Singapore shares may get a fillip on Tuesday as a revamped NAFTA pact and a stronger U.S. dollar may boost sentiment.
The Trump administration reached a new trade deal with Canada and Mexico, with one of its largest features appearing to be replacing the name NAFTA with the more difficult to pronounce USMCA. The pact still has to be approved by legislatures in the three countries.
The main changes include trying to have more auto parts made in North America and salary floors for auto workers, which the Washington Post reported would likely mean higher car prices and production of smaller cars and cars destined for export moving out of North America.
While the elation that the Trump administration renegotiated a trade deal with substantive changes from a previous iteration for the first time helped to boost markets, traders may take some pause after U.S. President Trump took the opportunity to claim that his protectionist tactics and punitive tariffs worked.
Boosting the greenback
The deal also appears to have pushed up the dollar.
“This agreement should be enough to end months of uncertainty and the pave the way for an interest rate hike as quickly as this month,” Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management, said in a note late Monday U.S. time. She noted the market was now pricing in a 96 percent chance of a rate hike in October, up from 90 percent.
“There are a lot of U.S. economic reports and Fed speak on this week’s calendar that could affect dollar trade, but as long as the data isn’t terrible, the greenback could extend its gains,” she said.
In regional news, Indonesia, already reeling from a devastating earthquake and tsunami over the weekend, was hit by a magnitude 5.9 quake reports said early on Tuesday.
Japan’s Nikkei 225 was up 0.60 percent at 8:24 A.M. SGT, while South Korea’s Kospi nudged up 0.01 percent.
Singapore’s Straits Times Index ended down 0.05 percent on Monday at 3255.46; October futures for the index were at 3258 on Monday, while November futures were at 3262 and December’s were at 3260.
The Dow Jones Industrial Average ended up 0.73 percent at 26,651.21, the Nasdaq Composite shed 0.11 percent to 8037.302 and the S&P 500 gained 0.36 percent to 2924.59. Futures for the three indexes were a tad down in early trade.
Stephen Innes, head of Asia Pacific trading at OANDA, said the revamped NAFTA spurred an initial rally on Wall Street.
“But as the session wore on, it quickly became apparent that investors were more relieved than anything else; early enthusiasm gave way to the reality that some contentious trade issues have yet to resolved, suggesting a significant source of tension does remain,” Innes added
“None the less, the framework does remove at least one massive tariff related risk from the global financial market, and just as significantly it allows the U.S. administration to now focus exclusively on its escalating economic dispute with China,” he said.
Hong Kong’s markets were closed on Monday; the index ended Friday up 0.26 percent at 27,788.52; China’s CSI 300 index gained 1.04 percent to 3438.865 on Friday.
The U.S. dollar index, which measures the greenback against a basket of currencies, was at 95.32 at 8:11 A.M. SGT after trading around a 95.06 to 95.35 range on Monday, according to ICE futures data..
The 10-year U.S. Treasury note yield was at 3.085 percent at 8:22 A.M. SGT after rising as high as 3.093 percent on Monday, according to Tullett Prebon data.
The euro/dollar was at 1.1572 at 8:25 A.M. SGT after trading in a 1.1562 to 1.1627 range on Monday, falling from levels as high as 1.185 last week, according to DZHI data.
The dollar/yen was at 113.966 at 8:27 A.M. SGT after trading in a 113.54 to 114.062 range on Monday, extending the pair’s climb in September, according to DZHI data.
The dollar/yuan was at 6.8679 at Monday’s close, after setting a 6.8670 to 6.8688 range, according to DZHI data.
The dollar/Singapore dollar was at 1.3720 at 8:29 A.M. SGT, after trading in a 1.3661 to 1.3721 range on Monday, according to DZHI data.
Nymex WTI crude oil futures for November were up 0.29 percent at US$75.52 a barrel at 8:00 A.M. SGT, while ICE Brent crude oil futures for December were up 0.06 percent at US$85.03 at 8:01 A.M. SGT, according to Bloomberg data.
“Ultimately, the markets remain singularly focused on the prospect of supply disruptions from Iran which is the primary driver of oil prices. And of course, the U.S./Mexico/Canada trade agreement will have a longer-term positive impact on oil prices in a broader macro context,” Innes said.