Mexico’s stock market and its economy have been somewhat of a laggard thanks to two things. One reason is domestic woes surrounding president Andres Manuel Lopez Obrador. The other is Nancy Pelosi’s potential for holding up the new Nafta in order to avoid giving President Trump a win.
The iShares MSCI Mexico (EWW) exchange-traded fund, one of the easiest ways into Mexican stocks, is up over 1% on Monday morning while the rest of the emerging markets are up only 0.2% and the S&P 500 is down. That alone goes to show who the market is ready to reward first once this thing is done.
Mexico’s stock market is up because trade negotiators from the U.S., Mexico, and Canada have reached a final agreement on new Nafta, which Trump rebranded as the United States-Mexico-Canada Agreement,
A final deal could come together in the next 24 hours, but Pelosi and some Democrats are stalling. Should Pelosi not hold a vote on this, Mexico’s stocks would sell off again, struggling to maintain pace with the rest of the emerging market index, and its economy would keep its sentiment headwind heading into 2020.
Although the old school Nafta deal is still in place, Mexico’s economy has not benefited at all from a strong U.S. economy. It contracted 0.3% on an annualized basis in the third quarter. Mexico’s GDP also contracted 0.9% annualized in the second quarter. Mexico is now in a recession. Stalling on this trade deal will not make things better for AMLO, whose popularity is slipping.
Should Pelosi bring the issue to a floor vote, it is widely expected to pass. It would be the largest and most talked-about bipartisan bill agreed upon outside of Russia and China sanctions since Trump’s election.
Pelosi expressed concerns over Mexican auto work pay, wanting it to average $16 an hour depending on the type of labor in order not to undercut the wages of U.S. auto workers. AMLO confirmed this morning that the Mexican Senate agreed to labor arbitration panels, a compromise solution to Mexico’s push-back against on-site enforcement inspections of automotive plants.
AFL-CIO President Richard Trumka says he supports the new deal. The AFL-CIO is in line with Democratic Party policies.
China Can “Pound Sand”
Once signed and official, the USMCA would give a lift to American agribusiness, as does a recent U.S.-Japan trade deal.
“The U.S. now has ‘TPP or better’ levels of access to Canadian and Japanese agriculture markets,” says Brian McCarthy, chief strategist for Macro lens, an investment research firm in Stamford, Connecticut.
TPP is the Trans-Pacific Partnership, an Obama-era trade deal that was killed immediately once Trump took office.
Should Pelosi bite the bullet and give the country — and Wall Street — a chance to shelve this issue, then it removes the pressure to sign a phase one trade deal with China. Part of the phase one deal includes promises to import more U.S. farm goods, namely soybeans. Pelosi is no fan of China. USMCA releases some pressure on China trade.
CNBC host Jim Cramer has used his time on Squawk on the Street and his own show, Mad Money, to warn investors that Trump no longer needs a China deal. Last week, it was solid jobs numbers and wage growth, despite tariffs.
On Monday, he asked why the U.S. should even bother signing a deal following China’s alleged banning of all U.S. computer software from government offices by 2023, the Financial Times reported.
“I think people continue to believe that there’s going to be a (China) deal because they think it’s rational, ‘Why not do a deal? It’s good for both sides,’” Cramer said this morning. “I think the president is increasingly saying, ‘If they’re going to continue in my face to not want to do a deal, I’m happy to walk away.’ So I think that’s the tenor of things right now.”
The passing of the USMCA makes it less imperative for Trump to score another trade win as Washington clearly believes Mexico and Canada are more important and more trustworthy trade partners than China.
The Mazatlan Post