Wall Street greets new US-Mexico-Canada trade agreement

The power of trade news to ignite markets was demonstrated again when stocks on Wall Street jumped on the conclusion of a new North American free-trade agreement.

The deal with Canada follows earlier ones with Mexico and the European Union as part of President Donald Trump’s agenda to reduce tariffs with leading trade partners.

A deal with South Korea has also been signed off, leaving only an intransigent China, which has retaliated against US tariff increases.

Mr Trump has spurned a new round of talks with China after it withdrew, saying “now is not the time to talk.” China’s economy is feeling the squeeze from the US tariffs, with more punitive ones to come in the new year unless the Chinese bend to US demands.

Observers say the US will now seek trade deals with its Asian allies, opening the door to a renegotiation of the Trans Pacific Partnership (TPP).

High-wage jobs
The goal of the new pact, now called the US-Mexico-Canada Agreement (USMCA), is to discourage the use of Asian or other content manufactured outside North America in the supply chain and to promote high-wage manufacturing jobs.

“It means more cars and auto parts will be manufactured inside the US,” Mr Trump says,

The surge in stocks was no surprise.

“It takes away some of the uncertainty. This gives some sign that [President] Trump is at some point willing to agree some new trade deals,” says Jeroen Blokland, a portfolio manager at Dutch asset manager Robeco.

He favours stocks exposed to the strong domestic economy, citing growth in company earnings and the Federal Reserve’s gradual approach to raising interest rates.

“It’s a perfect mix. We still think equities are going to outperform,” he adds.

Winning stocks
Among the winners are pharmaceutical companies, which get improved protection for their intellectual property than under the TPP. US banks and financial institutions get rules protecting them from having to host data on servers in local markets, something else the TPP couldn’t deliver.

On the political side, the deal needs the approval of the post-midterm elections to the Congress, which could see the lower House swing to the Democrats

“I can’t tell you whether or not they [the Democrats] will obstruct, whether or not they’ll resist,” Mr Trump says. “They might be willing to throw [away] one of the great deals for people and the workers – they might be willing to do that for political purposes because, frankly, they’ll have 2020 in mind.”

The Canadian and Mexican currencies rose against the US dollar. Bonds weakened as investors bid up riskier assets. The yield on the benchmark 10-year US Treasury note rose to 3.074% from 3.055% on Friday.

At the close on Wall Street, the Dow Jones Industrial Average was up 192.90 points, or 0.7%, to 26,651.21, extending gains after posting its biggest one-quarter advance of the year.

The S&P 500 was up 0.4% to 2924.59, while the Nasdaq Composite shed 0.01% to 8037.30.

Carmakers gain
Stocks of carmakers and industrial conglomerates – which are most vulnerable to global trade conflict – boosted indexes. Ford Motor jumped 1.5%, General Motors rose 1.2% and Boeing added 2.8%.

Corporate news drove swings in other shares.

General Electric climbed 8.4% after the ousting of new chief executive John Flannery, while Tesla rebounded 16% after Elon Musk reached an agreement with the Securities and Exchange Commission.

The Stoxx Europe 600 was up 0.2%, boosted by gains in the technology sector.

France’s CAC 40 rose 0.2%, Germany’s DAX jumped 0.75% and the UK’s FTSE 1000 eased 0.2%.

Italy’s FTSE MIB index fell a further 0.5% after the government widened its budget-deficit target.

In Asia, Japan’s Nikkei Stock Average rose 0.5%. Chinese markets were closed for a public holiday.