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US and Mexico strike trade deal without Canada; Nasdaq and S&P 500 hit record highs
BY BUSINESS REPORTER DAVID CHAU, WIRESUPDATED ABOUT 6 HOURS AGO
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PHOTO
The US and Mexico have agreed to enter into a new trade deal to replace the North American Free Trade Agreement (NAFTA).
SHIRONOSOV/ISTOCKPHOTO
Wall Street surged overnight, with the S&P 500 and Nasdaq indices hitting fresh records on news that the United States and Mexico have agreed to enter into a new trade deal to replace the North American Free Trade Agreement (NAFTA).
This puts pressure on Canada to also enter the deal if it wants to remain part of the three-nation pact.
US President Trump threatened he could still put tariffs on Canadian-made cars if Canada did not join its neighbours.
Markets at 7:30am (AEST):
- ASX SPI 200 futures +0.4pc at 6,264, ASX 200 (Monday's close) -0.3pc at 6,244
- AUD: 73.46 US cents, 56.96 British pence, 62.89 Euro cents, 81.59 Japanese yen, $NZ1.10
- US: Dow Jones +1pc at 26,050, S&P 500 +0.8pc at 2,897, Nasdaq +0.9pc at 8,018
- Europe: FTSE +0.2pc at 7,577, DAX +1.2pc at 12,538, CAC +0.8pc at 5,479, Euro Stoxx 50 +0.8pc at 3,456
- Commodities: Brent crude +0.7pc at $US76.34/barrel, spot gold +0.5pc at $US1,210.98/ounce, iron ore -1.8pc at $US65.84/tonne
"I think with Canada, frankly, the easiest we can do is to tariff their cars coming in," Mr Trump said.
"It's a tremendous amount of money and it's a very simple negotiation. It could end in one day and we take in a lot of money the following day."Automobile stocks soared and financial markets firmed on the expectation that Canada would sign on to the deal by the end of the week and ease the economic uncertainty caused by Mr Trump's repeated threats that he would ditch the 1994 accord.
The US-Mexico discussions focused on crafting new rules for the automotive industry — which Mr Trump has put at the heart of his drive to rework trade pact (which he has repeatedly called a "disaster") for American workers.
The deal would require 75 per cent of cars to be made in the NAFTA region, up from the current level of 62.5 per cent, a US trade official said.
The Trump administration said the deal improves labour provisions, in part by requiring 40-45 per cent of cars to be made by workers earning at least $US16 per hour, a salary that could remove incentives for automakers to move jobs to Mexico.
High political stakes for new deal
Negotiations between the three trade partners have dragged on for more than a year, putting pressure on the Mexican peso and the Canadian dollar.
The political stakes are high for all three countries.
Republicans in the US Congress are up for re-election in November, and they want to ensure farmers and other voters - whose jobs depend on trade with Canada and Mexico - that the deal is sealed.
Mexican President Enrique Pena Nieto wants to sign the agreement before leaving office at the end of November, and Canadian Prime Minister Justin Trudeau faces a national election expected by October 2019.
Canada plans to continue to negotiate, but would only sign a new agreement that is good for the country, a spokesman for Canadian Foreign Minister Chrystia Freeland said.
Officials said they hope Canada will agree to the terms by Friday, when the White House plans to formally notify Congress that Trump will sign the deal in 90 days.
If talks with Canada are not wrapped up by the end of this week, Mr Trump plans to notify Congress that he has reached a deal with Mexico, but would be open to negotiations with Canada, US Trade Representative Robert Lighthizer told reporters.
Some Republicans in the US Congress called the deal a positive step but said Canada must be part of the new pact to avoid hurting US jobs.
Stocks surge on US-Mexico deal
The benchmark S&P 500 rose 0.8 per cent to 2,897. The tech-heavy Nasdaq lifted by 0.9 per cent to 8,018 points.
Technology stocks led the Nasdaq above the 8,000 mark for the first time and the sector provided the biggest boost to the S&P.
The blue-chip Dow Jones index jumped 259 points, or 1 per cent, to 26,050 points.
The upbeat trade outlook was further boosted by news that Washington was pressuring the European Union to accelerate tariff talks.
Disputes between the US and its trading partners have been a drag on investor sentiment for much of the year despite solid economic fundamentals and two robust quarters of corporate earnings.
Traditional car companies like Ford (+3.2pc) and General Motors (+4.9pc) saw their share prices surge.
However, electric car maker Tesla tumbled 1.1 per cent after its chief executive Elon Musk scrapped his plans to take the company private.
In the last three weeks, since Mr Musk tweeted about privatising the company, its share price has fallen by almost 15 per cent.
Australian market today
Australian shares are expected to start the day higher, with ASX futures gaining 23 points.
As the final week of reporting season unfolds, Caltex and Blackmore's will report their results today.
The Australian dollar has risen slightly to 73.5 US cents, due to a weaker greenback.
"News of the US-Mexico trade deal fuelled risk appetite and led to a weaker US dollar," said ANZ's Joanne Masters.
"It is hard to extrapolate much out of it, as the US continues to treat each country and deal on its own merit.
"We remain wary of the current rally in risk appetite, and see it as short-lived."
POSTED ABOUT 6 HOURS AGO
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