There’s been a bright start to the week for equities, with US futures higher and most of Europe in the green after Friday’s sizable declines. The FTSE 100 is marginally higher and up by around 5 points at the time of writing. The main catalyst for these gains is the agreement reached late last night between Canada and the US which will see the former join the latter and Mexico in a new trade deal. The Canadian dollar has reacted positively to the news hitting a 4-month high against the buck. The pound has gained following a better than expected data point from the manufacturing sector, and is higher against all of its peers barring the Canadian dollar.
USMCA to replace NAFTA
While the acronym may not roll off the tongue quite as easily as its predecessor NAFTA, the USMCA (United States-Mexico-Canada Agreement) has been warmly greeted by the markets and is a welcome development on the trade front. Ever since Trump’s victory back in 2016 currency investors have been concerned that the US President’s stance on trade could hurt both the northern and southern neighbours and there’s been a collective sigh of relief that a new unrestricted trade deal has been formed. From a global perspective the trade tensions between the US and China represent a far bigger risk and the move higher in stock markets on this news could be seen as a sign that traders are hoping it could lead to a breakthrough there. Unfortunately this hope may be misplaced and there remains much to be done around the negotiating table before the world’s two largest economies are anywhere near announcing their own near trade deal.
UK manufacturing data recovers
The latest data on the UK manufacturing sector has shown a pleasing result, with the PMI for September coming in better than forecast. The print of 53.8 represents a mild improvement on the previous reading of 52.8, which was in fact the worst in more than two years, with an acceleration in new order growth particularly pleasing. It is now 26 straight months that this indicator has remained above the neutral 50.0 mark but the pace of growth remains notably lower than this time last year. The result is in keeping with recent UK data points in showing steady growth, but with the cloud of uncertainty surrounding Brexit still looming large overhead economic activity remains subdued.