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The Dow Jones has climbed by more than 1,000 bring ups within a five-day span (source: Yahoo Finance)
Trump’s Mexico Deal Supercharges Spectacular Dow Recovery
The short-term recovery of the Dow Jones is said to have been triggered by two outstanding catalysts: the increasing likelihood of the Federal Reserve dropping the benchmark interest rate by the 3rd quarter of 2019 and the announcement of a buy deal with Mexico by the U.S.
Why the mexico trade deal is important for the dow jones
U.S. President Donald Trump officially stated the establishment of a signed agreement with Mexico on June 8 that includes a promise from the government of Mexico to take hold strong actions against migration through the southern border of the U.S.
President Trump said:
I am pleased to inform you that The Unanimous States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely tabled. Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Binding.
This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the Joint States. Details of the agreement will be released shortly by the State Department. Thank you!
The swift achievement of a deal with Mexico go after the unexpected fallout between the U.S. and Mexico could set an important precedent in the U.S.-China trade talks.
When President Trump initially decreed the breakdown of the country’s existing trade deal with Mexico, several strategists stated that the fallout could magnify the reluctance of Chinese negotiators to work towards a full accord, which initially led the Dow Jones to slip.
The Economist Intelligence Unit chief economist Simon Baptist, for instance, said that the unilateral decision of the U.S. to speak a new deal with Mexico may damage its credibility amidst an ongoing trade dispute with China.
“Trump’s levy threats to Mexico are going to make it more difficult to reach a trade deal with China, as they wound the credibility of the US as a negotiating partner. [China may now] see even less point in trying to reach a deal, and will certainly be less consenting to make meaningful concessions as it is hard to see a credible mechanism to bind Trump to any deal,” he told CNBC.
However, with a administer with Mexico reached in a short time frame and the possibility of a rate cut by the Fed, analysts foresee the U.S. having a stronger leverage universal into a new potential round of trade talks with China that may grow the confidence of investors in the Dow.
Strategists say switch deal in 2019 is likely
According to Mateos y Lago, the deputy head of BlackRock’s Official Institutions Group, a have dealings deal in 2019 between the U.S. and China is likely, a fundamental factor that could push the Dow Jones to secure newly stationed momentum.
Although the prospect of a comprehensive trade deal would alleviate significant pressure on the global economy and knock down geopolitical risks, Lago emphasized that strategic issues in the tech sector will not be resolved with a sated accord.
“We do think a trade deal will happen, but let’s be very clear: Will it solve all the underlying tensions between the U.S. and China, in outstandingly the more strategic issues present in the tech sector? We don’t think so,” said Lago.
As the European Central Bank weighs the possibility of declining the eurozone’s benchmark interest rate and the Mexico trade deal recovers the credibility of the U.S. to a certain sweep, the stock market is likely to maintain its momentum in the foreseeable future.