Canadian dollar, stocks rise as NAFTA salvaged

Tuesday, 2 October 2018 00:00 - - {{hitsCtrl.values.hits}}

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto, Ontario, Canada, January 23, 2015. REUTERS/Mark Blinch/File Photo

LONDON (Reuters): Optimism about a reconstituted free trade agreement among the United States, Canada and Mexico and what it could mean for trade relations elsewhere helped world markets kick off the fourth quarter of the year in a positive vein.

Worries on Italian politics and Chinese manufacturing tempered the optimism, but the last-gasp deal to save NAFTA was enough to put world stocks in the black.

The United States and Canada salvaged NAFTA as a trilateral pact with Mexico, rescuing a $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.

Japan’s Nikkei rose 0.5% to a 27-year high and European stocks were up overall despite losses on Italian markets on political concerns.

The Canadian dollar was up 0.65% against the dollar to a four-month high and the Mexican peso hit its highest in over seven weeks.

“The trade deal is helping risk appetite across the board, especially the Canadian dollar, and that will likely lift appetite for emerging-market currencies across the board,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

A pan-European index of shares was up 0.25%, though gains were curbed by concern over how the Italian government’s spending plans would affect relations with the European Union.

Italian bond yields extended last week’s rise and stocks fell on a report that the EU is set to reject Italy’s budget plans in November and open a procedure against the country’s public accounts.

The closely watched spread between Italian and German 10-year bond yields was at 270 basis points, over 30 bps wider than this time last week.

“It is quite clear that the European Commission will not like (the budget proposal),” said Commerzbank rates strategist Michael Leister. “Brussels will give its opinion, which we think won’t be positive and ... the ratings agencies will opt for a similar stance. A downgrade is our base case.”

The euro was also hit by worries about a rise in Italy’s fiscal deficit, dropping below the $1.16 mark EUR= having lost 1.2% last week and off three-month high of $1.18155 touched a week ago.

Also casting a shadow were two surveys on Sunday that showed growth in Chinese manufacturing sputtered in September as domestic and export demand softened.

As a result, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25%. China’s financial markets were closed for a holiday, as was Hong Kong’s stock exchange.