A global stocks index advanced to more than five-month highs yesterday, lifted by investor optimism that a US-Mexico deal will help avert a global trade war.
Monday’s news of the US-Mexico agreement on trade pushed the S&P 500 and Nasdaq indexes to record highs, and indexes across Europe and Asia followed Wall Street's lead, inching to multi-month highs.
The dollar, which had been a haven as investors anticipated contentious trade disputes and US Federal Reserve interest rate hikes, slipped to a four-week low. Emerging market stocks hit their highest since August 10.
“Global trade tensions have undoubtedly been the most significant source of risk in 2018,” said Hussein Sayed, chief market strategist at FXTM.
“The US-Mexico deal seemed to boost confidence the trade war is moving closer to an end, and the next question is ‘Who’s next to close a deal with Trump?’ ”
MSCI’s benchmark world share index followed Monday’s best performance in over four months with a 0.21 per cent gain.
The Dow Jones rose 44.39 points to 26,094.03, the S&P 500 gained 2.16 points to 2,898.9 and the Nasdaq Composite added 12.50 points to 8,030.39. Benchmark 10-year notes last fell 10/32 in price to yield 2.8858 per cent, from 2.85 per cent late Monday.
Disputes on trade have weighed on investor sentiment for much of 2018, despite solid economic fundamentals and robust corporate earnings. Many remain cautious.
Paul Donovan, chief economist at UBS Global Wealth Management, said markets’ assumption Canada will go along with the US-Mexico deal is not “zero risk”. The three countries are currently part of the North American Free Trade Agreement. US-Canada talks were due later yesterday.
US President Donald Trump threatened he still could put tariffs on Canadian-made cars and demanded concessions on Canadian dairy protections. “If Canada does not join, getting the agreement of Congress [to the deal] will be trickier," Mr Donovan said.
The toughest battle in the trade war, with China, still looms. The United States and China held two days of talks last week without a major breakthrough, as another round of tariffs took effect.
Asian and other emerging markets are being supported for now by the greenback’s retreat from 14-month highs. The dollar index was down 0.2 per cent, just off one-month lows. Mexico’s peso lost 0.72 per cent vs the US dollar after hitting 2 1/2 week highs following the trade deal.