No data, no problem! Risk-hungry traders still had a lot to chew on as the U.S. and Mexico shook on a trade deal before Canada joins the negotiations.
- U.K. banks closed for the holiday
- German IFO business climate index up from 101.7 to 103.8
- U.S. and Mexico agree on a trade deal replacing NAFTA
- Canada Foreign Minister Freeland to proceed with talks in Washington
U.S.-Mexico trade deal
It was a relatively quiet session data-wise, but the biggest story for the day was the bi-lateral trade deal struck between the U.S. and Mexico. The Donald calls this the United States-Mexico Trade Agreement instead of NAFTA.
Under this deal, U.S. and regional content in autos would be increased from the current 62.5% to 75% and have 40-45% of these made by workers earning average base wage of $16 per hour. Mexico has also agreed to lift de minimis duty-free shipment values from $50 to $100, and both countries have 10 years of data protection for biological drugs.
Recall that the two countries agreed to talk things out on their end first before Canada joins in the negotiations. However, this might prove to be a take-it-or-leave-it situation wherein Canada either accepts the deal or Mexico and the U.S. say “You can’t sit with us.”
Keep in mind that Canada has repeatedly said that they would only accept a deal “that is good for Canada.” After a phone call with the POTUS, Canadian PM Trudeau mentioned in a statement that the conversation was constructive and that he hopes for a successful conclusion of NAFTA talks. Canada’s Foreign Minister Chrystia Freeland is en route to Washington to proceed with talks.
Trump’s chief economic adviser Larry Kudlow acknowledged that the U.S.-Mexico deal is a big victory for the economy and that it could be pushed through Congress. However, he also cited that the U.S. could slap auto tariffs on Canada if it isn’t on board.
Thanks to positive trade developments, investors were in a much better mood to start the week. Equity indices popped up to record highs, buoyed mostly by shares in the auto sector.
- Dow 30 index up 259.29 points to 26,049.64 (+1.01%)
- Nasdaq is up 71.92 points to 8,017.90 (+0.91%)
- S&P 500 index is up 22.05 points to 2,896.74 (+0.77%)
Commodities were also in the green:
- Gold advanced to $1,210.01 per troy ounce (+0.41%)
- WTI crude oil is up to $68.94 per barrel (+0.33%)
Major Market Mover(s):
The yen returned its earlier gains as the lower-yielding currency caved to risk appetite.
EUR/JPY bounced off the 129.00 mark to reach a high of 129.74, GBP/JPY climbed from 142.85 to a high of 143.26, AUD/JPY surged to 81.68, NZD/JPY is up to 74.44, and CAD/JPY rose to 85.72.
The dollar was also in a weak spot as traders seem to have dumped their safe-haven holdings and are rushing towards riskier assets.
EUR/USD popped up to a high of 1.1694, GBP/USD advanced to the 1.2900 mark, USD/CHF slid to .9797, AUD/USD rallied from .7322 to .7347, and NZD/USD is up to the .6700 handle.
Watch Out For:
- 5:00 am GMT: BOJ core CPI y/y (dip from 0.4% to 0.3% eyed)