Mexico Deal Puts Peso in Play While Global Trade Worries Persist

(Bloomberg) -- Investors returning to work Monday have a glimmer of optimism on trade to welcome them while underlying concerns about slowing global growth remain as conspicuous as ever.

U.S. Treasury Secretary Steven Mnuchin tweeted he had a “candid” and “constructive” talk on trade issues with People’s Bank of China Governor Yi Gang on the sidelines of the Group of 20 meetings in Fukuoka, Japan. That followed President Donald Trump’s decision to suspend tariffs on Mexico after the two nations reached an agreement late Friday.

“A positive Monday for a change?” Stephen Innes, managing partner at Singapore-based Vanguard Markets LLC, wrote in a note. “Investors were provided with another treat after the market closed on Friday when President said he would not levy tariffs on Mexico.”

Markets have been beholden to the ebb and flow of the trade dispute for weeks, which has pummeled stocks and triggered gains in gold and U.S. Treasuries. Finance chiefs said in a communique following the G-20 summit in Fukuoka that escalating trade and geopolitical tensions pose the biggest threat to the world economy, with risks still “titled to the downside.”

Peso’s Reprieve

The avoidance of tariffs on Mexico may support the peso after a five-day roller coaster that saw the nation’s currency tumble and then recover to end the week little changed. Still, confusion over Trump’s assertion that the Friday deal includes an agreement by Mexico to buy “large quantities” of U.S. agricultural goods may keep traders on the back foot.

The peso is likely to “retrace its losses, but more importantly, the U.S. dollar is starting to lose its luster,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. in Sydney.

The Bloomberg Dollar Spot Index ended last week 0.9% lower, its biggest drop since February 2018, as data showing slower-than-forecast growth in U.S. payrolls stoked speculation the Fed will reduce rates as early as next month.

While escalating tensions in U.S.-Mexico trade are “not the main factor in our outlook for slowing goods production and monetary easing from the Fed, direct effects from an escalation in U.S.-China trade tensions are,” Michael Gapen, chief U.S. economist at Barclays Plc in New York, wrote in a note.

Gapen expects 25% tariffs to be imposed on as much as $350 billion of Chinese imports in the third quarter.

To contact the reporters on this story: Justin Carrigan in Dubai at jcarrigan@bloomberg.net;Abeer Abu Omar in Dubai at aabuomar@bloomberg.net

To contact the editors responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net, Dana El Baltaji, Jon Menon

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