Agreement eases uncertainty but US president threatens tariffs on Canada if it does not sign up
Here are IG’s opening calls for Europe:
European Opening Calls:#FTSE 7626 +0.64%#DAX 12570 +0.25%#CAC 5490 +0.20%#MIB 20808 +0.05%#IBEX 9674 +0.14%
Traders are still mindful that the US-China talks last week didn’t achieve much. It would appear that the trade spat will rumble on and there is chatter in the markets that the US is eyeing up another round of tariffs on Chinese goods, but this time it could be up to $200 billion worth of Chinese imports. The US department of agriculture has plans to financially support farmers who have been targeted by Beijing’s tariffs, and this initiative suggests how determined Washington DC is to maintain a hard-line.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
For once there is some positive news on the US and trade. Having gone toe to toe with China and Europe over tariffs, President Trump has now agreed a new trade deal with Mexico (despite the wall he is so keen to build between the two countries).
We’ll get rid of the name Nafta. It has a bad connotation because the United States was hurt very badly by Nafta for many years and it’s now a really good deal for both countries…I think it is one of the largest trade deals ever made – maybe the largest trade deal ever made.
US President Trump declared an end to NAFTA and proposed a not-NAFTA deal with Mexico (which looks a lot like NAFTA). Canada is not yet included, and effectively has until Friday to sign up.
Markets have treated this as progress, and a sign that the free trade system on which US companies depend will not be abandoned. Details do remain limited – it is hard to fit the complexities of a trade deal into a tweet. However, this is not risk free. Not-NAFTA will require Congressional approval, and without Canada, fast track authority probably cannot be used.
London returns from a three-day weekend and the FTSE has some catching up to do after a positive close for European markets on Monday. A strong finish in the US amid better news on trade is setting Europe up for a higher open…
If the deal with Mexico is a sign of things to come, emerging markets are more attractive from a valuation standpoint- but the US still has all the momentum. There is clearly bemusement amongst many economists that the rising tariffs are not causing greater concern for US investors. We think, from the beginning it has been clear investors believe there can only be one winner any these disputes and that is the US. While emerging markets, including China have fallen into bear market territory, the record US bull market presses onwards.