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European carmakers, US shares surge on potential trade deal

Overnight the White House announced agreement with Mexico on a trade pact to replace NAFTA. Curiously US investors took this as a positive announcement, sending major indices to new all-time highs, despite the fact that neither parliament has passed legislation and Canada is not on board. In more explicable moves the US dollar softened and stocks of European car manufactures jumped 2.5% to 3%.

The focus of the deal appears to be the highly integrated car manufacturing processes shared by the US, Canada and Mexico. The potential agreement introduces higher levels of protection for US workers, and other non-tariff barriers to trade. While a small proportion of the US workforce will benefit, it seems all North Americans will pay higher prices for cars as a result. The lift in shares may reflect a view that a trade deal at any price is a benefit.

Asia Pacific futures markets followed European and US indices higher, and are pointing to opening gains of 0.5% to 1%. The Australian reporting season is in its final week. Speedcast, Appen and Blackmores all missed Bloomberg consensus estimates, and may restrain buying today. Better news from Orocobre or Caltex may offset the reported negatives.

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