mark: i am markham to and bloomberg's first word news. pentagon says that it's viewing report as the white house -- move the uss john mccain out of you before the president recent trip to japan. patrick shanahan told reporters, he is waiting to get all the facts before passing judgment. president trump told reporters he was "not a big fan of senator mccain," but he was not involved in the matter. a watchdog says iran is confined with the terms of that landmark 2015.r deal reached in

but the international atomic energy agency says iran's stockpiles of low and enriched uranium are growing. it is the first report since tehran announced an increase of low enriched and radium -- enriched uranium production. next week he will become the last four and later to meet mei before she resigned as head of the conservative party. delivering a new appeal -- the first papal visit to a majority orthodox country. they are a divided minority between two catholic rights, roman and greek catholic. in a sign of their unity, francis and patriarch daniel recited the our father prayer in

the orthodox cathedral funded in part by $200,000 donation by john paul when he visited in 1999. global news 24 hours per day on twitter,n tictoc on powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton, this is bloomberg. ♪ >> from bloomberg world headquarters -- >> they are 30 minutes from the end of the trading day. i want to take a look at oil. of oil plunging since 11 a.m. new york time, following the most since december of last

year. 6% in onee falling session. if you want to take a look at a similar trajectory. around a similar time, currently at the lowest since january of last year. getting tour that 1.9% level. weeksyou added up for the and months, the numbers are stunning. seven .8% for the past 30 days. thater this month we saw -- saw the nasdaq rake below the moving average. look at crude oil for the month. the 10 year yield started at 2.5%. >> you got the dollar up there. on the month it has

strengthened, tanking versus the yen. of the best bet among a sea of potential losers given what we have seen out of emerging markets. says mexicany tariffs would have negative impact costs. we were just talking about sterling smith. mexico talking about how is our biggest supplier of avocados. hitt shows how tariffs these companies. out, it will be interesting to see how companies try to forecast the potential hit of these tariffs. how do you do that?

and then he would ratchet it up to 25%. >> cfos will be cracking up there modelo's. up to 25% as we were talking about. the threat came hours after the tradeent set the new deal. speaking in his weekly press conference earlier today, mexico's president press for the meeting to avoid confrontation. will not fall for any provocation, we will act with of the of the authority united states. former ambassador from mexico to the u.s..

-- ambassador to mexico for the u.s.. are you glad you glad you're not ambassador? beenrtainly i would have kicked out, because i would have been very public in my criticism with what the admin's ration is done once again. >> what do you think the ambassador should do? >> i think the first thing will be to figure out what the benchmarks of success are. what the president rolled out yesterday, there are no goal posts. define whether mexico is doing or isn't doing enough? the fact is mexico has been .oing the yeomen's work there are almost 80,000 central

american migrants on the mexican awaitinghe u.s. border huge asylum hearings at a cost for local, municipal and state governments. toico has repatriated close 18,000 central american migrants in these six months. is that enough? do you want more? part of the challenge is what do those benchmarks look like? case but thee the administration can pull up any numbers to show that progress is not being made. does there need to be some splashy concession mexico offers the u.s. in order for these tariffs to not come into effect?

>> i think this is a decision being driven by everything except trying to solve the immigration problem. what a distractor of happened last week in washington, d.c. after robert mueller spoke to the press. it is also driven by -- is a you think this distraction technique the president is engaging in? >> absolutely. >> so specifically related to the mueller statement. >> absolutely. president is doing something which is, for starters, a self-inflicted wound on the u.s. economy. if you knew even a little bit about how u.s.-mexico traders figure in the past, you out we have some they call integrated supply and production change.

$.40 are of u.s. input. also -- is also 5% tariffs on u.s. imports. it is not only about the cost of avocados and beer going up. an aeronautical components that will also increase for u.s. business as a result of these policies. he said he is dispatching a delegation to washington led by his foreign minister to basically engage in diplomacy. what would be their best argument right now? how are they best go about pursuing diplomacy and getting their message across? you can't conduct diplomacy

by fiat. and you don't contaminate its views with other issues. you don't put trade into the mix. the other critical pieces u.s. constituencies, the u.s. private sector, which has start immobilizing today, you have statements by the business congress,, members of .ayors of those 25 states act in mexico needs to these constituencies to support what negotiations are going on the specifics of what the united states and mexico can do. >> thank you so much for being with us. former mexico ambassador to the

united states. congratulations not being in that role. .oming up, trade woes slump. companies this is bloomberg.

sell the mostt since late december. we got to bring in head of bloomberg's etf coverage. we won't give outflows for today . the price-performance is putting incredible -- is pretty incredible. >> we are seeing the worst price-performance on a daily basis since november of last year. the question of how much worse does this get going forward. since the atf has been hammered

from an outflow perspective for the last few weeks, if you are looking at it on a monthly basis, this is poised for the worst month since 2016. it's already a bad picture and looks to be getting worse. >> people often use etf as a fast trading vehicle. it is often a good indicator of where sentiment is at. >> these are used by traders who don't want to go into the domestic market, don't want to get exposed to mexican stocks directly. they may either move into the market itself or more sophisticated nuance. this is a way to get closure quickly. >> we look at ets as a proxy for china. i know you're focused on asher. it is not the biggest. ex-wives the biggest and that had some outflows. it focuses on the hr market in china.

really an interesting place to look. you saw that was the hottest market in the world. over the last month we have seen a record outflow. clearly that sentiment seems to be pulling back. >> that really highlights to me what a reversal it has been. to see theresting reversal and how that can manifest itself. it is supported by the pboc. shares areyou supported by the pboc as well. >> thank you so much. bloomberg's rachel evans with her etf coverage. we have the s&p 500 on the downside. the yen firmer.

lisa, you are looking at that. >> it was the biggest one-day weakening of the dollar versus the yen since january 3. >> that is not a move you see every day.

>> this is count down the close. >> joe weisenthal joins us. so much to choose from. >> oil is getting clobbered. i think it is interesting at a theme for the week, a theme for the day. it's not what you would expect. market.n a tricky weird a this is one we have seen for

the week. >> this is a prequel reminder of he would now talk about imposing. >> it is also more straightforward. you would think, surprise tariffs -- i was talking to one of our colleagues pointing out, who else is he going to use the tariff weapon against on any sort of international complaint. >> you are seeing that emergency -- in emerging markets. i wonder what this has to do with that rates. basically the more accommodative the fed gets, the more supportive it is for emerging markets. at pretty steep declines as of late. here's what it looks like today. up to 1.5%.e only to the flipside, no surprise

that autos and components are one of the big lows news here. -- losers here. about the auto industry. >> it has been a brutal day. we talk about the biggest one-day yet drop and treasury yield. >> a rapid pricing up that expectation out there. >> this chart makes it look like we were up there earlier, we weren't. it is wrong. how much we dropped at the open. >> there is that drop rate at the open. now you can see it in perspective. >> we are moments away from the clothes. let's get started with what you are looking at. >> it's not a happy friday for

maker of mexican beers modelo -- corona, on consolation brent having a tough time of it, the worst day since january. putting its crosshairs and off the trade war with president trump's trade war. generating two thirds of this revenue from beer and produces the vast majority of that and mexico. increased, 25 percent in october, it could pose a material risk of sales and earnings. a more expensive friday afternoon happy hour. >> one of the biggest movers, the big mover in the russell 1000, williams-sonoma up 12%, 13%.

williams-sonoma, pottery barn. a sales up 11.8% on the quarter. that is an acceleration of a 9% growth rate. that beat analysts by three percentage points. a lot of analysts hesitant to raise. seem to do well. barn, thee pottery growth rate was about 1.5%. that is the kitchen supply store. comp sales they are fell on the quarter. now it seems to be a little bit concerned about what is going on on that side of the business. abigail? >> take a look at the 10 year yield. this is extraordinary down 30 basis points. that's the degree which

investors are seeking safety and trade. extraordinary is there are absolute gaps on the downside. the 10 year yield that cross, -- and thischnical means the 50 day average goes below the 200 a moving average, telling you the yield is going to go lower. this happened several times in the last decade, with the exception that one, produced a greater than 1% move to the downside. we are there. it's worth pointing out, take a look at the spike to the downside. the 2% iting down to is confirmed for. >> that's a nice way of putting it. for market analysis, we are joined by cross asset reporter,

when i look across assets one of the thing that catches my eye is nymex oil, wti falling 9%. we go back to the trade war tensions, proposed tariffs on mexico. it's amazing how there's no one there. quick soil is obviously an interesting one, because it points to it being deeper than a trade issue. pooright we did have chinese data on the manufacturers. to me like an inflation concern. you did see the same move with oil as to your yields the same time of day, and the same move with five-year break-ins. >> this is what is crazy to me. we have had the biggest to date -- two day retreat since the power pivot at the january presser. -- that is crazy

for me. it suggests that the expectations will be driving the bus. certainly there is inflation component there and you're seeing it show up in high-yield spreads. march why is -- march i want to bring in tom. even with the ongoing selloff, and no point did it ever really feel like panic or to disorderly, it is day after day,'s ready. is this a viable dip, or what would you like to see before the market will gather steam again? to findarket is trying equilibrium. 6.5%. down

the term structure is still normalized, meaning it's not even like the vix market. it is tough. at the end of the day if we had to say in december why were stocks a great buyback then? the internals were so beaten and you had a version of the fixed term structure, and put call was going nuts. at the moment, i think this is still chopped for markets. i think people are getting very lopsided. a stronghere is consensus that a contractionary cycle is starting. riskingffs are not only the end of expansion but leading to a down term.

-- downturn. i think that is the excessive judgment being made by the market. >> something that is very much -- the market is pricing in -- rapidly pricing in rate cuts. that is the story of the day by far. interesting is they are steepening long-term yield curves. the fed will rescue this cycle, you are seeing they will allow this idea to allow inflation to grow. >> i really wonder, and when i look at the confluence of three -- to mesus two tends it kind of speaks to the idea of what are we out there? >> it seems like the market increasingly betting on a proactive bet. we probably have to see more signs of a next week when all these people

>> yes. i think the fed will react to financial conditions. one of the things we have to keep in mind is interest rates around the world are so much lower. the u.s. 10 year has almost tripled the yield of spain and portugal's 10 year. we wrote about it a couple of times over the last couple of months. alwayspast, it is almost been inverted because the three month has been rising. in 1998, the inversion took place because the 10 year fell. that is taking place now. that is why people are over reading that business signal. let's give you a wrapup up of

what we have seen this week. u.s. stocks are tumbling. the worst weekly loss since christmas. treasuries rallying for a fourth day. oil tumbling by 5%. the president is threatening to put tariffs on mexico. a brutal day. >> if you would bet there was a 5% selloff in the markets and the president would moderate his tone and trade because of that, you would be wrong. >> let's dive deeper. il: let's look at the s&p 500 on a weekly basis. the worst week of the year.

that was through last year. holding the 40 week moving average. right now, closing below the 40 week moving average. there may be some reason to think that the s&p 500 consolidates around these levels before possibly dropping more. : i am looking at the oil markets. we are looking at a close to 6% price drop. move on ae biggest closing basis in any direction, positive or negative, this year. has been as cruel to oil as it has been to stocks. oil is the worst-performing major asset.

may foreen the worst oil in seven years. this is been further compounded by the president's threats toward mexico. we are a very long way from when oilwere in april was down 14%. nevertheless, one fund manager said today's moves were an overreaction. oil in the low to mid 50's is not sustainable. romaine: that was one of the hottest ipos back in 2015. the shares dropped 30% today. since they have gone public, they have issued five straight earnings reports where they have come in below analysts

estimations. this company is operating far below its potential. this was a splashy ipo back at the beginning of 2018. paul allen was the largest shareholder when this went public. since then, they opened up 14. they were up to 37 a share. again. $13.99.at joe: thank you to the markets team. i want to turn to you. this is a bit surprising given the news slow. global strikes have been a real drag on diversified portfolios. is this the start of anything

meaningful? what is the story behind us? >> people are wondering that because it is tough to wrap your head around the degree of over performance we saw this week. one theory i have heard promulgated that resonates a be -- bit with me is that as it gets more trade centric -- tech it becomes a drag and a material drag. >> i want to take it over to you because since the s&p 500 peaked on april 30, we have seen it fall about 6.6%. a 10% correction because of crowded conditions and expensive evaluations. you are saying that now might be a good time to buy equities.

we could fall another 3%. i think investors don't buy .quities for short-term trading stocks are really long-duration instruments that reflects the future potential of the economy. that is your hedge against inflation. ison't think anyone who long-term oriented should be that concerned about another 3% drawdown from where we are. this is not a markets that has gone completely defensive. some of the best-performing groups since the peak are things like consumer finance, road and rail, consumer services, i.t. consulting. these are cyclical groups. i don't think all hope is lost. >> you were saying earlier that

you think the fed will capitulate. will that be supportive for seeings are problematic how it indicates an economic slowdown on the horizon? i think it is an important psychological support. i think in december, from what i they lost all hope of actually even having any fundamental case for reviewing long stocks. fed was reviewing the tightening conditions and ignoring the message from the bond market. think the bond market is telling them we need to have an interest rate cut. the feds paying attention to that is good news. tools to feds policy not just set the rate. it is communication. it is providing the gentle, invisible hand. i think is that what -- i think that is what we lacked.

joe: it's lowest close ever for the month. what do you take away from that? >> you are seeing a much higher vix print. to show just how orderly that selloff has been. that yourto the fact vols have been disguising a little bit. >> thank you so much for your thoughts. that does it for the closing bell and for me. romaine bostick is stepping in next. lots of red across the screen. this is bloomberg. ♪

romaine: live from bloomberg headquarters. confusion and frustration and fear in the market today. this is how the stocks close. weeks of trade and economic growth jitters culminating in the worst month for u.s. stocks since december.

president trump opens a new front in his trade war by targeting mexico. the federal reserve could price into cuts this year. but we start with trade. the u.s. was supposed to be moving toward ratification of a new trade deal with canada and mexico. but just hours after mexico's president sent it to the senate for ratification, president trump threatened mexico with tariffs up to 25% in retaliation for the migrant surge at the southern border. here to take us through what this could mean his former u.s. acting trip to the -- deputy trade sector. thank you for being here. was jolted last night with the trump tweets. this is destroy any chance of ?he passage

never.ver say but while, does this put passage of the agreement in jeopardy. the president says he is going to hit mexico with tariffs. toico agreed to this deal get stability in our economic relationship. lisa: one question is, how reversible is this move? we are seeing the mexican foreign minister plans to meet with mike pompeo on wednesday. that say there is some sort of agreement and this threat is retracted. does everything go back to the

way it was before? >> that is hard to see. really has done its damage. the message that is the administration will continue to use tariffs irrespective of whether it has a trade at remit with a country or not. when you look at the damage that is potentially done in regards to mexico, look at it to the eyes of china, japan, vietnam, germany. do they look at us as a reliable ally and trading partner? >> i think they few us as an untrustworthy and unreliable trading partner. trade deals require tough political decisions. if you are going to make them, you want to make sure that you will have a deal with the u.s. at the end of the process.

if the deal can be undermined by a tweet, what value does it have? we talk to people and they say it is rocky now but our base case is still strong. that whether it is investors are people in the business community, that they are naive about the direction that trade policy is taking in this country? assuming we will revert to the status quo? >> things on the china front are not encouraging. are seeingday, we new announcements by china responded to actions and words that the u.s. has taken. the tension is really ratcheting up. it is making it much more difficult to conclude a deal between the u.s. and china. it is not impossible, but there are many more roadblocks and issues that they will have to talk about when they get back to the negotiating table. lisa: given the fact that it is

looking less likely that we will have a trade deal, what will this look like? what is the most likely retaliation from china? already seen it with tariffs. just about 20 minutes ago, china went forward and impose their tariffs on $60 billion worth of u.s. imports. china announced earlier today that it will set up its own entity list looking at the behavior of u.s. companies in response to the u.s. actions on huawei. i think we will see some escalations. but it some point both sides will find that it is an their own interest to get back to the negotiating table. the consequent's and applications of no deal are really hurtful to both economies and to the global economy. lisa: thank you so much for being with us. romaine: u.s. stocks have not

had a bad month like this since december. we will keep talking about what happened today and the impacts. kits --ike the fat tail keeps getting fatter. when we move that risk and it becomes part of the normal distribution? the question is the reliability of the u.s. as a trading partner going forward. and the equity market, everybody talks about the risk premium. the prices oft stocks based on the notion that there is this lingering risk to policy. unpredictability. the dollar for dollar a effect of the tariffs on mexico are one thing. but it is adding that uncertainty and risk premium into the market. such a nastye saw

reaction and one that maybe won't reverse right away. as bad as may was, the vix did not get that elevated. it sort of conference with everyone has suspect they, which is that it never felt disorderly or panicky. what you make of that divergence between a lot of dire headlines all over the world versus a fairly orderly selloff? remember what we came into may at. a market that was on fire. investors memories are very short-term. it feels like we are in this nasty bear market right now. we are still up 10% on the year. vix obviously reflect short-term concern. we have fallen a lot in may. perhaps the vix is sending a signal that this is the bulk of the decline we will get.

it is jerky to put too much faith into any signal the vix sends. i would warn against try to make too much out of it. traditionally, credit leads equities. credit is but to be the smart money. now you see equities leading credit. bonds and the u.s. are down less than 1% for the month. just to give you a sense versus it worst month this year for most major equity indexes. i'm wondering if this indicates not. is a bounce back or the alarm has been sounded on credit this week. it didn't catch people of guard, it deftly got people's attention. i'm not sure if you can universally depend on credit.

people actually look to high-yield spreads as an indicator. flashing, it is not red. it is flashing yellow. i think that is interesting. >> what is the s&p flashing? it is up 10% on the year and it is not even the middle of the year. certainly the volatility is more in equities. the sales and earnings are at risk. maybe not enough to bleed into the credit space yet. it would be interesting if equities and up leading credit this time. then we get to brag about it. trumpe: is there still a put or a powell put in this market? isn't the dow his favorite gauge? put is an imperfect analogy

from what you can expect from president trump. he is ratcheting up the tensions. if we do use the put analogy, every put has a price and a date attached to it. if you think of the timing of the election cycle right now, now is when president trump can get tough, he can conflate the potentially claim victory closer to the campaign season. come to the campaign rallies with some nice trade war stories to tell. that is rallying at the time. the market could be up a lot as of the election. but if it is down a little bit from the most recent pay, it won't feel like a great stock market to brag about. you so much for being with us. coming up, president trump's

mexico tariffs threat. more on the road ahead. this is bloomberg. ♪

lisa: the automotive industry is

caught in the crossfire yet again as carmakers see $18 billion wiped out. we are joined by our auto reporter. who are the biggest losers are? -- here? >> the biggest builder of automotive -- automobiles and mexico is general motors. fiat chrysler built a lot of automobiles there as well. profits can fall as much as 10% by these tariffs. joe: when people hear about tariffs on imports from mexico, they imagine a product that is made in mexico and a little price slept on it when it comes across the border. the key thing that people don't understand is often products crisscrossed the border several their way to becoming a part in a finished car product. talk to us about what this does to supply chain management.

almost no car you can buy in america doesn't have some mexican content in it. the tesla model three that is built in california has 30% mexican parts. and cadillac tahoe escalade are built in texas and are more than half mexican parts. let's go back and forth between mexico, the u.s., and canada. we did a graphic a while back on a car seat that moved across all of those borders multiple times. that is how the supply chain works. romaine: how do you think this is going to mesh with the can -- consumer side with car prices rising and demand not necessarily where was a few years ago? >> we are already into a down turn on auto sales in the u.s.. all the analysts are saying that this will raise prices even

higher. one analyst said this could be the tipping point into a recession. i'm looking at what is going on in respect with these tariffs. are automakers are going to move production to mexico. >> moving it out of mexico would be a very difficult thing to do. there is uncertainty how long these will last. makeakers don't designations on something that will be around for a couple of years. romaine: thank you very much. industry. the freight we will take a look at the issue . this is bloomberg. ♪

>> i am mark crumpton. missouri's only abortion clinic cannot continue to provide the service. a judge made that rolling this afternoon hours before the planned parenthood is a lady -- facility's license was about to expire. planned parenthood says missouri is "weaponizing the licensing process." station,paso border officials have found dangerous overcrowding. the office of inspector general for the department of homeland security found there were 900

people crammed into the 125 person facility at one point and a majority of the detainees were held past the allowed 72 hours. standing room only. acting defense secretary patrick shanahan was in singapore on friday for a meeting with defense ministers of asia pacific nations. eantold reporters that the as meeting was a real highlight. >> i think what it illuminated were a number of issues. we talked about north korea. extremistabout organizations. and to some degree, trade but it was a very consistent theme in those meetings. also saysry shanahan he is looking into reports that the white house told u.s. naval officials to hide the uss john

mccain so president trump would not see it while in japan. shanahan also said u.s. policy is aimed at maintaining free and open seas. wapanese prime minister abw and the philippine president held a bilateral summit in tokyo today to discuss trade, investment, and growing japanese activity in disputed regional seas. the philippine president affirmed his promise to keep up cooperation in the changing world and he added that he was pleased with the growing interest and was confident that the philippines was a preferred trading partner and destination. minister for japan said they will continue to fully support sustainable development in the philippines including quality infrastructure projects. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over

120 countries. i am mark crumpton. this is bloomberg. notine: freight markets seeing a light at the end of the tunnel when it comes to persistent trade woes. president trump's threat to place extra tariffs on mexican goods -- here to break it all glasgow from bloomberg intelligence and he covers the freight industry for us. when you look at these class one railroads, they have some exposure to what comes across the border in either direction with mexico. kansas city southern pacific seems to have a real outsized exposure here. inpart of their network is mexico so they do operations domestically in mexico and do a lot of cross-border operations

as well. stuff that originates in the u.s. and goes to mexico and vice versa. 48% of their revenue is generated by mexico and 30% of their total revenue is cross-border business. 40% of that is stuff that originates in mexico and heads to the united states. the majority of that stuff is container boxes filled with stuff. we do not know what is in them. and second to that is automotive. there is a lot of uncertainty going on with the new tariff talk. we do not know how long it will last or how high they will get but at the end of the day, people will shift their supply trains -- supply chains in reaction to this as well as the inflationary impact. not having a big impact on the way companies source there products, but will it have a compounding affect?

>> i think what the dimmest damage -- the biggest damage will be is the inflationary pressures on demand. beple in the u.s. could buying less stuff from mexico because of the higher cost. that would have an end result of lower demand which would mean less volume and it could snowballingve a effect. worst case scenario, put us into recession but i do not think that will happen. lisa: if we are not importing as much from mexico, are there any transportation companies that benefit? because we could be importing more from canada? is stuff that we import from mexico which is different from what we import from canada. if we were to say that there is there, rails like canadian pacific and canadian i donal would benefit what

not think that is the story here. what we saw with kansas city southern was a knee-jerk reaction. the stock went down 4%-5% whereas it went down about 1% for its peers. it is a huge -- growth driver for the company. we have seen over the last year that premium has become a discount because of all of the headline risks and overhang risks related to mexico. the strike by teachers impacted their flow of goods. local regulators in mexico looked closely at the rail business. trucking is a lot more competitive down there versus intermodal. a lot of different things have pushed and contracted the overall multiple over the last year. lisa: thank you so much for joining us. looking atwe are u.s. retail stocks which are also not immune to the volatility in markets this month.

they faced potential impacts of the new u.s. tariffs on all mexican goods. just put into perspective how much of a laggard the retail business was. >> you said it had the worst month. s&p 500. its lowest level in three months and falling 8%. there are only three of the s&p 500 that ended may in the green including dollar general and target. all of the others were in the red. --st performance in s&p 500 all down about 30% including kohl's and gap. romaine: i found it interesting at how quickly the industry came out to speak out against this. previously, when we have seen tariffs posed or threatened, the industry was more reticent to say anything negative but they were pretty forceful.

>> especially if you look at the companies that are being the most affected including department stores, apparel companies and footwear. for a while, they were not as impacted by the tariffs. allowed, their size them to absorb this and work with their suppliers to bring costs down. now, they have chinese issues and mexican issues. we heard today from the apparel and footwear association, the president there saying that this was unfathomable and because of these actions, the americans will pay more- for everything from computers to jeans. this is the biggest supplier of men's and boys jeans which would explain why we have seen levi and others struggling.

joe: we have had the ceo of bloomberg and he said they have shifted production elsewhere. months,e last 12-18 many are talking about moving their supply chains. away from china. to vietnam or indonesia. america back to central as well. now, we of the usmca so there are threats to or for mexico as well. -- all ofis the story these things, one after another, these moves. >> through the month of may, the last two weeks have been the big retailers reporting. are doingnters better. the big boxes are doing better. but they are also dealing with a

secondary issues. department stores are down extremely badly. they are also struggling with the e-commerce versus brick-and-mortar balance. , thank you very much. coming up, as trade wars ratcheted up on new imported goods from mexico, we speak to a professor from the university of oregon. this is bloomberg. ♪

lisa: tensions rising between the u.s. and mexico as president trump threatens to slap tariffs on all mexican goods beginning june 10. the move could have major implications. joining us now is bloomberg mexico city deputy chief.

you just wrote an interesting story talking about how mexico's government agency in charge of the illegal immigrants had its budget/or its spending slashed in half compared to the same period as last year as the government tries to implement an austerity type of policy. can you tell us more about your story? >> we crunched some data from the finance ministry that showed spending in 18, the first quarter was about $38 million for the national immigration institute. that is the main immigration policy agency in mexico. andonsible for detentions responsible for any kind of immigration policy. last year was $38 million and now it is only $16 million. we have seen cuts this deep across the board in other parts

of the economy and the government but it is especially what mexicoing faces now with the rising immigration from central america. the reaction been today from the government in the wake of the tariffs? tradebig train tension -- tension with china. how has mexico responded today? nacha: there was a press conference this morning. he was incredibly diplomatic saying we have to do everything possible to have a diplomatic solution. he sent his foreign minister to the u.s.. starting negotiations on wednesday meeting with mike pompeo and already talking to jared kushner. he is trying to take a very measured approach to try to bring an end to this crisis. romaine: are you hearing from

anyone over there about how they are reacting to the response from anlo and whether that response is commensurate with the way u.s. policy is right now? think there are definitely voices of concern is not taking any retaliatory measures right now for example. a lot of people in the government are happy though that he is trying to avoid the crisis. there are tweets congratulating him for his letter. there was a tweet from donald trump immediately after the two-page missive. it is not clear that his --itude towards donald trump he has even used the words "peace and love" are working. joe: thank you. as calais,

minneapolis fed president says the mexican trade would be damaging for the u.s.. take a listen. versusft for cap mexico america. at with-- a tit for t mexico versus america would be more costly to the u.s. economy and have a much more direct affect on business confidence which would cause them to retrench leading to an economic slowdown. a universityme now of oregon professor of economics. thank you very much. if the economy were to slow, then presumably that puts pressure on the fed to cut rates of but what if the economy slows because of something that is arguably inflationary as a contributor such as higher tariffs or other disruptions to the supply chain -- how difficult does it make the fed's

life in terms of the next policy move? tim: i don't think it will make its life that much more difficult. these moves asee the beginning of an inflationary process. as long as that is the case, they will feel confident easing interest rates in order to support the economy and deal with the softer economic growth. and yet the other factor is that inflation is fairly low right now which also gives them a little more cushion to ease rates. --a: one thing i was noting an analyst from allianz was pleading a moment ago saying the federal reserve will have to cut rates or signal they are going to to avoid negative market feedback. disappointment in the market is all were --is already being priced in. do you agree? what tends to happen is the

fed resists those types of market signals until they cannot resist anymore and then they move quickly. that is what we saw, for example, last december. they resisted. and then they went through the rate hike anyway and then markets fell apart. and then they changed their tune. i would not be surprised to see a similar dynamic again where the fed sets the stage for the june meeting saying we are not going to change policy. and then markets become very disappointed. may follow that path. but i would agree that they are going to most likely cut interest rates for the back half of the year. romaine: when we look at inflation and the outlook for inflation in the context of this trade war, do you buy into this idea that the trade war to a certain extent could be deflationary?

that consumers will switch to lower-priced things? and that in there he would keep the fed in check? that withbelieve inflation expectations fairly well anchored which they appear to be, that that should minimize the development of any inflationary impulses into broader inflationary pressures. i am worried more about the disruptive nest -- particularlys, with respect to our north american partners like mexico. they can be very disruptive to supply chains. hopefully, that is something we can avoid but that is a concern. joe: i wanted to talk about the fed's approach to risk management. to theg back

december rate hike, we saw a lot of weakness in autos and a selloff for the stock market for two months and a flattening of the yield curve. this time around, we have the inversion of the yield curve, the data has not fallen off that much. there is weakness in the market. you are already predicting that they will arrive at a conclusion late, after they are ready disappoint. what is it about how the fed sees the world and the economy where you can already sort of predict that they are going to get it wrong? maybe to a lesser degree but get it wrong nonetheless. tim: this is on the data that we have right now, i think they will see the data as fairly solid. they will say that they have anticipated a slowdown. emergingthe slowdown but it is not as bad as they might've thought in january or february.

the job market has not slowed down dramatically yet. the capital goods orders were ish but they have not fallen off of a cliff. they will look at all of the evidence and say unemployment is 3.6% which is still inflation area in their book and they still expect inflation to rise. in a broader respect, the yield curve can be way ahead. a year at least before the economy would actually slip into recession. and that is when you are still on the outside of a business cycle. the data is still looking pretty good. there is only one indicator suggesting you change your tune. the fed tends to look at all of the data and not so much about the immediate market reaction or immediate yield curve inversion. tim, economics professor from the university of oregon. rate to get your perspective. lisa: coming up, launch

got got more -- lunch just more expensive. avocados for mexico. this is bloomberg. ♪

lisa: a threat is rippling through a wide range of industries including the avocado market. we have spent more time talking about avocados today than we have in a year. a california-based company has plants in mexico, four of them and 20 in the u.s. just talk about how great it is that we have an avocado stock? go long on avocados. in fairness, they dominate the production to such a degree that there are outside fx there, sort of like tequila or

tomatoes. romaine: we had a lot of other stocks fall today because we did have -- we do have a big manufacturing footprint down there including lighting and industrial companies. basically, half of the plants are in mexico. you have learned and others and gopro or contractor. -- or contour which just that they were moving away from mexico into latin america and china. joe: the difference is that the vast majority of people have never heard of these brands so it may not have the residence in pop culture that an avocado does. lisa: i'm waiting for joe to say -- pique avocados. $60 billion of u.s. goods over the weekend. joe: president trump heading to

the u.k. on monday visiting prime minister theresa may. romaine: and the may jobs report comes out next month -- next friday. lisa: that is all on "what'd you miss."

emily: hello, i'm emily chang in san francisco and this is "bloomberg technology." may day. stocks have their worst monthly performance so far this year. u.s. stocks posting their biggest weekly slide since december. plus, retaliation. china will establish a list of "unreliable foreign companies" they say hurts chinese firms.