Global stocks rose as US stocks added to all-time highs, and Mexico’s peso rallied against the dollar as US president Donald Trump’s administration closed a bilateral trade deal with its southern neighbour.
The S&P 500 Index closed in on 2,900 as Mr Trump unveiled details of the agreement that he says will replace the existing trade accord, Nafta. Shares of carmakers and parts producers surged more than 3%, while the peso rallied, and Canada’s dollar strengthened.
Oil prices also rose slightly, after last week’s substantial gains as a committee monitoring a deal between Opec and non-Opec producers saw production increasing. Brent crude futures rose 24 cents to $76.06 a barrel, after its 5.6% surge last week.
European shares advanced despite the UK bank holiday. The strongest moves were in Asia after recent efforts by the Chinese central bank to shore up the yuan. That currency was largely stable in the offshore market as the dollar turned lower. And the euro reversed a drop after a jump in German business confidence.
“The stock market is confident that the trade war is closer to the end than the beginning,” Chris Rupkey, chief financial economist at MUFG Union Bank in New York, said. “One by one, the trade war dominoes are starting to fall backwards and are off the table for risks that threaten the global economy.”
The breakthrough on trade with Mexico captured investor attention amid yet another failure for US and China trade talks. American stocks added to records amid strong earnings and domestic expansion, while US Federal Reserve chairman Jerome Powell’s indication the US will continue to follow a path of gradual tightening was interpreted as having a dovish tone.
The news enabled investors to look past a host of other macro events, including Mr Trump’s ongoing legal woes, fresh Russian sanctions, a war of words over Syria and faltering efforts to denuclearise North Korea.
While Asian shares rallied on the back of the yuan’s stabilisation, the Chinese central bank’s moves to steady the currency threaten to be an unwelcome step backward in the longer term.
Turkey’s lira dropped as the country’s markets reopened following a holiday. Emerging-market stocks rallied.
In the oil markets, members of the global oil monitoring committee found producers cut their July output by 9% more than called for in their output reduction pact, sources said.
The Organisation of the Petroleum Exporting Countries and other producers led by Russia agreed in June to return to 100% compliance with oil output cuts that began in January 2017.
This follows months of underproduction by Venezuela and other producers which cut output by 160% of the agreed target.
The committee groups representatives from Saudi Arabia, Russia, the United Arab Emirates, Kuwait, Algeria, Venezuela, and Oman.
Prices have been buoyed in recent weeks by the view that the oil market will tighten when US sanctions targeting Opec member Iran’s oil exports kick in November.
“While the Iranian sanctions issue certainly isn’t new news, suggestions out of the White House that waivers will be restricted appeared to augment last week’s price gains,” said Jim Ritterbusch, president of Ritterbusch and Associates.
- Bloomberg and Reuters