• Trump the turns the screw on Mexico and Mexico is responding.
  • Mexican Foreign Minister Marcelo Ebrard to hold a news conference in DC at 7:30am on Monday.

Mexican Foreign Minister Marcelo Ebrard is reported to be holding a news conference in DC at 7:30am on Monday (6:30am/CDMX time) to talk about the meetings planned with Donald Trump's administration this week.

The follows the recent escalation of trade wars on the part of the Trump's administration whereby Trump announced intentions to slap a 5%-25% tariff on all Mexican imports in an effort to force Mexico to respond to the U.S. requests over illegal immigration.

The Washington Post has reported that the administration, however, has not set any precise immigration reduction targets for Mexico. also, the article notes that acting White House chief of staff Mick Mulvaney said on Fox News, "conditions have to get dramatically better, and they have to get better quickly…There are specific things the Mexicans can do.’’

Mulvaney said on NBC News’s “Meet the Press” that the catalyst for Trump’s surprise threat last week was the crossing of 1,036 immigrants from Tijuana across the border into the United States in a single incident.

Mexico’s president responds

  • Weekend top stories from the financial press

Further to the end of last week's risk off state of play that came about following Trump's Mexico tariff announcements in early Asia on Friday, CNBC wrote a piece noting that Mexico’s president on Saturday hinted his country could tighten migration controls to defuse U.S. President Donald Trump’s threat to impose tariffs on Mexican goods. This news came after a news conference in the Gulf of Mexico port of Veracruz, where President Andres Manuel Lopez Obrador said Mexico could be ready to step up such measures in order to reach a deal with the United States. Mexico’s president said he expected “good results” from talks planned in Washington next week – Risk positive.

  • Mexico’s readiness to avoid trade tension with the US reflects a mirror image of China’s latest actions.
  • Domestic data and China’s manufacturing gauge in the spotlight for now.

Despite recovering from 0.6900, the AUD/USD pair is far from clearing 0.6950 resistance as it trades near 0.6930 during the early Asian session on Monday.

Challenges to global trade have been on the rise ever since the US announced tariffs on Chinese products. The latest wave was triggered by the Trump administration’s tough stand against Mexico. Though, Mexican President Andres Manuel López Obrador showed readiness to tame the reason for the punitive measures, illegal migration to the US, during an upcoming visit to Washington.

With Australia being the export-oriented economy, negatives for global trade and/or their largest customer China have a pessimistic impact on the Australian Dollar (AUD). However, the Aussie pair recently bounced off as the US Dollar (USD) weakened across the board.

AUD/USD is also considered as market risk barometer like the US 10-year treasury yield that recently tested 20-month bottom to 2.133%.

Looking forward, domestic company gross operating profits for the first quarter and ANZ job advertisements for May can offer intermediate moves ahead of China’s Caixin manufacturing PMI.

Forecasts suggest a 3.0% increase in company profits from 0.8% while job advertisements shrank -0.1% previously. Further, China’s private manufacturing index may flash no activity increase mark of 50.00 against 50.2 prior.

It should also be noted that China maintains its tough stand to retaliate the US actions as it recently prepared a list to put some headline companies from the US on restrictions to trade.

Technical Analysis

Sustained break of 0.6950 becomes necessary for the AUD/USD pair to aim for 0.7000 and 50-day simple moving average (SMA) level of 0.7025.

On the contrary, 0.6900 and 0.6860 act as immediate important support, a break of which can recall the year 2016 low near 0.6830.

The weekend press reports on the China and US trade spat, Trump's lashing out at Mexico, Trump's wading in on Brexit and general progress related to Brexit, U.S. Iran relations and European political developments taking the spotlight.

China puts out a White Paper on Sino/US trade spat – BBG

Bloomberg ran a report titled, China Demands Respect and Blames U.S. for Trade Talks Flop. There is some promising talk in the article of China’s government sounding willing to work with the U.S. to end an escalating trade war, but notes that China blames President Donald Trump’s administration for the collapse in talks and won’t be pressured into concessions. China wrote a whitepaper proclaiming that the trade war is hurting both sides. “It is foreseeable that the latest U.S. tariff hikes on China, far from resolving issues, will only make things worse for all sides,” according to the white paper. The Chinese white paper said at the most recent talks in May, the U.S. used “intimidation and coercion” and “persisted with exorbitant demands, maintained the additional tariffs imposed since the friction began, and insisted on including mandatory requirements concerning China’s sovereign affairs.”
“The Chinese government rejects the idea that threats of a trade war and continuous tariff hikes can ever help resolve trade and economic issues,” according to the white paper.

Instead, Beijing suggested, “the two countries should push forward consultations based on good faith and credibility in a bid to address issues, narrow differences, expand common interests, and jointly safeguard global economic stability and development.”

Mexican president hints at migration concessions to avoid Trump tariffs – CNBC

Further to the end of last week's risk off state of play that came about following Trump's Mexico tariff announcements in early Asia on Friday, CNBC wrote a piece noting that Mexico’s president on Saturday hinted his country could tighten migration controls to defuse U.S. President Donald Trump’s threat to impose tariffs on Mexican goods. This news came after a news conference in the Gulf of Mexico port of Veracruz, where President Andres Manuel Lopez Obrador said Mexico could be ready to step up such measures in order to reach a deal with the United States. Mexico’s president said he expected “good results” from talks planned in Washington next week – Risk positive.

Trump weighs in on Brexit – RTRS

Reuters reported on U.S. President Donald Trump who heads to Britain this week. The article notes an interview with the Sunday Times newspaper, where Trump said the next British leader should send arch-Brexiteer Nigel Farage to conduct talks with the EU. Britain must leave the EU this year, Trump said. “They’ve got to get it done,” he said. “They have got to get the deal closed.” “If they don’t get what they want, I would walk away. If you don’t get a fair deal, you walk away. “I like Nigel a lot. He has a lot to offer – he is a very smart person,” Trump said. “They won’t bring him in but think how well they would do if they did. They just haven’t figured that out yet.” On the Brexit divorce bill, Trump said: “If I were them, I wouldn’t pay 50 billion dollars. That is a tremendous number.”

Bank of England's Ramsden sees weak growth in mid-2019 – RTRS

Reuters reports on Britain’s economy likely to see slow growth through the middle of this year before picking up towards the end of 2019, citing Bank of England (BoE) Deputy Governor Dave Ramsden saying in an interview published on Saturday:

“Given where the labour market is, given that real incomes are beginning to see some pick-up, growth might be weak in the middle of this year and then start to pick up,” Ramsden told Scotland’s Press and Journal newspaper during a trip to Inverness.

“Businesses might be more cautious to start investing again at the kind of pace that we are forecasting, because we see investment picking up to 5% or so next year. It’s currently falling on a year earlier,” he told the newspaper.

The BoE forecast in early May that the economy would grow by 1.5% this year and 1.6% in 2020 if Brexit goes smoothly.

Quarterly growth was a robust 0.5% in the first three months of 2019, but the BoE predicts this will drop to 0.2% during the current quarter as the temporary boost from pre-Brexit stockpiling fades.

Merkel Coalition Party Leader Quits, Rattling Ruling Bloc – BBG

Across The Channel and over to Germany, Bloomberg reported on the leader of German Chancellor Angela Merkel’s junior coalition partner stepping down in a surprise move that puts into question the survival of the government itself.

"Andrea Nahles, head of the Social Democratic Party, said she will resign as chief and parliamentary caucus leader after losing the rank and file’s backing. The party suffered a devastating defeat in the European Parliament elections last week. “The necessary support for exercising my duties is no longer there,” she said in an emailed statement."

"The SPD choice for a new leader in coming weeks is expected to be linked to a debate about the future of the grand coalition."

The Middle East and the price of oil – RTRS/BBG

Oil prices have plummeted to a key technical level on the charts, ending just a stone throw away from the 200 W EMA target at 52.40. Another dollar lower, the price will have exceeded the 38.20% Fibo of the Dec lows to recent highs at $51.64. WTI is down nearly 17% since the start of May. Global demand is seen to be falling, but Iran would appear to be at the heart of the recent slide of oil prices.

"Brian Hook, Pompeo's point man on the Iran file, noted that countries that have not breached the previously agreed upon waiver allowances will not be sanctioned. While we suspect that Hook's comments were meant as a signal to key EU countries which have accrued such an allowance, as the Administration officials target the special mechanism created to trade with Iran, the announcement added fuel to the flames and sent crude prices tumbling," analysts at TD Securities noted.

However, in recent weeks, the US was said to be sending extra forces to the Middle East to respond to an Iranian threat and a report by Reuters from the weekend noted that Iran has warned that any clash in the Gulf would push oil prices above $100. The articles writes, "Yahya Rahim Safavi, a top military aide to Khamenei, said: “The Americans are fully aware that their military forces (in the region) are within Iran’s missile range and all U.S. and foreigners’ navy in the Persian Gulf are within the range of land-to-sea missiles of the Revolutionary Guards….The first bullet fired in the Persian Gulf will push oil prices above $100. This would be unbearable to America, Europe and the U.S. allies like Japan and South Korea,” Rahim Safavi was quoted as saying by Fars news agency."

The article goes on to note Trump's comments from last week where he was hopeful Iran would come to negotiating table to reach a new deal. On the weekend, Bloomberg picked up on Iranian President Hassan Rouhani’s expression of willingness to negotiate with the U.S and U.S. Secretary of State Mike Pompeo's response, “We’re prepared to engage in a conversation with no preconditions,” he said. “But the American effort to fundamentally reverse the malign activity of the Islamic Republic, this revolutionary force, is going to continue.”

Iranian Foreign Minister Mohammad Javad Zarif said, “Threats against Iran never work." “Never threaten an Iranian, try respect, that may work.” What’s more, he said, the U.S. can’t be relied on to keep its word. “People think twice before they talk to the United States because they know that what they agree to today may not hold tomorrow,” Zarif said.

There seems no end in sight to the Iran risk for oil markets and a recent surge in crude pipeline capacity, unlocking additional production, is likely to keep the pressure on the black gold. Meanwhile, in more recent news, the conflict in Syria grabbed the headlines, with Reuters reporting on missile attacks on a Syrian T4 military airbase in the province of Homs, a base used by Iranian forces. Israeli missiles targeted the T4 air base in Homs province in an attack on Sunday night, Syrian state media said citing a military source. “Our air defence systems thwarted an Israeli aggression and brought down a number of missiles that were targeting the T4 airport,” cited the military source as saying. The air defences hit one of the “attacking planes and forced the rest to leave” Syria’s air space, it added.

  • Trade tension and China’s Caixin manufacturing PMI remain in the spotlight.
  • New Zealand markets are off due to Queen’s Birthday.

With the trade tension in the air, NZD/USD is trading near 0.6530 at the beginning of the Asian session on Monday.

The Kiwi pair recently took advantage of the US Dollar (USD) weakness to avoid further declines while the US provided another reason to worry for the global trade watchers, i.e. latest tariffs on Mexico.

Mexican President seems to have shaken with the US President Donald Trump’s tariff announcement and is likely discussing ways to avoid hardships during his visit to the US during this week, latest market news suggest.

On the other hand, China maintains its dislike for the US and conveyed the same via its white paper. The dragon nation also prepared a list of the US companies to have restrictions from their side that includes Fed-Ex.

While China’s May month Caixin manufacturing purchasing manager index (PMI) is likely important for the Antipodeans, holiday at New Zealand may confine the Kiwi’s response to data.

The private manufacturing gauge is expected to follow the footsteps of official PMI by lagging behind 50.2 prior to 50.00.

Technical Analysis

Contrary to 0.6480 being immediate support prior to pushing bears toward October 2018 low surrounding 0.6425, 0.6560, 0.6580 and 0.6615 seem nearby consecutive resistances for buyers to conquer ahead of aiming for 50-day simple moving average (SMA) near 0.6645.

  • Risk-off dominates amid trade, Geopolitical tensions.
  • The latest improvement in global politics might offer intermediate relief amid overall uncertainty.

The USD/JPY pair holds its weakness while taking the rounds near 108.30 at the start of June’s first week on Monday. The quote slipped noticeably on Friday after global markets preferred risk safety amid the latest challenges to trade from the US.

The US President Donald Trump turned angry on Mexico due to illegal migration and levied 5% tariffs on its products reaching his land during the early-day announcement. The fresh tariff is subject to rising to 25% if the Mexican government fails to solve the issue by October, President Trump’s tweet said.

While the US-China trade tussle was already taking a toll on global sentiment, news of the US-Mexican differences added fuel to the risk aversion.

Not only trade but the Geopolitics were also in the spotlight after Iran-Iraq indulged into war or words with some Middle East leaders supporting Iraq.

Latest news reports from the global political frontier suggest some improvement in the situation as Mexican President is hopeful of a positive talk while he reaches the US this week while the US Secretary of State Mike Pompeo also conveyed the US-Iran talk without any preconditions.

However, trade negative news was also present as China’s white paper highlighted the US-side as a reason of latest failed trade talks while it also prepared a list of the US companies to put under its blacklist, including Fed-Ex. Further, the Euro might face difficulties as the German coalition partner resigned.

Looking forward, Japan’s first quarter capital spending data and the US ISM manufacturing purchasing manager index (PMI) could entertain traders via the economic calendar. The capital spending could increase to 11.6% from 5.7% whereas the US manufacturing gauge might also rise to 53.3 from 52.8.

Technical Analysis

While 108.00 and 107.50 gain high importance for sellers unless the prices trade beneath 109.20, buyers may aim for 109.80 and 110.30 should the quote regain its strength.

Germany’s Social Democratic Party (SPD) head and the junior partner in Chancellor Angela Merkel's coalition government, Andrea Nahles, on Sunday announced that she would resign from her position, citing a lack of support she needed to continue.

“The discussions within the parliamentary faction and feedback from within the party have shown me that I no longer have the necessary support to carry out my duties,” Nahles said in an official statement.

The fact that this developments is likely to create a short-term political uncertainty in the euro area's biggest economy suggests that the shared currency could start the week on the back foot.

According to the white paper on China’s official position on the trade negotiations with the United States prepared by the State Council Information Office, the U.S. should "bear the sole and entire responsibility" for the collapse of trade talks. As per reported by the South China Morning Post, "The more the U.S. government is offered, the more it wants," the document read.

While presenting the document, Wang Shouwen, China’s vice-minister for commerce, noted that China remained committed to "credible consultations based on equality and mutual benefit," but added that they would “not give ground on matters of principle."

In the meantime, China's retaliatory tariffs on $60 billion worth of American goods kicked in on Saturday.

While speaking in a news conference in the Gulf of Mexico port of Veracruz, Mexican President Andres Manuel López Obrador said that they were willing to ramp up measures to contain illegal immigration in order to reach a deal with the United States.

Obrador further added that he was expecting "good results" from talks planned in Washington next week, as reported by Reuters.