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U.S. Stock Futures Rise as Mexico Strikes Deal to Avert Tariffs

Heejin Kim and Naoto Hosoda
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U.S. Stock Futures Rise as Mexico Strikes Deal to Avert Tariffs

(Bloomberg) -- U.S. stock-index futures rose along with stocks in Europe and Asia after President Donald Trump announced late Friday that he would drop plans for tariffs on Mexico.

S&P 500 Index contracts gained 0.4% as of 9:37 a.m. in London, paring an earlier jump of as much as 0.8%, after Trump said that plans for a 5% tariff on Mexican goods had been “indefinitely suspended.” Dow Jones Industrial Average contracts also advanced 0.3%, while those on the Nasdaq 100 added 0.4%. A retreat from haven assets weighed on the Japanese yen and the Swiss franc. Mexico’s peso rebounded.

“The news of the deal with Mexico is likely to power global equities higher,” said Ben Emons, managing director for global macro strategy at Medley Global Advisors. “Averting tariffs on Mexican goods is a relief for the U.S. economy because it reduces uncertainty. It is positive for auto companies and other corporations that are highly leveraged to the Mexican border supply chain.”

In Europe, stocks rose in markets from Italy to the U.K., though several exchanges including Germany’s were closed for a holiday.

U.S. stocks rallied for a fourth day on Friday amid speculation the Federal Reserve will move to cut interest rates to shore up the economy after a report showed employers added the fewest workers in three months and wage gains cooled.

“If there is one constant that keeps the S&P ticking, it’s the Federal Reserve cheap money,” Stephen Innes, head of trading and market strategy at SPI Asset Management, wrote in a note on Sunday.

The world’s largest stock market posted a monthly drop in May, snapping four months of gains, as concerns over corporate earnings accelerated on technology stocks and Trump threatened to more more than double tariffs on Chinese goods. The month ended with the U.S. president turning his tariff gun to Mexico.

Among U.S. equities, the automotive sector is the most at risk in the absence of a clear resolution to trade negotiations with Mexico. Retail, transportation, materials and industrial companies are also vulnerable.

As traders cheered the deal between the U.S. and Mexico, the wild card is still Trump. In a series of tweets on Sunday, he hinted at additional measure between both countries:

Yet, three Mexican officials said Saturday they weren’t aware of any side accord in the works, and that agricultural trade hadn’t been discussed during three days of negotiations in Washington that culminated in a joint communique late Friday.

“The deal is conditional upon farm purchases,” Medley Global’s Emons said. “Those were already agreed under the USMCA. So long as Mexico commits to cooperate in the asylum policy and uses additional forces and resources at the border to stem the migrant flow, markets will judge the deal as credible. That is what is playing out now.”

(A previous version of this story corrected the direction of futures in the headline.)

--With assistance from Filipe Pacheco.

To contact the reporters on this story: Heejin Kim in Seoul at hkim579@bloomberg.net;Naoto Hosoda in Tokyo at nhosoda@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Cormac Mullen

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