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World stocks at 6-month high following US-Mexico trade deal

posted onAugust 28, 2018

World stocks rose to a six-month high on Tuesday amid receding trade worries after the United States and Mexico agreed to overhaul the North American Free Trade Agreement (NAFTA).

NAFTA is a trade agreement between Canada, Mexico and the United States that went into effect in 1994, eliminating almost all tariffs among the three nations, allowing for the seamless flow of goods and supplies across borders.

US President Donald Trump and outgoing Mexican President Enrique Pena Nieto hailed the proposed new NAFTA deal which includes provisions on auto trade and tougher worker protection.

The new deal-which will last 16 years and will be reviewed every six years, according to U.S. Trade Representative Robert Lighthizer- would be called the United States-Mexico Trade Agreement rather than NAFTA, raising questions about the inclusion of Canada. 

Investors expect Ottawa too will agree to the new terms to preserve a three-nation pact this week. Mutual trade among the three partners totals more than $1 trillion annually.

“The U.S.–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is who’s next to close a deal with Trump?” Hussein Sayed, chief market strategist at FXTM told Reuters.

Asian stocks extended the previous day's advance as investors tracked a record lead from Wall Street where US equities climbed to fresh all-time highs after the United States and Mexico announced the breakthrough deal to rewrite the NAFTA. All three benchmarks closed in positive territory on Monday, with the S&P 500 and Nasdaq adding to their record climbs.

In Japan, shares finished marginally higher on Tuesday with automakers Toyota Motor Co, Honda Motor, Nissan Motor and Mazda Motor rising between 0.9 percent and 1.7 percent.

Australian markets finished notably higher. The S&P/ASX 200 closed 35.8 points higher, or 0.6 per cent, to 6304.7, lifting above 6,300 points for the first time in over a week.  

The MSCI Asia Pacific Index climbed 0.4 percent to the highest in almost three weeks.
MSCI’s benchmark world share index followed on from Monday’s best performance in over four months, rising 0.15 percent 

Markets across Europe opened in the green on Tuesday boosted by the U.S.-Mexico trade deal. 
The pan-European Stoxx Europe 600 index was up 0.1 percent at 385.90 in late opening deals after hitting a two-week higher earlier in the day.

In London, the FTSE 100 opened 0.75% higher, as traders returned to their desks after a long holiday weekend. 

U.S. futures drifted higher as investors cheered news that Washington has reached a preliminary trade deal with Mexico. S&P 500 looked set to hover near its record high.

However, due to lingering concerns over U.S.-China trade tensions, investors may choose to tread cautiously at higher levels and this could limit market's upside. 

The United States and China held two days of talks last week without producing any visible sign of progress, as another round of tariffs came into effect. 

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