Insights and Market Perspectives

Move over NAFTA, here comes the USMCA

Author: Portfolio Specialist Group

October 1, 2018

A recap of last week’s top economic news and what’s to come

Canada and the U.S. reach trade agreement

  • Canada and the U.S. reached a last minute trade deal that will result in a new trilateral agreement (including Mexico) called United States Mexico Canada Agreement (USMCA). The accord is expected to be signed by November 30.
  • The new deal would give American farmers greater access to Canada’s dairy industry, worth about 3.6 per cent of Canada’s current dairy market, according to the Dairy Farmers of Canada. In return, the U.S. has agreed in principal to preserve Chapter 19, a dispute resolution system that allows companies to allows companies to request arbitration if they feel their products have been unfairly hit with anti-dumping or countervailing duties.
  • A side agreement is apparently in the works that would see U.S. tariffs lifted on Canadian steel and aluminium, and a guarantee that the Trump administration will not impose tariffs on most auto imports from Canada. In exchange, Canada would accept a quota system that would place stricter limits on the export of Canadian-made vehicles into the U.S. market.

U.S. Federal Reserve raises rates, remove “accommodative” from language.

  • The U.S. central bank hiked its key lending rate 25 basis points, resulting in a new target range of 2-2.25%.
  • It dropped the word “accommodative” from its statement, but five more rate hikes (including one in December) remains the base case for this cycle.

Canada’s GDP inches higher 

  • Economic activity rose 0.2% month-on-month in July. Gains were relatively concentrated as 12 of 20 major industries increased their output during the month.
  • Manufacturing activity rose (1.2%) during the month, while mining, quarrying and oil and gas fell (-0.3%).

Other economic news

  • The Italian government sharply revised its budget deficit targets for 2019-2021, increasing the risk of its debt-to-GDP rsing. This could impact the country’s credit rating at the end of October when both Moody’s and S&P release updates.

What’s to come

Canada’s latest labour stats

  • In the U.S. manufacturing PMIs will be released, while Canada’s labour force survey will be released. Meanwhile, Federal Reserve Chairman Jerome Powell to speak at the 60th Annual National Association for Business Economics Annual Meeting in Boston.

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