Monday, October 1, 2018

Markets soar on new trade agreement with Mexico and Canada

Dow shot up 253, advancers over decliners a relatively modest 4-3 & NAZ gained 44.  The MLP index added 2+ to the 277s & the REIT index recovered 4+ to the 351s.  Junk bond funds rose along with stocks & Treasuries slid lower.  Oil went up pennies in the 73s & gold lost 6 to 1189.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil73.48
+0.23 +0.3%

GC=FGold  1,191.50
  -4.70 -0.4%

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Stocks opened higher as Canada & the US reached a trade deal that also includes Mexico & key changes at the top of major corps boosted investor sentiment.  The US & Canada confirmed yesterday they had reached a deal on a "new, modernized trade agreement," which is designed to replace the 1994 NAFTA.  In a joint statement the 2 nations said the new deal would be called the US-Mexico-Canada Agreement (USMCA).  The agreements reportedly boost US access to Canada's dairy market & protect Canada from possible US autos tariffs.  In the Fri trading, stocks ended the final day of Q3 & month little changed despite declines in shares of Facebook (FB) & Tesla (TSLA).  The S&P 500 gained 7.2% in Q3, its best performance since the end of 2013, while the Dow climbed 9% & the NAZ rose 7.1%, extending its streak of gains to 9 consecutive qtrs.  All 3 major indices are within about 1% of their all-time highs.  In Asia, Japan's Nikkei rose to a 27-year high, ending the day rising 0.5%.  China's Shanghai composite & Hong Kong's Hang Seng are closed for holidays.  In Europe, London's FTSE traded higher by 0.1%, Germany's DAX was up 0.6% & France's CAC was up 0.3%.

US stocks surge as US, Canada, Mexico reach trade deal

The US & Canada agreed to a deal to replace the North American Free Trade Agreement shortly before a midnight deadline.  The 24-year-old NAFTA, which Pres Trump railed against as a disaster, will be replaced by the USMCA, the US-Mexico-Canada Agreement.  Trump tweeted his approval for what he called a "wonderful" trilateral agreement.  In a joint statement, US Trade Representative Robert Lighthizer & Canadian Foreign Affairs Minister Chrystia Freeland said the agreement "will strengthen the middle class, & create good, well-paying jobs & new opportunities for the nearly half billion people who call North America home."  The plan is for the leaders of the 3 North American countries to sign before the end of Nov, after which it would be submitted to Congress.  The negotiations between American & Canadian officials involved offering more market access to US dairy farmers, as well as Canada agreeing to an arrangement effectively capping automobile exports to the US.  A senior Trump administration official said the deal will "re-balance our trade relationship with Mexico & Canada," highlighting new rules on the origin of autos & market access to Canada's dairy sector.  The deal will also modernize what was covered by NAFTA by adding provisions on digital trade & intellectual property.  A US official also pointed to the prospect of enforcing the agreement, calling it "one of the most enforceable trade agreements we've ever had."  "This is going to be real, and it's going to change people's lives, and it's going to make the U.S. economy stronger and better," the official said.  The trade pact will come up for review every 6 years, which will give the US a "significant new form of leverage" to make sure the arrangement is to its liking, according to the senior American official.  "It's a good day for Canada," Prime Minister Justin Trudeau said.  "We celebrate a trilateral deal. The door closes on trade fragmentation in the region," Jesus Seade, trade negotiator for Mexico's incoming president, said via Twitter.

Canada and US reach trade deal to replace NAFTA

The Institute for Supply Management said that its manufacturing index fell to a reading of 59.8% in Sep from 61.3%.  The forecast was for a reading of 60.7%.  Any reading above 50% indicates improving conditions.  Separately, IHS Markit reported that its manufacturing purchasing managers index reached a 4-month high of 55.6 in Sep.  A reading of new orders fell 3.3 points to 61.8%, while production rose 0.6 points to 63.9%. The prices index fell 5.2 points to 66.9%.  As much as the industry is concerned about tariffs & rising prices, it appears output has been strong, as businesses spend on machinery.  Strong domestic demand, buoyed by rising wages, improving employment & lower taxes, seems to have buoyed the sector.  ISM said the past relationship between the headline index& the overall economy corresponds to a 5.1% annualized increase in GDP.

ISM manufacturing index in September falls slightly on concerns over tariffs, supply issues

Peter Navarro, one of Pres Trump's top trade advisors, said the last-minute deal to bring Canada on board to replace NAFTA shows that the US won't be the world's "piggy bank" anymore.  "It's a bullish day for America. It's a bullish day for North America," he said.  "When countries come to the table and bargain fairly, we sign deals," said Navarro.  "Trump has basically declared that we will no longer be the piggy bank of the world. We are free traders. All we seek is free and reciprocal trade."  Trump advisor Jared Kushner & Robert Lighthizer, the administration's top trade negotiator, took point on the talks.  "President Donald J. Trump was the visionary on this. He was very involved," said Navarro.  He said Lighthizer & Kushner worked well as a team & "should be congratulated for bringing this to the finish line."  Leaders of the three countries are expected to sign the NAFTA replacement before the end of Nov.  "But [it] won't be ratified for many months after," Navarro said.  Canada had been as left out when the US & Mexico reached a preliminary deal in late Aug.  Navarro declined to say what the new pact, called the US-Mexico-Canada Agreement, might signal to China as the DC & Beijing still grapple with a trade dispute that's resulted escalating tariffs.  But he did accuse China of intellectual property theft & appropriating US technology by forcing American companies that want to do business there into joint ventures with Chinese companies.  China's trade practices harm the global economy, Navarro added.

Trump aide Peter Navarro: NAFTA replacement signals the US is no longer the world's piggy bank

The new trade deal (which must be approved by Congress) brought out buyers.  However, market breadth was not impressive.  The popular averages are within spitting distance of setting new records & Sep data coming this week should be encouraging.

Dow Jones Industrials

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