Stocks Pop After New US-Canada-Mexico Deal

  • 10/01/2018 02:35 PM
  • Source: CNN Money
  • by: Paul R. La Monica
Stocks Pop After New US-Canada-Mexico Deal
The Dow rose nearly 250 points, a gain of almost 1%. The S&P 500 and Nasdaq were also sporting solid gains in early trading. 

The reworked trade deal, announced late Sunday night, was reached after Canada agreed to give US dairy farmers greater access to the Canadian market. 

The United States also agreed to make concessions on some automobile tariffs for cars and trucks built in Canada and Mexico as part of the agreement, which replaces NAFTA and will be called the United States-Mexico-Canada Agreement (USMCA). 

Shares in major automakers rose on the news, including GM (GM) and Ford (F) which were both up nearly 2% in early morning trading. Fiat Chrysler (FCAU) rose more than 3%. 

Still, some market experts said investors may be overreacting to the USMCA deal. That's because the United States still faces another major trade battle. 

"While the U.S. has reached a new trade agreement with Mexico and Canada, growing trade conflict between China and the U.S. threatens economic growth in both countries," said David Kelly, chief global strategist with JPMorgan Funds, in a report Monday. 

Eric Winograd, senior economist with AB, also thinks that China-US tension will not be resolved this easily. 

"The US relationship with China is much more complicated than its relationship with Canada. And of course the stakes are considerably higher when dealing with China—the Chinese have leverage over the US that Canada simply doesn't have," Winograd wrote, referring to China's ownership of US Treasury debt as well as the fact that it's a much bigger market for US exports. 

"I certainly wouldn't rule out an agreement being reached with China, but I don't think that the US-Mexico-Canada Agreement provides a template that can be used in discussions with the Chinese," Winograd added. 

Others think that a US-China deal is inevitable, which makes the market's reaction to the USMCA agreement, a logical one. 

"Many investors are betting there's room for a market friendly compromise after the US midterm elections in early November when the Chinese will have an incentive to deal to avoid the 25% tariff rate that kicks in on $200 billion in Chinese exports on January 1, 2019," wrote Alec Young, managing director of global markets research for FTSE Russell, in a report.

For the complete article please visit CNN Money


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