Analysts at ANZ explained that US stocks added to recent gains following news that the US and Mexico have agreed to a trade deal.
Key Quotes:
“Canada has been left in the dark, but is expected to join the discussions later this week. Global risk sentiment was buoyed with stocks rising, the US dollar declining, and Treasury yields higher.”
“At the time of writing, the S&P 500 was up 0.8% while the DJIA added 1.0%, led by materials and financials. Defensive utilities and interest rate sensitive real estate declined.”
“European shares also rose, however volumes were light given holidays. The USD declined against the G10 and emerging market currencies outside of Turkey were also firmer, aided by China’s re-introduction of the counter cyclical factor on Friday. Oil was up a small amount with gold climbing 0.3% on a weaker dollar.”
“The US and Mexico have reached a trade agreement that will replace a soon-to-be-terminated NAFTA bill, according to both Presidents in a joint announcement. At this stage, public details are still scant but talks over the past week have concentrated on the automotive sector.”
“Canada has still not been made privy to the deal but talks between the US and Canada is expected to start Tuesday(US time). Trade representative Lighthizer said it will still be about three months until the new deal is put into law. That said, it does seem like there are still a few hurdles to clear first, and in particular the deal’s path through Congress.”
“While the US administration had been given special ‘fast-track’ authority by Congress to seek a new NAFTA deal, it is unclear whether that applies to a bilateral agreement like this one (ie a deal that does not include Canada). Even so, news of the deal still buoyed markets, although the currency market reaction was a little more interesting.”
“Unsurprisingly, the Mexican peso gained as did the Canadian dollar too to be fair, and even the euro strengthened as it perhaps signals greater odds of a trade breakthrough between the US and EU (although a stronger IFO probably helped too).”
“However, the NZD – and to a lesser degree – the AUD, were somewhat reluctant participants in this risk rally. And there is likely one reason for that; China! Both NZ and Australia are far more leveraged to that story and while the PBoC is perhaps taking a more conciliatory tone here, visible progress on trade between the US and China is yet to be seen.”
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