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Market Likely to Open Higher on Positive Trade Talk

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Jun. 10 2019, Updated 7:42 a.m. ET

Mexico tariff imposition postponed

The broader US market is likely to start the week on a strong note, as US trade talks over the weekend with China and Mexico were positive. Last Friday night, President Donald Trump announced postponing the Mexico tariff imposition, as the two countries had reached an agreement on curbing illegal immigration into the US.

On the night of May 30, Trump had threatened to impose a 5% tariff on all goods imported from Mexico effective June 10 if the country doesn’t control illegal migration. The following day, all three major US indexes fell over 1.3%.

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Companies that have significant business exposure in Mexico such as Kansas City Southern (KSU) and Union Pacific (UNP) registered intraday losses of 4.5% and 1.6%, respectively, on May 31. Nonetheless, as trade and migration issue talks are now moving in the right direction, the stocks mentioned above are likely to bounce back when the market opens today.

Positive trade talks with China

Some positive news from trade talks with China is also likely to boost the US market today. The US Treasury Secretary Steven Mnuchin on his Twitter account revealed that he met with the People’s Bank of China Chief, Yi Gang, on June 8. Mnuchin said that he had a “constructive” and “candid discussion on trade issues” with Gang.

The trade dispute between the countries had escalated since early May after Trump raised tariffs on Chinese imports worth $200 billion of goods to 25% from 10%. In retaliation, China also hiked tariffs on $60 billion worth of US imports from June 1.

However, the latest development over the weekend signals that both parties intend to soothe the trade spat. Reportedly, the Trump administration is seeking reprieve on the Huawei ban after US tech companies warned the government that a ban would severely hurt their bottom line as well as their ability to develop new technologies.

The positive trade talk between the US and China is likely to lift the prices of tech and industrials stocks, including Apple (AAPL), Intel (INTC), and Caterpillar (CAT). These stocks have lost 5.2%, 9.8%, and 10.7% of their respective market value since May.

The Technology Select Sector SPDR Fund (XLK) and the Industrials Select Sector SPDR Fund (XLI) ETF have lost 3.2% and 2.9% of their respective market value since May. XLK has a portfolio of S&P 500 technology stocks, while XLI invests in S&P 500 listed industrials stocks.

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