HIGHLIGHTS

• Equities fall around the world.
• US and Canada agree to a new trade deal.
• Interest rates spike.
• Unemployment hits a low last seen in 1969

MARKET RECAP

Markets were down across the world this week. US stocks dropped by 1.34% and international stocks fell by 2.70%. There were two big stories this week. First, the US and Canada agreed to a new trade deal, taking a trade war off the table between the two countries, although the agreement must still be ratified by the respective legislatures. The second big story was the pop in interest rates at the end of the week. That led to a decent size sell-off on Thursday and Friday. Other factors that hurt the market was the rise in Italian bond yields due to a rising deficit that is not in line with the European Union. Oil prices continued their upward rise, climbing another 1.5% on the week. Brent crude is now at $86 per barrel which is a 2018 high. And it was reported by Bloomberg that China planted chips on computer motherboards to spy on US companies, raising tension between the US and China another notch.

INTEREST RATES

Bond yields spiked this week. The 10-year jumped by 18 basis points to close at 3.23% and broke out to a new high. Matching levels that were last seen in 2018. Strong economic data, and an unemployment rate that dropped to the lowest level since 1969 point to continued rate hikes down the line, more than the market had been anticipating.

US/CANADA

The US and Canada agreed on a new trade pact to replace NAFTA. The next step would be getting it approved by Congress and the Canadian legislature, probably early in 2019. On the surface, the agreement appears to be pretty much the same as NAFTA, with some minor changes. But one thing for sure, the agreement is much better than no agreement at all.

Multinational companies will be able to keep together their intricate mix of supply chains between the US, Canada, and Mexico. The agreement also opens up new markets for US dairy farmers. Duty-free cars will now have to have 75% of their content produced in North America and 40% manufactured by labor being paid at least $16 per hour.

There will continue to be an independent dispute-resolution system. With this pact out of the way, Trump can now concentrate on China.

LABOR MARKET

Nonfarm payrolls were up by 134,000 in September, which was less than the consensus estimate of 180,000. It was the smallest gain in one year but was probably impacted by Hurricane Florence. Also, the prior two months were revised up by 87,000. The unemployment rate dropped to 3.7% from 3.9%, the lowest rate since December 1969. Average hourly earnings were up by 2.8%. The job market remains extremely tight.

SCOREBOARD