CAD surges and stocks rally on new NAFTA deal

Summary:

• CAD and MXN benefit from new North American trade agreement

• Stocks also rise on the deal

• Tesla surges higher

• ISM manufacturing pulls back; TNOTE positioning at extremes

• Will Bitcoin end its consolidation this week?

The Canadian dollar is the best performing currency today with the Mexican Peso also higher in response to a last minute trade deal agreed between the US and Canada over the weekend. As a result, the current North American Trade Agreement (NAFTA) will be replaced with the new accord called the United States-Mexico-Canada Agreement (USMCA) ending the months-long dispute between the two countries. The new trade agreement is to be signed by Donald Trump and then submitted to the US Congress before the end of November. According to some officials taking part in the final stage of negotiations the USMCA will be easily enforceable unlike the NAFTA. The two sides agreed that the new trade deal will be reviewed every six years.

There’s been a bright start to the week for equities, with US futures higher and most of Europe in the green after Friday’s sizable declines. While the acronym may not roll off the tongue quite as easily as its predecessor NAFTA, the USMCA (United States-Mexico-Canada Agreement) has been warmly greeted by the markets and is a welcome development on the trade front. Ever since Trump’s victory back in 2016 currency investors have been concerned that the US President’s stance on trade could hurt both the northern and southern neighbours and there’s been a collective sigh of relief that a new unrestricted trade deal has been formed.

Tesla, one of the components of the US100 is making headlines once more with the stock called to open sharply higher after recent declines. The share price is higher by around 15% and back near 305 after CEO Elon Musk settled charges with the SEC. The SEC had charged Tesla with fraud alleging Musk of issuing “false and misleading” statements in a tweet when he said he’d take the company private. Musk has settled after agreeing to pay a civil penalty of $20m and give up his role as chairman of the board for at least 3 years.

The latest look at the US manufacturing sector has shown a little pullback in the pace of growth but it still remains at elevated levels compared to recent history and other regions. The ISM PMI for September fell back to 59.8 compared to a forecast reading of 60.0 with the previous reading being a multi-year high of 61.3.  The latest COT data reveals some interesting developments for the TNOTE with short positioning in the 10-year US government bond hitting over 750k contracts - its highest level on record. That’s speculators’ biggest short position since CFTC began compiling the data in 1995.

There’s been some small scale selling in the crypto space today with declines of up to 2% seen across the markets.    It means that Bitcoin is continuing to move within the triangle pattern which could be left as soon as this week. If so, it would see the Bitcoin price rising or falling at a quicker pace, though, there is also a risk the price continue consolidating after the medium-term triangle pattern is ultimately ended. What are the pivotal levels to watch when the cryptocurrency leaves the technical pattern? Assuming that the price will break above the upper limit of the triangle the first level for bulls may be $6800 followed by $7360. In turn, a move through the lower boundary of the pattern could see the price falling to $6170 and then to $5930.