A USMCA is born
On Sunday night the trade representatives of the United States, Canada and, presumably, Mexico reached a last-minute agreement to forge a new North American Trade Agreement. For the avoidance of doubt as to who is involved, the new treaty is to be called the United States Mexico Canada Agreement.
The signs on Friday pointed to a successful conclusion to negotiations that had been contentious almost from their inception more than a year ago. All three parties wanted a deal that they could claim as a good result for their country. Overnight they got there; a win/win/win trilateral treaty. Trump can boast that it helps to make America great; the Canadian premier can claim that he has prevented Trump reducing it all to temporary bilateral arrangements; Enrique Peña Nieto can congratulate himself for prodding Canada into keeping the deal a three-way one.
The Canadian dollar and Mexican peso both began to strengthen on Thursday and carried on the process ahead of the weekend. Compared with Thursday morning the peso is 2.4% firmer against sterling and the Loonie is up by 2.5%. Most of those gains arose late on Friday and early today.
Scope for disappointment
For a while on Friday morning investors tore their attention away from Brexit, focusing instead on some unwelcome UK gross domestic product data. From top to bottom sterling lost nearly one US cent before steadying in mid-afternoon. It lost an average of 0.4% on the day.
The GDP figures were supposed to be uncontentious; Q2 growth would surely be 0.4%, as previously estimated? Indeed it was, but some of the accompanying numbers did not look too clever. Business investment, which should have increased by 0.5%, fell by 0.7% in the quarter. The current account deficit widened by 29% to £20.3bn. Crucially, first quarter growth was downwardly revised from 0.4% to 0.1%, cutting year-on-year growth from 1.3% to 1.1%.
A bunch of inflation-related figures covered Euroland and the United States. Although headline euro zone inflation was on target at 2.1%, several of the other measures missed the mark. Core Euroland inflation slowed from1.0% to 0.9% and personal consumption expenditure (CPE) in the States was flat on the month.
After an interesting Labour conference last week the Conservative version that opened yesterday will be of greater interest to investors, simply because the Conservative-led coalition is in charge of the Brexit negotiations. The prime minister's speech on Wednesday morning will be the one of greatest interest to investors. Chancellor Philip Hammond and Brexit Secretary Dominic Raab take to the stage today, with Raab warning the EU may leave the UK with no choice on Brexit.
Pound rose up against USD and the euro earlier this morning on the news that UK manufacturing data has exceeded expectations. September saw the sector’s IHS Markit/CIPS purchasing managers’ index (PMI) rise to 53.8, an improvement from August’s 53. General consensus was of a 52.6 reading, so sterling has a good start to the week in which all eyes will be on it.
The UK economic statistics this week relate mostly to the housing market. There will be house price indices from Nationwide (Tuesday) and Halifax (Friday) as well as today's mortgage approval data. Friday brings the ever-popular US nonfarm payrolls number alongside the equivalent Canadian jobs data. Tonight the Reserve Bank of Australia is likely to keep its benchmark cash rate unchanged at 1.5%.