Shares on Wall Street hit record highs as Donald Trump announces new trade deal with Mexico to replace Nafta
Shares on Wall Street hit record highs yesterday after US President Donald Trump appeared to have agreed key parts of a trade deal with Mexico.
Trump announced a new United States-Mexico Trade Agreement to replace the existing North American Free Trade Agreement (Nafta), and said negotiations with Canada would begin immediately.
Canadian foreign minister Chrystia Freeland is expected to visit Washington today to revive the trade talks.
The Dow Jones Industrial Average closed up 1.01 per cent following the announcement.
The S&P 500 Index rose 0.77 per cent and the Nasdaq climbed above 8,000 points for the first time, both reaching all-time highs.
Economists said the agreement showed the Trump administration was willing to negotiate and compromise on trade. The outspoken President has raised the spectre of a devastating trade war after pledging to rip up existing arrangements.
The MSCI's index of stocks in 47 countries across the world climbed to its highest level in more than five months.
Ulrich Leuchtmann, head of FX and emerging market research at Commerzbank in Frankfurt, said: “The [Nafta] talks add to the sense that while the US is still bogged down in its trade conflict with China, it is perhaps more willing to compromise elsewhere, such as with Mexico and the EU.”
“It's decreasing the risk of a global trade war.”
The Mexican peso initially strengthened 1.2 per cent against the dollar.
It paired gains but was still up 0.83 per cent late last night.
Shares of automakers – set to gain from the deal – soared following the announcement with Ford up 3.2 per cent, General Motors gaining 4.8 per cent and Fiat Chrysler jumping 3.5 per cent.
European auto shares also surged, with BMW, Volkswagen and Daimler all up 2-3 per cent.
US trade officials said the deal would require 75 per cent of auto content to be made in the two countries – up from the current 62.5 per cent.
It would also require 40-45 per cent of auto content to be made by workers earning at least $16 per hour.
Canadian representatives had sat out the latest round of negotiations as the US and Mexico attempted to settle their differences.
Mexican President Enrique Pena Nieto told Trump in a phone call yesterday that his country wants to incorporate Canada into the deal.
Trump said he would speak with Canadian Prime Minister Justin Trudeau.
However, he added that if an agreement could not be reached the US would impose tariffs on Canadian cars.