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
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.