Dow surges late day on Mexican tariff delay reports

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Mexico’s economy is an extension of the US economy: Peter Morici

MarketWatch San Francisco Bureau chief Jeremy Owens and University of Maryland economist Peter Morici on President Trump’s new tariff threat against China and the president’s plan to place new duties on Mexico.

U.S. stocks got a late day boost on word that U.S. tariffs against Mexico may be delayed by the White House.

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The Dow Jones Industrials closed 181 points higher or 0.7 percent and is on pace for its longest winning streak in almost three months. While the S&P 500 and Nasdaq Composite also gained. Bloomberg News was first to report the developments between the U.S. and Mexico, as talks between officials from the two countries continued in Washington. Currently, tariffs are expected on Monday.

TickerSecurityLastChange%Chg
I:DJIDOW JONES AVERAGES27154.2-68.77-0.25%
SP500S&P 5002976.61-18.50-0.62%
I:COMPNASDAQ COMPOSITE INDEX8146.488965-60.75-0.74%

As for China, President Trump said he would decide on more China tariffs "probably right after the G20," raising concerns of increased trade tensions.

The president's comments followed by only a few hours his threat to slap tariffs on "at least" another $300 billion of Chinese goods. Prospects for the Sino-American trade war intensifying increase investor worries about the conflict's effect on the global economy.

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The yield on the 10-year Treasury eased to 2.10 percent, reflecting lower investor interest in government debt and a preference for stocks.

Despite concerns that declining bond yields signal trouble for Wall Street, there remain several reasons for investors to be encouraged, John Lynch, chief investment strategist for LPL Financial, said in a statement.

"First, rates should fundamentally be higher based on the pace of economic growth and level of inflation. Second, we expect mid-single-digit earnings growth in 2019 amid steady U.S. economic growth, which we believe is sufficient for stocks to reach new highs later this year. And third, we still expect the United States and China will be able to strike a trade deal, or at least a truce, sometime this summer. We’re not dismissing the possibility of a prolonged trade war, but we think cooler heads will eventually prevail. In addition, we expect an agreement soon with Mexico to remove or limit the tariffs that were announced last week."

Crude oil prices climbed to $53 barrel. U.S. oil prices have fallen more than 22 percent below their April peak in recent days as growth concerns and a rise in U.S. production boosted American crude oil inventories.

Thursday's gains in the price of oil boosted energy company shares, which led gainers.

TickerSecurityLastChange%Chg
XOMEXXON MOBIL CORPORATION74.99+0.15+0.20%
CVXCHEVRON CORP.125.04+0.36+0.29%
OXYOCCIDENTAL PETROLEUM CORPORATION52.33+1.32+2.59%

"May’s pullback, while reasonable given all the bad news, may not last. With the fundamentals fairly healthy and the real prospect that the political risks may not be as serious as feared, we could see a recovery. This scenario would be consistent with previous pullbacks, which have been limited and short-lived," Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a statement.

"May was a tough month, but more from a market and headline perspective than from a fundamental economic one. As such, although we could certainly see more volatility in June, the more likely path forward is for markets to stabilize."

Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 218,000 for the week ended June 1, the Labor Department said on Thursday. Data for the prior week was revised to show 3,000 more applications received than previously reported.

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The European Central Bank trimmed its growth forecasts for the next two years, believing that Europe's slowdown will be longer and deeper than first thought.

ECB President Mario Draghi said in a press conference that risks to the region remain tilted to the downside, citing geopolitical uncertainty, the rising threat of protectionism and vulnerabilities in emerging markets.

European markets ended the day mixed. Britain’s FTSE 100 was higher by 0.6 percent, France’s CAC 40 slid  0.3 percent and Germany’s DAX was down 0.2 percent.