Asian shares advanced on Tuesday and the US dollar hovered near one-month lows as a US-Mexico deal to overhaul the North American Free Trade Agreement boosted risk appetite.
Investors expect Canada too would agree to the new terms to preserve a three-nation pact, ultimately dispelling the economic uncertainty prompted by US President Donald Trump’s repeated threats to ditch the 1994 NAFTA accord.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.6 per cent for a second straight day of gains. Australian shares and Japan’s Nikkei both rose 0.7 per cent.
New York’s S&P 500 and Nasdaq indexes hit record highs led by gains in technology stocks.
The upbeat trade outlook was further boosted by news that Washington was pressuring the European Union to accelerate tariff talks.
However, some analysts were cautious about the rally.
“News of the U.S.-Mexico trade deal has fuelled risk appetite,” ANZ analysts said in a client note. “It is hard to extrapolate much out of it, as the United States continues to treat each country and deal on its own merit. We remain wary of the current rally in risk appetite, and see it as short-lived.”
Disputes between the United States and its trading partners have been a drag on investor sentiment for much of the year despite solid economic fundamentals and two robust quarters of corporate earnings.
JPMorgan analysts said the trade deal was not necessarily positive for the outcome of talks with China.
“The NAFTA agreement is clearly a positive to the extent that it reduces the risk of a generalized global trade war,” they said.
“Despite this, APAC equities including HK/China should benefit from the weaker U.S. dollar and risk-on moves.”
Hong Kong’s Hang Seng index gained 0.6 per cent while Chinese stocks were more subdued. Shanghai’s SSE Composite index held steady and the blue-chip CSI300 index slipped 0.1 per cent.
The United States and China held two days of talks last week without a major breakthrough as their trade war escalated with the activation of another round of duelling tariffs on $16 billion of each country’s goods.
Investors will also stay focused on US economic data with consumer confidence figures due later in the day and the latest estimate for second-quarter gross domestic product expected on Wednesday.
The dollar index paused near one-month lows against major currencies to stand at 94.84.
Against the yen, the greenback held at 111.28.
The euro was near a one-month top at $1.1680.
The Australian dollar, which is often used as a liquid hedge for global growth, was a tad lower at $0.7331 but well above a 1-1/2 year trough of $0.7203 touched earlier this month, according to Reuters.
Oil prices were buoyant with Brent up 9 cents at $0.76.30 a barrel and US crude 5 cents firmer at $68.92.
Gold was subdued with spot prices at $1,208.23 an ounce, down 0.2 per cent.
