Daily Market Color October 1, 2018New NAFTA Boosts Financial Markets It’s Fun to Say We Have a US-M-C-A! In a dramatic turn of events, a last-minute deal was struck between the US and Canada to successfully revise the North American Free Trade Agreement. The new trilateral accord will be called the US-Mexico-Canada Agreement (USMCA) and features several key components: Automobiles– in order to avoid cross border tariffs, auto makers would be required to build a greater portion (2/5) of a car in North America by workers earning at least $16/hour. Agriculture– in a big win for the US, Canada agreed to adjust its current model for dairy pricing that will open up a portion of the market for US dairy exporters. Metals– the previously imposed steel and aluminum tariffs by the US will remain in place. Renewal– the pact will “sunset” in 16 years if not renewed in advance. Afterwards, Canadian Prime Minister Justin Trudeau expressed satisfaction with the new deal despite the arduous process in getting it to this point. “We had to make compromises. And some were more difficult than others. We never believed it would be easy, and it wasn’t”, Trudeau stated. Among the chief areas of victory for Canada in negotiations was the dispute-resolution system, where any disagreements over the future use of tariffs are to be resolved through an independent panel. From the Mexican side, it was reported that both Mexican President Enrique Peña Nieto and President-Elect Andrés Manuel López Obrador were also very supportive of the deal. Statements (tweets) from President Trump included: “It is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, [reduces] Trade Barriers to the U.S. and will bring all three Great Nations closer together in competition with the rest of the world.” Market Reaction to the Trade Agreement For the most part, US equities were positively impacted by the news of the USMCA. Among the major indices, the DJIA posted the largest gain (+0.73%), followed by a 0.36% rise in the S&P 500, while the tech-heavy Nasdaq lost 0.11%. Shares in General Electric (+7%) and Tesla (+17%) finished as some of the day’s top performers as financial markets celebrated the replacement of one CEO (GE) and survival of another (TSLA). In bond markets, US Treasurys experienced a steady selloff through the trading session, with yields/swap rates rising 1-3 bps across the curve in a bear-steepening pattern. The US dollar finished higher against major currencies (+0.1%), albeit the Canadian dollar surged 0.7% to a four-month high vs. the greenback. In commodity markets, crude oil futures surged with the pro-growth news of the deal, with WTI increasing 2.3% to $74.90/barrel.