Stocks, Yields, Dollar Jump After Grassley Says Tariff Deal With Mexico Coming Thursday

With futures fading, and the Nasdaq ominously in the red, bulls were in urgent need of some "optimistic" soundbite support, and they got that moments ago when the Republican chairman of the U.S. Senate Finance Committee, Chuck Grassley, predicted that the United States and Mexico would strike a deal to avert tariffs President Donald Trump has threatened to impose on Mexican imports.

Grassley told reporters Mexican officials will offer a “long list of things” to avoid the duties in talks this week with their American counterparts, adding that he thinks a possible deal could be announced on Thursday night.

The statement followed White House trade adviser Peter Navarro saying earlier on Wednesday that the U.S. plan to impose tariffs on Mexican goods may not have to take effect. Navarro told CNN that the tariffs, due to come into force next week, might not be needed because the United States now has “the Mexicans’ attention” on stemming illegal immigration.

The Grassley comment sent 10Y Yields and pushed the Bloomberg Dollar index near session high, accelerating the unwind of curve steepening with both 5s30s and 2s10s edging tighter following Grassley comments, although both remain steeper on the day by 4bp, while 10Y Treasury yields edge back over 2.12% but remain slightly richer on the session; 30-year yields cheaper by 1.5bp on the day as long-end continues to lag.

Meanwhile, after hitting session lows just above 2,800, spoos ramped 15 points as they tried to once again take out session highs, even as the relentless selling in oil continued, with Brent sliding below $60 for the first time since January.

Pouring some cold water on the enthusiasm, however, when Mike Pence said that the White House sees trade with Mexico as critically important, but national security comes first, adding that he is eager to hear immediate measures Mexico plans to take to address migrant crisis. So far none have been proposed.