by Pinchas Cohen
- CAD and MXN soar on Trump’s Nafta flip-flop
- BOJ stimulus end nowhere in sight – equities fall
The Trump administration’s about-face on pulling out of the Nafta trade agreement is the second time now the President has backed off protectionist campaign promises. The first such instance happened after the administration didn't classify China as a currency manipulator. At the same time it appears that President Trump continues to peddle more aggressively toward building a Mexican wall.
The biggest beneficiaries of keeping the 23-year old pact alive are, of course, the US's trade partners in the agreement, Mexico and Canada. In response to the back-peddling, the Mexican peso bounced 1 percent, after a 1.7 percent loss on Wednesday.
Moreover, with the waning of the dollar’s reflation trade in March, the USDMXN fell below its uptrend line for the first time since September 2014. Yesterday’s decline of the Mexican peso only drove the pair up to the bottom of the former, violated uptrend line, “guarded” by the 50dma (purple), which recently crossed below the 200dma (yellow).
The violated uptrend line is now considered resistance, since market psychology is expected to have reversed. These factors call into question the year-and-a-half uptrend, favoring a retesting of the 18.5000 price level.
The Canadian dollar bounced back as well, up 0.5 percent to 1.3564, after a 4-day consecutive decline of 1.1%, to 1.3617 against the dollar.
Alongside fundamentals, technicals provided resistance. This is the top of a trading range that began in November. Now, with the loonie right on this 5-month resistance, from a risk-reward standpoint it may be an ideal short position toward the bottom of the range of 1.3000.
While the yen enjoys safe-haven status due to Japan's current account surplus, the BOJ slammed yen bulls earlier this morning when not only did it hold firm on stimulus, but it even lowered its inflation expectation, making investors realize that any notion of scaling back from the central bank's unprecedented monetary easing is an ever-receding possibility. The yen fell 0.3% afterward.
Though a weakening yen fueled a five-day rally in some Japanese shares, Japan’s TOPIX Index didn’t resume its upward streak; it declined less than 0.1%.
After the relief of the results from the first round of the French presidential elections, investors have turned to earnings and Trump’s tax plan. Today, earnings results from some of the biggest global companies will be announced, including Alphabet (NASDAQ:GOOGL) and Dow Chemical (NYSE:DOW), in the US.
While the White House defuses the anxiety it generated when it suggested withdrawing from Nafta—welcome news for global markets—as usual, actual details regarding its tax plan are scant.
Stocks
The Stoxx Europe 600 Index is down 0.35%, to 386.62, after a 6-straight-day advance of 3.30%, to 388.73, the index's highest level since August 2015. Deutsche Bank AG NA O.N. (DE:DBKGn) earnings disappointed expectations and shares of the stock dropped 3.1% on the news.
The Japan-heavy (39%) MSCI Asia Pacific Index is up .055%, to 149.33, after closing yesterday at its highest level since June 2015. Japan’s TOPIX pared less than 0.1% of its value, after a 4.5 percent gain over the previous five days, its longest winning streak of the year.
Interestingly, the Shanghai Composite Index gained 0.4%, erasing an earlier decline caused by China’s crackdown on risky trading. That's ironic, since China has been intensifying its efforts on that front. Still the Composite bounced back.
S&P 500 Futures are up 0.1%.
Commodities
Gold, like that other safe-haven favorite the yen, resumed its losses, falling 4.8%, to 1264.33, where it’s been fluctuating aggressively. Yesterday it climbed almost the same amount, up 0.4%, after a two-day decline that began earlier this week.
Oil is down 1.00%, at $49.11, trading at the bottom of the session’s range, near its lowest level in a month.