Week Review: NAFTA Breakthrough and Yield Rout Rock the Market
October 5, 2018 1:42 pm
The biggest news this week was on a breakthrough in trade negotiations between the United States and Canada on Monday. The news was a sigh of relief to investors who were worried that Trump could fulfil his campaign promise of cancelling NAFTA. The unexpected deal may see increased trade in North America and most importantly, it prevented interruption in trade between America and its neighbour. Canada is the second largest trading partner of the USA with goods of more than $500 billion exchanged.
This news was followed by the employment numbers released by Automatic Data Processing (ADP) on Wednesday. The number showed a surprise increase in hiring in September as more than 230K people got employed. This was a bigger number than the 187K that traders were expecting. In addition, yesterday, the jobless claims remained at a 49-year low. Data from Challenger showed that employers fired more than 40K people in September. A majority of these layoffs were from Wells Fargo that has faced multiple legal problems. Today, traders will receive the official employment numbers from the Labour Department. While the headline number will be important, they will probably look at the rise in wages.
The surprise number in wages lead to a sharp sell-off in global bonds. This happened as traders started to worry of higher rates. The rise in 10-year treasuries rose to the highest level since 2011. This led to increased borrowing costs for countries in the developed countries and the emerging markets. The yield on the US 10-year treasury yields rose to a high of 3.23 percent while the yields on Germany Bunds rose to a high of 0.53 percent. The ten-year Gilt rose to 1.66 percent, which was the highest level since January 2016 while the French gilt rose to 0.87%. The bond yields move in the opposite of price and as such, an increase in yields is known as a sell off. The rise in yields lead to a weaker stock market in the US and around the world. It also lead to a sharp decline in the Emerging Market currencies.
It was also a tough week for geopolitics as condemnation for Russian from Western allies intensified. The country was attacked for its continued destabilizing efforts around the world. Yesterday, the US government charged six Russians with cybercrime charges. In recent years, Russia has grown isolated by Europe and the United States as its policies abroad using the GRU draw criticism.
Yesterday, Bloomberg wrote an important story that will lead to intensified pressure on trade. The magazine showed how China had infiltrated the US technology giants like Apple and Amazon. A small chip found in these devices is used by China to steal data from Americans. China and American companies affected by this have denied these allegations. However, the reality is that the new charges may be used by the Trump administration to make the case for harsher treatment of China. In fact, yesterday, in a speech, Vice President Pence talked about the threat posed by China, which is seen by many as the biggest threat to the USA.
The biggest news this week was on a breakthrough in trade negotiations between the United States and Canada on Monday. The news was a sigh of relief to investors who were worried that Trump could fulfil his campaign promise of cancelling NAFTA. The unexpected deal may see increased trade in North America and most importantly, it prevented interruption in trade between America and its neighbour. Canada is the second largest trading partner of the USA with goods of more than $500 billion exchanged.
This news was followed by the employment numbers released by Automatic Data Processing (ADP) on Wednesday. The number showed a surprise increase in hiring in September as more than 230K people got employed. This was a bigger number than the 187K that traders were expecting. In addition, yesterday, the jobless claims remained at a 49-year low. Data from Challenger showed that employers fired more than 40K people in September. A majority of these layoffs were from Wells Fargo that has faced multiple legal problems. Today, traders will receive the official employment numbers from the Labour Department. While the headline number will be important, they will probably look at the rise in wages.
The surprise number in wages lead to a sharp sell-off in global bonds. This happened as traders started to worry of higher rates. The rise in 10-year treasuries rose to the highest level since 2011. This led to increased borrowing costs for countries in the developed countries and the emerging markets. The yield on the US 10-year treasury yields rose to a high of 3.23 percent while the yields on Germany Bunds rose to a high of 0.53 percent. The ten-year Gilt rose to 1.66 percent, which was the highest level since January 2016 while the French gilt rose to 0.87%. The bond yields move in the opposite of price and as such, an increase in yields is known as a sell off. The rise in yields lead to a weaker stock market in the US and around the world. It also lead to a sharp decline in the Emerging Market currencies.
It was also a tough week for geopolitics as condemnation for Russian from Western allies intensified. The country was attacked for its continued destabilizing efforts around the world. Yesterday, the US government charged six Russians with cybercrime charges. In recent years, Russia has grown isolated by Europe and the United States as its policies abroad using the GRU draw criticism.
Yesterday, Bloomberg wrote an important story that will lead to intensified pressure on trade. The magazine showed how China had infiltrated the US technology giants like Apple and Amazon. A small chip found in these devices is used by China to steal data from Americans. China and American companies affected by this have denied these allegations. However, the reality is that the new charges may be used by the Trump administration to make the case for harsher treatment of China. In fact, yesterday, in a speech, Vice President Pence talked about the threat posed by China, which is seen by many as the biggest threat to the USA.
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