A 'disruption in the Force' expedited a fast-as-a-light-sabre S&P decline Friday; initially right to our 2750 target we've held for weeks. While we have expected the brief consolidation to give way to decline; the methodology of the President's efforts were challenged last night; and now we hear some of the White House advisors were opposed to using tariffs in this manner.  

For sure this is a mixed-metaphor application of tariffs; and reinforces much of the foreign assessments questioning the reliability of agreements with the present Administration. However, it's important that Mexico's President, this morning, indicated not just a soft stance, but similar opinions about all those migrants coming from Central America. The question is; can he stop it?

  Notable:

• North America effectively 'is' an integrated economy these days; and although my sentiments for ('Made in the U.S.A.') resonated for more than a couple decades, the reality is we have an integrated economy;

• My suspicion is (although I was initially more optimistic about a trade deal with China by now) that Mexico and the U.S. must cooperate on stemming the flow of Central American migrants (and accordingly the asylum process too);

• The U.S. Chamber of Commerce threat to sue the White House over this resonates as well;recalling prior remarks that they represent 'large multinational business interests', more than domestic small business;

• Nevertheless, the 'supply chain is so integrated', and after neglect by our politicians for so many years, it's harder to rearrange this aspect of supply chain flow (including agriculture) then even the China issue; so reluctantly we have to concur with the disruptions the tariffs would have right after the lifting of Steel & Aluminum tariffs; ahead of the 'vote';

• Most of the reaction to this is properly dramatic, because the proposed tariffs are all-encompassing, which was not the case for China;

• And of course doing this ahead of a USMCA vote is incredulous; but I believe Mexico agrees with the issue and wants to work with us; that the Mexican Foreign Minister has flown to Washington today identifies the nature of a good working relationship between the U.S. and Mexico; in fact better for the moment than the White House and 'big' business;

• Across the Pacific, China Industrial data turned even softer; hence while they might prefer not working with 'this' Administration; they need to;

• Overall this market continues to work lower in harmony with technical expectations; with S&P 2750 achieved; and likely an overrun next week unless we get a sudden Agreement from Washington's meeting before Monday opens;

• The realistic next technical measures venture deep into the 2600's; but again it's sensitive to changes in 'public policy' that may quickly change; and one would hope is sufficiently grasped in Washington so countries don't (if they haven't already) lose more confidence in dealing with us;

• This 'question of countries viewing the USA as a reliable negotiator' at this point really matters; with Europe not focused on.. but pending too;

• Ratcheting-up pressure on Europe becomes more likely if Trump feels he is getting-away (in a sense) with his approach to applying tariffs;

• Sidelined economic and trade policy is almost an anecdote to market distribution; which predates this projected S&P trading initial downside target by weeks for big-caps and by nearly three months internally;

• A lot of hard-line sentiments on China (they poll well) are actually now being challenged by many in his own 'base'; even though his realization of how integrated the U.S., Mexico and Canada are, may be limited;

• Lighthizer and Mnuchin believe this to be a mistake; and they're not yet fired; expect that Trump is playing fast-and-loose with this; but may pull it out; and as he knows that (by now); let's see how it goes with Mexico's Foreign Minister this weekend;

• However keep-in-mind this is just before his trip to the U.K., and maybe a discussion of a 'bilateral trade deal', that's at the expense of the EU;

• Finally we know that Trump / Pence 2020 re-election campaign actually we be launched on June 18 at the Amway Center in Orlando;

• You'd think President Trump would like you see 'some deal' achieved before then (also it's after the UK, and just before he journeys to a key Xi G20 'meet'); markets stabilize by mid-month if 'deals' look promising; the catch is from what level (and logically a low point is beneath here).

In-sum: amidst turmoil 'in the Force', evident for really two months now; the S&P of course had the year's worst month. It looks to 'initially' probe below the 2750 level, barring a surprisingly positive weekend break on trade.  

This new disruption (StarWars fans say 'never underestimate the dark side') does compel earnings revisions and head-scratching regarding Mexico. So, given how integrated we are at this point; it matters to all North America for sure. The Mexican tariff threat (and it's broader in scope than China) is more an economic than market catalyst for now. If the President thinks this helps get a deal with China; it's the opposite. But given political proximity issues, it is possible he didn't think-it-through thoroughly (ya think?); which would very well explain why some of his regular supporters are aghast at this.

If it were years ago before these economies were so integrated, I would be cheering an effort to support American business; but that's not what this is. It seems like an effort to pressure Congress (though unmentioned) on the 'wall', and of course to get Mexico to attempt sealing their shorter border with Guatemala; to halt the migration caravans. Mexico may agree; Trump might accept that and at least postpone tariffs; but that threat hanging-out there is not a plus.  

Bottom line: initial June downside action could blossom a bit; but don't be surprised (for varying reasons including just a short-term technical washout) to see June not a repeat of May. Likely more irregular, June should see lots of shuffles, including sharp rebounds. Certainly more news/tweet sensitive than before; but simply looking at the market, it's within context of the S&P outlined correction from a technical perspective. For smaller companies as well as those tied-into foreign exposure impacted by tariffs; it's a nightmare in a sense; and they don't really know how to estimate revenues or 'plan'.  

In a sense that generates even more instability and challenged credit flows; regardless of how it gives the Fed room to cut; or U.S. moneycenter banks to possibly do better as firms feel compelled to diversify their supply chains, almost regardless of how trade agreements may seem to nullify the need if they arrive; because this is too much angina for corporate planning stability.   

We now see a probability of a rate cut by the Fed; while the relatively higher yields attracting un-hedged buying of U.S. assets by foreign investors tends to dissuade the Fed from moving. For them that's a challenge