warned Sunday that if cooperation falls short “we can always go back to our previous, very profitable, position of tariffs”. Trump announced the agreement late Friday, following his return from a week-long visit to Europe, tariffs that had been scheduled to apply on Mexican exports from Monday (10th June) would now be suspended indefinitely.
Trump tweeted late Friday on Mexican immigration deal:
“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended. Mexico, in turn, has agreed to take strong measures to…. stem the tide of Migration through Mexico, and to our Southern (NYSE:SO) Border. This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States. Details of the agreement will be released shortly by the State Department. Thank you!”
“MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!”
“Everyone very excited about the new deal with Mexico!”
“I would like to thank the President of Mexico, Andres Manuel Lopez Obrador, and his foreign minister, Marcelo Ebrard, together with all of the many representatives of both the United States and Mexico, for working so long and hard to get our agreement on immigration completed!”
On Sunday, Trump tweeted, indicating about an extraordinary trade deal with Mexico, to be announced formally later:
“Another false report in the Failing @nytimes. We have been trying to get some of these Border Actions for a long time, as have other administrations, but were not able to get them, or get them in full, until our signed agreement with Mexico. Additionally, and for many years,… Mexico was not being cooperative on the Border in things we had or didn’t have, and now I have full confidence, especially after speaking to their President yesterday, that they will be very cooperative and want to get the job properly done. Importantly, some things…..”
“…..not mentioned in a yesterday press release, one in particular, were agreed upon. That will be announced at the appropriate time. There is now going to be great cooperation between Mexico & the USA, something that didn’t exist for decades. However, if for some unknown reason… there is not, we can always go back to our previous, very profitable, position of Tariffs – But I don’t believe that will be necessary. The Failing @nytimes, & ratings-challenged @CNN, will do anything possible to see our Country fail! They are truly The Enemy of the People!”
On early Monday, Trump also warned Mexico:
“We have fully signed and documented another very important part of the Immigration and Security deal with Mexico, one that the U.S. has been asking about getting for many years. It will be revealed in the not too distant future and will need a vote by Mexico’s Legislative body!— We do not anticipate a problem with the vote but, if for any reason the approval is not forthcoming, Tariffs will be reinstated!”
U.S. and Mexico also released a joint statement on the agreement: Full text
“The United States and Mexico met this week to address the shared challenges of irregular migration, to include the entry of migrants into the United States in violation of U.S. law. Given the dramatic increase in migrants moving from Central America through Mexico to the United States, both countries recognize the vital importance of rapidly resolving the humanitarian emergency and security situation. The Governments of the United States and Mexico will work together to immediately implement a durable solution”.
As a result of these discussions, the United States and Mexico commit to:
Mexican Enforcement Surge
“Mexico will take unprecedented steps to increase enforcement to curb irregular migration, to include the deployment of its National Guard throughout Mexico, giving priority to its southern border. Mexico is also taking decisive action to dismantle human smuggling and trafficking organizations as well as their illicit financial and transportation networks. Additionally, the United States and Mexico commit to strengthening bilateral cooperation, including information sharing and coordinated actions to better protect and secure our common border”.
Migrant Protection Protocols
“The United States will immediately expand the implementation of the existing Migrant Protection Protocols across its entire Southern Border. This means that those crossing the U.S. Southern Border to seek asylum will be rapidly returned to Mexico where they may await the adjudication of their asylum claims”.
“In response, Mexico will authorize the entrance of all of those individuals for humanitarian reasons, in compliance with its international obligations, while they await the adjudication of their asylum claims. Mexico will also offer jobs, healthcare, and education according to its principles”.
“The United States commits to work to accelerate the adjudication of asylum claims and to conclude removal proceedings as expeditiously as possible”.
“Both parties also agree that in the event, the measures adopted do not have the expected results, they will take further actions. Therefore, the United States and Mexico will continue their discussions on the terms of additional understandings to address irregular migrant flows and asylum issues, to be completed and announced within 90 days, if necessary”.
Ongoing Regional Strategy
“The United States and Mexico reiterate their previous statement of December 18, 2018, that both countries recognize the strong links between promoting the development and economic growth in southern Mexico and the success of promoting prosperity, good governance and security in Central America. The United States and Mexico welcome the Comprehensive Development Plan launched by the Government of Mexico in concert with the Governments of El Salvador, Guatemala, and Honduras to promote these goals. The United States and Mexico will lead in working with regional and international partners to build a more prosperous and secure Central America to address the underlying causes of migration so that citizens of the region can build better lives for themselves and their families at home”.
In any way, on Friday Dow soared on hopes of rate cut by Fed after a terrible NFP report and U.S.-China/Mexico trade/immigration deal optimism. Trump tweeted, boasting about the surging U.S stock market despite terrible NFP headline: “Dow Jones has the best week of the year!”
The U.S. Treasury Secretary Mnuchin said on Saturday that the U.S.-Mexico immigration deal met President Trump’s objectives of fixing immigration problems on the southern U.S. border, but Trump will retain the authority to impose tariffs if Mexico fails to live up to it
On the other side, the Mexican president said: “We don’t want confrontation with the U.S. government; we don’t wish to cease being friends with President Trump”. Clearly, Mexico is not China.
In any way, the market is now hopeful that agreement with Mexico could now raise the prospect of a near-term solution to the ongoing trade dispute between the U.S. and China. The U.S. Treasury Secretary Mnuchin said that Trump will decide whether to implement more tariffs on China after meeting with Chinese President Xi later in June. Finance leaders of the G-20 decried worsening trade tensions and their impact on global growth, but a statement from the group on Sunday didn’t mention the tariffs the U.S. and China have used and stopped short of calling for a resolution of the trade conflict between Washington and Beijing.
Meanwhile, on the sidelines of the G20 finance minister meeting in Japan, the U.S. Treasury Secretary Mnuchin said: “US-China trade negotiation is at a crossroad like that ahead of the December G20 meeting in Buenos Aires. Trump needs to see action to make sure Chinese President Xi is heading in the right direction regarding the trade deal. Trump will make a decision after the Trump-Xi meeting in Osaka on June 28-29 at G20 leader summit”.
Mnuchin also clarified: “if China wants to move forward with the deal, we’re prepared to move forward on the terms we’ve done. If China doesn’t want to move forward, then President Trump is perfectly happy to move forward with tariffs to rebalance the relationship. And, if no agreement is made, the end result will be that my expectation is that many companies will move their production out of China to other locations”.
On Sunday, Mnuchin tweeted: “Had constructive meeting with PBOC Governor Yi Gang, during which we had a candid discussion on trade issues”.
On Huawei, Mnuchin said: “What the president is saying is, if we move forward on trade, that perhaps he’ll be willing to do certain things on Huawei if he gets comfort from China on that and certain guarantees. But these are national security issues”.
The market is also concerned that boosting with success of his “negotiation tactics” using tariffs with Mexico; Trump may use the same bellicose policies against China ahead of the much awaited likely G20 summit between Trump and Xi. Trump is also using Huawei as leverage in trade talks with China, which is unacceptable to the later.
Although, China’s Xi is talking soft, calling Trump a “friend”, Trump is trying to use his bellicose style of negotiations to pressure Xi ahead of the expected G-20 meet. As per reports from Chinese sources formal dinner on cards for Trump and Xi at Japan G20: “A widely anticipated meeting between Chinese President Xi Jinping and US President Donald Trump at the end of June in Japan could be a formal face-to-face negotiation over dinner”.
Trump on his part is now using bizarre comments to Xi and threatened (like a local gang leader) if President Xi does not attend G-20, more China tariffs will go into effect immediately. On Monday, when asked during a telephone interview if that means the new tariffs would go into effect immediately, Trump said, “Yes, it would”.
On Monday, in a rare and surprising event, Trump called into a business channel to defend his tariff strategy. In the telephonic interview, Trump said: “I will be surprised if Xi did not attend. But I have a great relationship with Xi—he’s actually an incredible guy. But we will continue raising tariffs on Chinese goods. My administration is currently taxing 35% to 40% of the Chinese goods the U.S. imports. If an agreement isn’t reached, there are another 60% and that’ll be taxed”.
Trump added: “I believe China will make a deal with the U.S. because they’re going to have to make a deal—tariffs on China, Mexico are putting the U.S. at a tremendous competitive advantage. The China deal is going to work out. You know why? Because of tariffs–Right now, China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs”.
Trump said he and Chinese President Xi are “scheduled to have a meeting” at the G20 summit in Osaka. Trump added, “We’re expected to meet and if we do that’s fine, and if we don’t — look, from our standpoint the best deal we can have is 25% on $600 billion. And, if we don’t have a deal and don’t make a deal, we’ll be raising the tariffs, putting tariffs on more than — we only tax 35% to 40% of what they said then they had another 60% that’ll be taxed”.
Trump reiterated: “China is going to make a deal because they’re going to have to make a deal. At the same time, it could be very well that we do something with respect to Huawei as part of our trade negotiation with China. China very much wants to make a deal. They want to make a deal much more than I do, but we’ll see what happens”.
On Monday, the U.S. Chamber of Commerce’s EVP and head of international affairs, Brilliant criticized Trump’s tariff policies, using it like a weapon: “The weaponization of tariffs, the increase of threats on our economy, on our farmers, on our manufacturers, our consumers, is going to hurt our country. It also creates uncertainty with our trading partners”.
In response to Brilliant’s criticism, Trump said: “He’s not protecting our country. He’s protecting companies who are members’ of the Chamber”. Trump blasted the U.S. Chamber of Commerce on his Mexico strategy, as well: “I just want to say to the United States Chamber of Commerce, if we didn’t have tariffs, we wouldn’t have made a deal with Mexico. We got everything we wanted. And we’re going to be a great partner to Mexico now. Because now they respect us, (earlier) they didn’t even respect us”.
Trump described tariffs as a “beautiful thing” that countries with money should use. Trump said “People haven’t used tariffs, but tariffs are a beautiful thing when you are the piggy bank when you have all the money. Everyone is trying to get our money”. He also touted boasted that “If we didn’t have tariffs we wouldn’t have made a deal with Mexico” on migration problem of the US.
Trump is also quite confident that the China trade deal is going to work out: “Because of tariffs. Because right now China is getting absolutely decimated by countries that are leaving China, going to other countries, including our own. China is going to make a deal because they’re going to have to make a deal”.
Trump also mocked China/Xi and cried foul as the Fed is not under his direct control: “As per China’s system the head of the Fed in China is President Xi and he can do whatever he wants. They devalue. They loosen. They devalue their currency. They have for years. It’s put them at a tremendous advantage. On the other hand, we don’t have that advantage because we have a Fed that doesn’t lower interest rates. The Fed certainly didn’t listen to me because they made a big mistake. They raised interest rates far too fast and the day before a bond issue goes out so we have to pay more money”.
Summary of “Tariff King” Trump’s Monday interview comments on China:
“China is getting absolutely devastated and China is going to make a deal because they have to make a deal. The China deal is going to work out because of tariffs as companies are leaving China and going elsewhere, including to the U.S. Tariffs is a beautiful thing. China has lost many trillions of dollars on tariffs out of China’s total GDP of $12 trillion. From my standpoint, tariffs are no brainer. The tariffs are putting us at a tremendous advantage, but China devalues its currency—something has to be done. China currency moves nullified tariffs to some extent”.
“If China’s Xi doesn’t come to G20, tariffs will go on immediately; but I think we’re scheduled for a meeting. We’re expecting to meet Xi at G20, but no deal with China would mean more tariffs. China wants to make a deal much more than I want to. A lot of people think Q1 GDP was 1 pp stronger because of tariffs. Huawei could be part of broader U.S. trade deal with China”.
Trump’s comments on Mexico tariffs:
“We talked about Mexico deal for months but we couldn’t get there until the tariffs. Mexico took 30% of our automobile companies, they would all move back if we put on tariffs and as soon as I put tariffs on the table, it was done”.
Trump’s comments on the Fed:
“Our Fed is very, very disruptive to us and raised interest rates far too tightly”.
On Monday, Trump also commented that United Tech, Raytheon (NYSE:RTN) (M&A) deal may hurt competition for the defense sector. Trump reacted somewhat mixed on the huge $121 billion M&A of defense contractor Raytheon and United Technologies (NYSE:UTX) at a time when Pentagon indicated it would take a hard stance at the deal. Although Trump likes such M&A (consolidation) in the defense sector/aerospace, the lack of competition may be worrisome.
Trump said: “I want to see that we don’t hurt our competition. I hope the Raytheon deal, I hope it can happen. But I don’t want to see where we have one less person that can compete for an order. When I hear they’re merging, does that take away more competition? It becomes one big, fat, beautiful company, but I have to negotiate, meaning the United States has to buy things and does that make it less competitive? Because it’s already non-competitive”.
Trump, the great tariff man, who sees “tariffs” as a solution for each and every problem with another country, also attacked France (after just returning from that country). Trump said: “we’ll do something” about French wine tariffs.
On Monday, Dow as-well-as USDJPY slips to the session low on the concern of a terrorist attack (9/26 memory) after a Helicopter makes a crash landing on top of a Manhattan building, which later found an accident. The helicopter made a hard, forced landing and a fire ensued.
The risk-on trade was also affected by Trump’s bellicose comments about China tariffs. After “Mexican tariffs success”, it now seems that Trump is more inclined to use “tariffs” threat to solve any problem (like a nuke), whether it’s with an ordinary country like Mexico or a superpower like China. After, Trump’s threat about China tariffs, the fate of the G-20 meet between him and Xi may be now uncertain. China might be also cautious because of Trump’s tendency to insult a foreign leader/President by suddenly “walking out” of the meeting without a lunch/dinner (like with the NK leader Kim in the last summit) if talks do not go in Trump’s way.
On late Monday, Dow slips over -150 points from the session high as the U.S. Secretary Of State Pompeo said: If sufficient progress is not made on Mexico immigration, trump’s tariffs could go into force. We expect to have a good idea within 45-days whether a deal can achieve expected outcomes. The U.S. did not offer Mexico funding to enforce the agreement. The U.S.-Mexico deal reflects diplomacy at its finest and we have full confidence Mexico will fully implement immigration agreement. We are prepared to give agreement with Mexico some amount of time to see whether it’s working, but the progress on the border will be evaluated literally daily. Lots of hard work to do on border plan implementation”.
The Mexican Foreign Minister Ebard said:” The White House meeting is a very tense moment in trade talks as the White House pushed for a safe 3rd country deal in the meeting and during talks, Mexico threatened with retaliation tariffs. Talks with the U.S will resume if there are no migration results in 45-days. Mexico didn’t agree for agricultural purchases from the U.S during talks. Cuba, Africa, and Haiti migrants are traveling through Mexico and we are expecting United Nations help in regional migration efforts. A confrontation from the U.S will be costly for Mexico and tariff scenario had a very high cost for Mexico”.
Apart from politics, on economics, data shows that the JOLTS job openings for April edged down to 7.449M from 7.474M (revised downwards from 7.474M), lower than the expectations of 7.479M, while quits inched up to 3482K from prior 3461K, indicating confidence among U.S. workers.
Overall, the U.S. job openings remain above the number of unemployed workers in America for the 14th month in a row and there are 0.78 unemployed job seekers for each available job. Quits reached a new record high but layoffs also ticked higher. Layoffs and discharges at 1.2% in April against 1.1% in March as 1752K people were fired or laid off in April against 1788K in April last year. The latest JOLTS job openings report shows a robust U.S. job market still on the card despite the terrible NFP job addition for May and could keep the Fed on a “patience” mode in June meeting.
Technically, whatever may be the narrative, USDJPY now has to sustain over 108.80 for a rebound to 109.00/109.25-109.50/110.00 and further rally to 110.70*/111.15-111.75/112.40* in the near term (under bullish case scenario).
On the flip side, sustaining below 108.60, USDJPY may again fall to 108.00/107.70*-107.00/106.40 and further plunge to 105.70/104.70-104.30/103.80 in the near term (under bear case scenario).