Stocks hold gains as Canada rushes to avoid trade deal exclusion
Wall Street held its gains as global stock markets paused in the wake of the US-Mexico trade agreement.
Canada has rushed to protect its position as a member of the tripartite Nafta, which has effectively been jettisoned.
Canadian Foreign Minister Chrystia Freeland cut short a weeklong trip to Germany, Ukraine and France to head to Washington for urgent talks.
The Trump administration has given Canada until Friday to iron out crucial differences, including a revision that makes it harder for Nafta members to challenge US trade penalties and increased access to Canada’s dairy market.
Otherwise, both the US and Mexico have signalled they are prepared to move on with their own trade pact and leave Canada out.
“We’ve made a lot of progress with Canada,” Treasury Secretary Steven Mnuchin said in an interview with CNBC. “Hopefully they’ll come on board but if not, we’ll move on with Mexico.”
Global trade war
The prospect of President Donald Trump successfully negotiating new trade deals is likely to be taken by investors as a hopeful sign that a global trade war will be avoided.
However, some money managers remained unconvinced.
Rabobank senior market strategist Christian Lawrence says while a new Nafta agreement is more likely, it “also increases the risk that an agreement will not be reached with Canada and we eventually see a move to bilateral agreements.”
By contrast, UBP fund manager Mohammed Kazmi believes risks of a trade spat are fading.
“We can see a Canadian deal coming through soon,” he says. “What it really shows is Mr Trump trying to get some quick wins ahead of the next election. He is trying to distract the market showing he can make deals and support equity markets.”
Meanwhile, Mr Mnuchin says if China is “serious about the types of commitments” it mentions, “it is a move in the right direction. But we’ve heard these issues before so it can’t just be talk; it has to be follow-through as well.”
Nasdaq hits new high
On Wall Street, the Dow Jones Industrial Average rose 1436 points, or less than 0.1%, to 26,064.02. The S&P 500 also gained less than 0.1% to 2897.52 while the Nasdaq advanced 0.15% to 8030.04, a day after closing above 8000 for the first time.
Shares of electronics retailer Best Buy rose 5.0% after it reported another quarter of rising sales as consumers continue to splurge on televisions and other gadgets. However, it warned that profit growth would slow in the current quarter as the retailer continues to invest in its operations.
If electronics stores are buoyant, global auto sales are declining after nearly a decade of growth.
China’s once-booming car market is cooling, in part because of the trade war with the US. Similarly, American demand for cars and trucks has topped out after a seven-year growth streak.
In Europe, the new car market is also softening as demand returns to pre-recession levels.
Shares of General Motors and Ford surged on Monday as the US and Mexico reached an agreement on trade issues, including motor vehicles.
German auto stocks, including Volkswagen, BMW and Daimler, which have big factories in the US and Mexico, outperformed the DAX index.
But the US is still threatening Europe with new tariffs and ratcheting up tariffs on China, which has responded with a 40% import tax on US-built vehicles.
Oxford Economics, a global forecasting group, estimates that a “moderate trade war scenario” could result in a decline in global gross domestic product in real terms by about 0.5% in 2019, which could sap demand for new vehicles.
Oil prices eased. US crude for October delivery declined 0.3% to $US68.65 a barrel after trading as high as $US69.20. Brent, the global benchmark, was also down 0.3% at $US75.99.
US government bond prices slipped as investors prepared for an influx of new Treasury debt. The yield on the 10-year Treasury note was 2.885% compared with 2.848% on Monday.
The Stoxx Europe 600 fell less than 0.1%. France’s CAC 40 rose 0.1%, Germany’s DAX fell 0.1% and the UK’s FTSE 100 was up 0.5%.
In Asia, China’s Shanghai Composite fell 0.1%, Hong Kong’s Hang Seng gained 0.3% and Japan’s Nikkei closed up less than 0.1%.