Daily Market Color August 27, 2018Trade Talks Between US and Mexico Advance US and Mexico Move Closer to New (don’t call it) NAFTA Risk assets gained favor today after the announcement this morning that the US and Mexico had come to an agreement to rewrite portions of the North American Free Trade Agreement. A formal deal could be announced as soon as this Friday and will include resolutions on a number of contentious trade areas including: Locations for the building of automobiles across the continent Requirements around the sourcing for the materials used for new cars Wage and labor union improvements in Mexico Looking ahead, there remains a fair amount of uncertainty regarding whether Canada will participate in the restructured deal, and there are required Congressional approvals for the proposed deal as well. In talks leading up to this bilateral terms, Mexican trade officials have vehemently voiced their support and expectation of including Canada in any final NAFTA replacement structure. President Trump maintained a neutral “we’ll see” stance on the status of future negotiations with our friends to the North. All three major equity indices finished higher on the day, as new records were reached by both the S&P 500 (+0.77%) and the NASDAQ (+0.91%), while the DJIA posted a robust 1.01% gain. Yields/swap rates finished 2-4 bps higher across the curve, with the 10yr US Treasury Note closing at a yield near 2.845%. In foreign exchange markets, the US Dollar (USD) fell 0.1% vs the Euro (EUR) and the Japanese Yen (JPY). However, the Mexican Peso (MXN) gained more than 1% against the USD on the news of the new trade agreement. Crude oil futures settled marginally higher on the day, gaining 0.2% to close at $69.87/barrel. CFTC Proposes Amendments to Clearing Requirements The CFTC has issued a notice of proposed rulemaking, proposing to amend and codify certain existing end-user clearing requirements. Among other things, the proposal would formalize an exemption from the clearing requirement for swaps entered into by bank holding companies and savings and loan holding companies with consolidated assets of $10 billion or less. According to the CFTC, “the proposed rule is consistent with the 2016 no-action letter that provides clearing relief for swaps for bank holding companies and savings and loan companies with consolidated assets of $10 billion or less.” The proposed rule is a result of CFTC Chairman Giancarlo’s initiative, Project KISS, which stands for “Keep It Simple, Stupid.” Project KISS’s goal is to simplify CFTC regulations, making swap transactions less burdensome and less costly. The current rule proposal is open for a 60-day public comment period.
