Nafta Deal
It finally happened. Despite the pessimism of both parties concerning the possibility of a new NAFTA deal, there has been significant progress between Canada and the United States this weekend. This new deal known as the United States-Mexico-Canada Agreement (USMCA) promises a more open market, fairer trade and presumably a great deal of economic growth for all involved. The agreement will likely be signed by President Trump after Congress approves it as soon as late November. Leaked details on its contents suggest the auto industry is at the center of the agreement, as one of the terms includes foreign cars manufactured in Canada or Mexico are not exempt from tariffs. These partners will have to adhere to a quota 2.6 million items Which is higher than the combined number automobiles imported from the two countries in 2017. This’ll allow Canada and Mexico to save jobs, while still leaving some room for growth. So far the agreement does not appear to address the matter of Canadian steel and aluminum exports, leaving it as an open question for now. Meanwhile Canada gave in to pressure by opening its market to US agricultural products, opening the country to up to 16 billion dollars worth of US exports by some estimates. Canadian farmers have expressed concerns over this aspect of the deal. On the upside, the proposed agreement has done much to alleviate tensions and seeing North American countries on the same page has also improved the global economic outlook.
Asian Trading Session
October first hast been a mixed back for Asian indicses. The Australian and South Korean indices declined, yet Nikkei increased. Meanwhile the Shanghai Composite and Hang Seng were closed today, although it would’ve been surprising to see them increase, since Markit Manufacturing PMI declined in September. The numbers indicate China’s industry is slowing down, possibly owing to the China-US trade war, yet buyers on the energy markets do not appear deterred by it. Oil is under increasing buying pressure as the deadline for the Iran sanctions going into effect draws closer. On top of previously threatening to block the Strait of Hormuz, Iran recently released drone images of US aircraft carriers passing through the strait. The most notable movement on the energy markets was natural gas prices going up by 1% today, pushing it above 3 dollars. Much like in the case of oil, analysts suggest the price of natural gas will also continue to rise.
AUDUSD
The Australian dollar quickly lost its momentum on Friday, when Australian Royal Commission issued a critical report on the inner workings of Australia’s financial sector. The report includes counts of systematic bribery and fraud, especially concerning the settlement of commissions and transactions. The report realt a serious blow to Australia’s previously well-reputed financial sector. The markets reacted strongly in the negative, with the sale of financial sectors stocks continuing even today. The sector declined by an average of 1.33% today, while Australia’s largest financial company, AMP, suffered a 2.5% drop.
Due to the lack of trust in Australian banks, the AUD is back on its downwards trend against the USD. After a long time the Australian dollar finally rose above the 200-period moving average on September 20, opening up the possibility of a strengthening period, until Friday’s scandal triggered a wave of rapid AUD sell-offs. The Aussie dollar is now back below the the moving average and a new downwards trend channel has formed. Price is now the 0.7225 level and the trend suggests it could decline further as low as 0.7150.
Copper
There have been massive drops in the prices of precious and industrial metals this year. Precious metals saw the worst losses, making copper’s 5% decline over the year look mild in comparison. Price reached its 2.5632 low on August 15, making two additional unsuccessful attempts to breach it afterwards.
These unsuccessful breach attempts were followed by a predictable upwards rebound as sellers gave up further attempts. In the case of copper the closing of short positions was enough to draw buyer interest and launch prices back upwards. On September 18 price began rising from 2.59 in two steep waves all the way to 2.87. Although price reversed at that particular resistance line , it could also be considered a classic correction period. The decline initially reached the 25%, then the 38.2% Fibonacci retracement level. Price is currently back above the 25% retracement level, suggesting there may be another attempt at the 2.87 line. According to the CCI indicator, the asset is not oversold, which suggests it is open to upwards movement. The yellow trendline represents a possible path it could take to reach 2.87.
Sincerely,
Laszlo | Market Analyst
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