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London open: Stocks rise as US and Mexico reach trade deal
London stocks rose in early trade on Tuesday, tracking gains in the US, where the S&P 500 and the Nasdaq hit record highs and the Dow broke above 26,000 for the first time since February after the US and Mexico reached a new trade deal.
At 0825 BST, the FTSE 100 was up 0.7% to 7,626.61, while the pound was down 0.1% against the dollar at 1.2885 and 0.2% lower versus the euro at 1.1023 as Prime Minister Theresa May said a no-deal Brexit would not be the end of the world, but insisted she was working to get a good deal by October.
US President Trump announced on Monday that the US and Mexico had agreed the terms of a new trade deal which he hoped would replace the North American Free Trade Agreement (NAFTA). It has been reported that the new deal would require 75% of auto content to be made in the NAFTA region, up from 62.5%, while 40% to 45% would have to be made by workers earning an average of $16 per hour.
Rabobank said the glass half full way to view the announcement is that two of the three parties needed for a new NAFTA have come to an agreement which is a huge step in the right direction.
The glass half empty view is that the US has come to an agreement with Mexico as tri-party talks had stalled and now it plans to use the agreement with Mexico as a way of strong arming Canada into an agreement.
“We would argue that both views are correct,” it said. “Today’s announcement does make a new NAFTA agreement more likely (even if it won’t be called NAFTA anymore) but it also increases the risk that an agreement will not be reached with Canada and eventually we’ll see a move to bilateral agreements. In short, one thing we can say for certain after today is that the tails have fattened.”
Meanwhile, investors will continue to keep an eye on US-China trade relations after last week’s talks between the two failed to yield a breakthrough.
“It would appear that the trade spat will rumble on and there is chatter in the markets that the US is eyeing up another round of tariffs on Chinese goods, but this time it could be up to $200bn worth of Chinese imports,” said CMC Markets analyst Madden. “The US department of agriculture has plans to financially support farmers who have been targeted by Beijing’s tariffs, and this initiative suggests how determined Washington DC is to maintain a hard-line.”
Miners put in the strongest performance, with Anglo, BHP Billiton, Glencore and Rio Tinto all trading higher.
Elsewhere, Bunzl rallied after it announced its first acquisition in Norway and reported a 4% increase in first-half profit as the distribution and outsourcing group’s growth in Europe more than made up for the weaker dollar’s impact on its business in North America.
Global plastic products design and engineering company RPC Group edged up after it reached an agreement to sell its foodservice business Letica Corp to Graphic Packaging International for a pre-tax cash-free, debt free consideration of $95m.
Private healthcare operator NMC Health rose after it denied reports that it is looking to buy assets in India, while GoCompare was on the front foot following a report over the weekend that the comparison website has attracted interest from potential buyers including private equity firm KKR.
Polymetal International advanced after securing a $250m long-term five-year fixed-rate loan with Alfa-Bank.
Melrose Industries gained following a report over the weekend that the turnaround specialist has put the sale of its US subsidiary, Ergotron, on hold following the illness of its chief executive.
On the broker note front, Coats was initiated at ‘buy’ by Citi, while Genel Energy was lifted to ‘buy’ from ‘hold’ at Canaccord.
Petrofac was downgraded to ‘hold’ at Kepler Cheuvreux and TI Fluid Systems was boosted to ‘oveweight’ from ‘neutral’ at JPMorgan.
