A global stocks index advanced to more than five-month highs on Tuesday, the day after a U.S.-Mexico trade deal boosted investor confidence.
Monday’s news of the U.S.-Mexico agreement on trade pushed the S&P 500 and Nasdaq indexes to record highs, and indexes across Europe and Asia followed Wall Street’s lead, inching to multi-month highs.
The dollar, which had risen recently on safe-haven buying by investors nervous about contentious trade disputes and U.S. Federal Reserve interest rate hikes, slipped to a four-week low. Emerging market stocks hit their highest since Aug. 10 .
“Global trade tensions have undoubtedly been the most significant source of risk in 2018,” said Hussein Sayed, chief market strategist at FXTM.
“The U.S.–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is ’Who’s next to close a deal with Trump?’” he said.
MSCI’s benchmark world share index rose 0.16 per cent, adding to Monday’s biggest gain in over four months.
The S&P 500 and the Nasdaq edged up to record closing highs for the third consecutive session as investors struggled over whether to take profits following a rally on positive developments in trade disputes which have vexed the markets for much of the year.
The Dow Jones Industrial Average rose 14.38 points, or 0.06 per cent, to 26,064.02, the S&P 500 gained 0.78 points, or 0.03 per cent, to 2,897.52 and the Nasdaq Composite added 12.14 points, or 0.15 per cent, to 8,030.04.
Benchmark 10-year U.S. Treasury notes fell 9/32 in price to yield 2.8804 per cent, from 2.85 per cent late on Monday.
Canada’s main stock index dipped on Tuesday with the healthcare sector led by marijuana companies.
Cannabis producers Canopy Growth, Aurora Cannabis and Aphria fell between 2.8 per cent and 6.8 per cent and were the biggest decliners on the main index.
Also weighing was the heavyweight financial sector’s 0.3-per-cent fall, led by Canada’s third-biggest lender Bank of Nova Scotia, which reported third-quarter earnings in line with market expectations.
Rival Bank of Montreal rose 0.2 per cent after topping third-quarter earnings estimates, helped by growth in the United States.
Only three of the index’s 11 major sectors were higher.
The Toronto Stock Exchange’s S&P/TSX composite index was down 88.85 points, or 0.54 per cent, at 16,355.54.
Two of the largest percentage gainers on the TSX were shares of Canadian auto-part makers Linamar Corp, which jumped 3.3 per cent and Martinrea International, which rose 2.9 per cent.
Trade disputes have weighed on investor sentiment for much of 2018, despite solid economic fundamentals and robust corporate earnings. Many remain cautious.
Paul Donovan, chief economist at UBS Global Wealth Management, said the assumption that Canada will go along with the U.S.-Mexico deal is not “zero risk.” The three countries are currently part of the North American Free Trade Agreement, and U.S.-Canada talks are due later on Tuesday.
U.S. President Donald Trump threatened he still could put tariffs on Canadian-made cars and demanded concessions on Canada’s dairy protections.
“If Canada does not join, then getting the agreement of (U.S.) Congress (to the deal) will be trickier,” Donovan said.
The toughest battle in the trade war, with China, still looms. The United States and China held two days of talks last week without a major breakthrough, as another round of tariffs took effect.
The U.S. Commerce Department said on Monday it could impose duties on that Chinese steel wheels exports, which it said were heavily subsidized.
THE DOLLAR AND EMERGING MARKETS
Some emerging markets are being supported for now by the greenback’s pullback from 14-month highs.
The dollar index was down 0.24 per cent, just off one-month lows. Currencies such as South Africa’s rand and the Australian dollar have climbed further off multi-month troughs.
The Mexican peso lost 1.05 per cent versus the U.S. dollar after hitting 2-1/2 week highs following the trade deal.
The Turkish lira fell another 2.45 per cent against the dollar, adding to Monday’s 2-per-cent fall as concerns have not abated about Turkey’s rift with Washington and its resistance to raising interest rates. Argentina’s peso hit a record low against the dollar, marking new struggle for that developing economy.
U.S. economic data could determine the dollar’s further moves. The latest estimates for second-quarter U.S. gross domestic product are expected on Wednesday.