Daily Market Color September 4, 2018Manufacturing Remains Strong Despite Trade Uncertainty Jeff Davenport NAFTA Not Looking Great Again Over the weekend President Trump did not appear to make much progress on the ongoing trade discussions with Canada as he maintained his “America First” stance. “There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out,” Trump tweeted on Saturday morning. One of the central hurdles for the Trump administration in getting an agreement finalized is gaining Congressional approval for any deal – which would be made much more unlikely to pass if Canada is not a party. At this point in time, US lawmakers have signaled their preference to have Canada included in a NAFTA revision, however Trump threatened that “Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off…” Swirling around the Mexico/Canada trade discussions is the outlook for the US-China trade relationship, with the financial markets nervously waiting to see whether the US moves forward with levying tariffs on an additional $200 billion worth of Chinese imports later this week. Chinese officials have already confirmed that they would strike back with an equal amount of retaliatory tariffs if the US raises the tariff bar again. Factories Ignore Trade Uncertainty Today’s report from the Institute for Supply Management (ISM) helped to dispel concerns that the recent escalation in trade war uncertainty was negatively impacting the US manufacturing sector (at least for the time being). Factory activity during August was recorded at its strongest clip in the past 14 years, driven by a surge in new orders. The ISM’s manufacturing index rose to a 61.3 level (57.5 expected), well above the 50.0 threshold generally associated with expansion in the sector. Shares of Facebook (-2.6%) and Nike (-3.2%) helped to drag down major US stock indices today, overshadowing the positive manufacturing report. The tech-heavy Nasdaq (-0.23%) led the way lower, despite Amazon managing to briefly touch above $1 trillion in market capitalization – only the 2nd American company to hit the milestone, after Apple was the first to achieve this milestone just last month. In bond markets, US Treasurys sold off from the open, with yields/swap rates climbing 2-5bps across the curve and the 10-year note yield finishing just below 2.90%. The US dollar gained 0.31% against major currencies with the escalation in trade tension and robust economic data. In commodities, WTI crude futures rose to as high as $71.40/barrel on news of production disruptions in the Gulf of Mexico caused by Hurricane Gordon, but those gains were quickly erased after a build in stockpiles was reported at the Cushing, Oklahoma storage facility.