Weekend Review: Relief as Trump Abandons Mexican Tariffs

It was a busy weekend for the market as investors focused on the Mexican and US issues. Two weeks ago, Donald Trump announced that the country would impose tariffs on Mexican goods. His argument was that Mexico was not doing enough to prevent the illegal Central American migrants who traveled through its country. Soon after the announcement, Mexico sent a powerful delegation of ministers to have talks with US authorities. On Friday, Trump said that the two countries had made a deal that will help reduce the flow of migrants to the US. This averted a bad trade war between the US and Mexico, which have an annual trade relationship of more than $700 billion.

Investors also focused on trade as China made moves to retaliate against the US. On Sunday, Xinhua announced that the country was considering rolling out export controls on sensitive technologies. This came two weeks after the country announced fresh measures on the export of rare earth, which it dominates. The new measures will follow the model of the United States, which puts significant curbs on exports. For example, special authorization is required when the US exports arms to other countries. China argues that these controls are part of the reason why it continues to have a major trade deficit with the US.

Another big news over the weekend was the ongoing talks to merge United Technologies (UTX) and Raytheon. The combination of the two large companies will create the second-biggest defense contractor in the US with a market capitalization of more than $120 billion. The deal could be announced as soon as today and the resulting company will be called Raytheon Technologies. The two companies employ more than 180K people globally and will have $74 billion in sales this year. This deal comes a few days after the previous high-end deal between Renault and Fiat Chrysler collapsed.

Over the weekend, finance ministers of the 20 powerful countries in the world met at Fukuoka, Japan ahead of the G20 meeting, which will take place later this month. Among the major outcomes of the meeting was a decision to have higher taxes for digital companies like Google and Facebook, in what is being known as a digital tax. These companies operate globally and can often choose to book sales in a low-tax jurisdiction. In addition, many countries are not able to book the taxes for internet advertising. Countries like France and UK are bringing digital services taxes based on local sales and not profits. This also risks the issue of double taxation.

On Friday, the Labor Department released the May jobs numbers that disappointed. In the month, the economy added just 75K jobs, which was lower than the expected 180K. In the month, wage growth slowed to 3.2% while the unemployment rate remained at the current 3.6%. This was a disappointing jobs data, coming at a time when the US is experiencing a major trade war with China.

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