NAFTA hardball: Mexico v. USA

Gloves off

NAFTA hardball: Mexico v. USA

Mexico is playing the China card as the US seeks better terms; OPEC cries "uncle" to U.S. shale; more politics ahead for France; growth resumes for the U.S.

"Evidence suggests that barriers to women’s progress remain"
Fed Chair Janet Yellen, at a speech at Brown University, her alma mater

Mexico: NAFTA hardball The Mexican government is sending a high-level trade delegation to China for high-level meetings within the next week. To underscore the meaning of the meetings, Mexican Economy Minister Ildefonso Guajardo said "We will use (the China visit) geopolitically as strategic leverage… it sends the signal that we have many alternatives". The stakes are high for Mexico, whose economy is thriving under NAFTA, and which sends some 80% of its exports to the U.S. All this is a shot across the bow to President Trump's stated goal of getting the U.S.- Mexico trade deficit down to near zero, and renegotiate parts of NAFTA in favor of U.S. companies and workers.

Global oil: OPEC crying "uncle"?.OPEC’s most recent monthly report version took an unusual turn, singling out the U.S as the producer most to blame for the current glut, ramping up drilling and production despite oversupply and sagging global oil prices.  OPEC may not have much leverage; its November 2016 agreement to cut production, which included some non-OPEC members, didn't include the U.S. – possibly believing that sub-$50 oil would be persuasive enough.  With WTI crude at $47.83[1] per barrel (and Brent at $50.89), it appears that US producers have driven down their own costs of production to keep them in the game – at least for now.

France: Vive la République! Sunday saw the handover of the presidency from François Hollande to Emmanuel Macron. The changing of the guard marks a new beginning of Macron's political challenges; next steps will be the appointment of his cabinet, including a new prime minister. The popularity of his picks is critical; elections for the senate begin almost immediately afterward. If the cabinet goes over well, Macron's ability to form a coalition will be greatly improved. Though Macron won the second round of the Presidential election, doubters note that he was the first choice of only 24% of the voters in the first round the previous week.

US consumers: I'll buy that for a dollar The first good look at April's consumer prices and retail sales was cause for cautious optimism. Inflation-adjusted weekly and hourly wages rose 0.3% and 0.4% respectively on an annualized basis, that means it's just slightly ahead of consumer inflation – which came in at an annualized 1.9%, ex food and energy. The first look at retail sales was similarly solid but unexciting; up 0.3%, not counting cars and gas – both of which are struggling right now.

The figures themselves are less important than what they mean for the Fed; in the statement released after the May 3 meeting described the pullback in growth in Q1 as "temporary". That's a vindication, however mild, for the FOMC's plan to continue its slow but steady pace of rate hikes.



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