Investors buoyed by US-Mexico trade agreement

US futures have edged into the green ahead of the open on Tuesday, a continuing sign of investor approval at the progress made in trade negotiations between the US and Mexico.

While I’m sure investors would rather the deal include Canada and preserve NAFTA, this is at least a step in the right direction and could be an important first step towards it. US President Donald Trump may have rebranded the agreement as the United States – Mexico Trade Agreement due to the apparent negative connotations associated with NAFTA but I think this may be yet another attempt to drag Canada to the negotiating table and align themselves with his idea of how it should look.

Trump has made renegotiating trade deals a key feature of his presidency and is willing to do whatever it takes in order to get what he wants. So far, he has had limited success with China, the EU and his NAFTA partners but coming ahead of the midterm elections, this could be viewed as an important success. While the US consumer may be the primary loser in his approach and the outcome of it due to the impact it has on prices, he is receiving credit for fighting to preserve skilled US jobs.

Canada should expect tough trade negotiations with U.S

Whether such perception will be enough to secure him a second term will be determined in a couple of years but it does appear to be working in his favour so far. From an investor perspective, the economy is still booming and in coming to an agreement with Mexico, one trade risk has been effectively removed and for now, that is good news.

While there are some notable data pieces out later in the week, politics is likely to continue to be a driving force in the markets. The threat of a US-initiated trade war has dragged on markets for most of the year, with tax reform helping to offset this and prevent too significant a drop in the US. With progress being made, the S&P 500 hitting new record highs and stocks now in their longest ever bull run, the environment seems perfect for Trump to continue to pressure the countries trade partners and force concessions so I don’t expect any change in strategy any time soon.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam

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