Summary: Trade deal supports markets
News of the US-Mexico trade deal has lifted European markets, albeit the gains are limited by concerns about the other big disputes that President Trump has embarked upon, notably with China.
And the fact that Canada has not yet joined the new version of the North American Free Trade Agreement is another reason for caution.
Nevertheless, after making gains on Monday, Germany’s Dax is currently up 0.19% and France’s Cac has climbed 0.37%.
The FTSE 100, which was closed for Monday’s Bank Holiday, has added 0.5%. This is not as much as might have been expected given the FTSE was playing catch-up on the other European markets, with a stronger pound against the dollar limiting the rise.
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.
This does not have a bearing on the Chinese trade negotiations (which do not appear to be going that well). Not-NAFTA lies somewhere between the EU negotiations (keeping things as they were) and China (political problems). It does stress the unpredictable nature of a policy that depends on the personal whims of the US president.