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Concerns Over Protectionist Policies Spark Rally in Treasurys

In the absence of meaningful economic data released to start the week, investors remained focused on the actions and commentary of US President Donald Trump and his team in his first days in office, most notably with regard to the promised restructurings of global trade agreements.  Leading off, today Trump formally withdrew the United States from the Trans-Pacific Partnership, fulfilling his campaign pledge and putting an end to the 2015 pact that had been negotiated by former President Barack Obama with the intention of increasing trade with Asia, but had never received approval from Congress.  Significantly impacted by the TPP withdrawal are companies such as Foot Locker, Wal-Mart, Nike, and Adidas, all of whom stood to benefit from savings on import taxes under the accord.  It is currently unknown whether an alternative structure or combination of bilateral deals will be targeted as a replacement.  Another trade agreement under reevaluation by the new administration is NAFTA, an accord in effect since 1994, which Trump announced yesterday will be renegotiated with both the Canadian Prime Minister and Mexican President in the near future.  Further details have yet to be released, however Mexico’s President Enrique Pena Nieto has publicly come forward with his firm goal to “preserve free trade between Canada, the United States and Mexico.”  Separately, at a White House breakfast meeting with corporate executives this morning, Donald Trump explained his plan to penalize companies who shift jobs abroad.  “If you go to another country” and cut U.S. jobs “we are going to be imposing a very major border tax” on that product, he said.  

US Treasurys and gold futures reacted favorably to the news, with Treasury yields/swap rates falling 4-8 bps across the curve while the price of gold reached a two-month high.  The yield on the 10-year note is currently down 7 basis points to 2.397%.  Gold touched as high as $1,219.40 per ounce in its tenth session of gains out of the past eleven for the commodity.  All three major US stock indices edged lower on the day, closing down roughly 0.05%-0.25%.  The US dollar also declined, trimming 0.7% to its lowest level since mid-December 2016.  Both the Japanese yen and Mexican peso each gained more than 1% again the dollar.  Crude oil prices similarly shifted lower, with the prospect of increased US production and Donald Trump’s goal to eliminate America’s dependence on OPEC for energy beginning to shift investor sentiment.  WTI crude oil settled near $52.85/barrel while Brent crude fell to $55.35/barrel.

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