GM shares in focus on extreme weekend headline risk
Head of Editorial Content, Saxo Bank
Summary: Shares of General Motors, the US' most Mexico-reliant automaker, rebounded this week as high-level talks on migration barriers met with a degree of receptiveness in Washington, but the headline risk over the weekend is extreme given the scale of the rebound and President Trump's volatile style.
Trump’s goal was to secure Mexico’s cooperation regarding the flow of migrants from Central America travelling to the US via Mexico. In response, the Mexican government immediately sent a senior delegation to Washington with promises of a profound crackdown, including the movement of troops to its own southern border.
Mexican exports to the US amount to 28% of Mexican GDP, with automakers representing the single largest component of that share.
Shares of General Motors rebounded sharply from their initial post-announcement dip, rallying from just north of $33/share to over $36 Wednesday; they closed Thursday at $35.19.
A Deutsche Bank report estimated that GM could take a $6.3 billion hit before interest and taxes if the 5% tariff, itself set to rise to 25% if Washington is not satisfied with the Mexican response, goes into effect.
The risk now is that markets may be too willing to bet on the Republican Party’s traditional free-trade orthodoxy carrying the day. Yesterday, Trump told Fox News that automakers “should be ashamed” of resisting his tariff plan, claiming that the Central American migrant inflow is a key national security issue.
The situation remains risky and headline-driven for automotive sector investors, with shares of GM and other carmakers likely to re-test local lows on any sign that Trump means business.
GM shares, post-rebound, are nearing longer-term resistance just shy of $36 into Friday’s New York session.
Investors should be cautious of the steep headline risks as talks head into Monday; the GOP may be aghast at Trump’s latest deployment of protectionist measures, but the president is unlikely to welcome appearing as a paper tiger in the midst of the broader trade conflict with China.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.