Daily Market Color

Trade Uncertainty Continues to Weigh on Financial Markets

 

Canada Left Out in the Cold…For Now

Today’s much anticipated deadline to the trilateral trade negotiations between the US, Mexico and Canada brought forth minimal clarity as to the status of NAFTA or its successor agreement.  Despite four days of “constructive” discussions, the sides were unable to agree upon Canada’s definitive inclusion into the previously established trade agreement between the US and Mexico, albeit U.S. Trade Representative Robert Lighthizer informed the public that talks would resume next week and not simply expire as many thought it would.  Keeping to his word, President Trump notified Congress “of his intent to sign a trade agreement with Mexico—and Canada, if it is willing—90 days from now,” explained Lighthizer.  Canadian Foreign Minister Chrystia provided a sense of optimism when looking ahead to next week, stating that a “win-win-win agreement is within reach”.

 

 

US financial markets held within a tight range throughout the day with the lingering trade uncertainty.  Treasurys rallied for the majority of the trading session before paring gains following the quasi-upbeat NAFTA news.  The yield on the 10-year note is poised to finish the month near 2.86%, roughly 10bps lower than its level to open August, as the hit to emerging markets and escalation of trade wars kept haven assets well bid.  Despite the increased uncertainty, US equities managed to have their best month of August in years.  Major indices were mixed on the day, but the tech-heavy Nasdaq ended up recording its largest August gain since 2000, and the S&P 500 and DJIA saw their best August since 2014.  In FX markets, the US dollar finished 0.4% higher against major currencies on the day, led by a 0.55% gain against the euro and a 0.45% rally against the Canadian dollar.  In commodity markets, WTI crude futures finished 0.64% lower on the day to $69.80 per barrel, although were 1.5% higher overall in the month August.      

 

 

 

The Week Ahead

The Labor Department’s comprehensive employment report will be the featured key economic data release during the holiday-shortened week.  Monthly nonfarm payroll additions are expected to rebound (+197k) from July’s meager 157k figure, while the unemployment rate is expected to fall from 3.9% to 3.8%.  If median forecasts are realized, it would all but secure a quarter point hike by the Fed at its September meeting.  However, financial markets will also be paying close attention to any updates in US trade relations with Canada and/or China.  A report released yesterday from Bloomberg cited the possibility of tariffs on an additional $200 billion worth of Chinese imports as early as next week.

 

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