E Market Briefing For Wednesday, Aug. 29

Stocks are ‘hanging fire’ in hopes that Canada will compromise with at least a few US wishes, and make a deal that’s compatible with what teams of US and Mexican negotiators already agreed to. I have a suspicion they already have a basis for falling-into-line, and that the US/Mexico deal isn’t a bluff to pull Canada in; but that it’s actively already being worked-out.  

This matters a lot to the market. The softer Dollar has contributed to slight adjustments in Exchange Rates; and a bit of Emerging Market recovery as well. I emphasize that there is a role related to Canada; as they of course are not a low-cost labor market like Mexico; hence currencies matter. For all practical purposes I question whether Mexican workers will really not be paid ‘less than $16 an hour’ in auto plants; suspecting that’s a work-around that allows the deal to go forward, regardless of how they massage that.  

There are still a paucity of worthy investments now; and the S&P strains to hold together; especially after some reports of increased ‘optimism’ and at this point (oddly enough) people buying into the idea of higher equities. I’m not being cynical when I point out that is sort of a classic sign near tops or at least near term exhaustion phases markets have seen in the past.  

Overseas values are perhaps more attractive than the US; though that’s a condition I’ve mentioned before and Europe in particular improved a bit. At the moment though I believe matters center on North American trade; with an eye on China to follow should this be resolved as a revised NAFTA; no new name aside. Meanwhile some EM’s recovered late in their session or early Wednesday; at least temporarily.  

In-sum: earnings expectations are strong; but that’s not news. Matters now hinge a lot on what happens with Canada; but that’s now discounted somewhat by the market’s preceding advance. Hence failure would trigger a shakeout while getting a deal done (so sit become tripartite not bilateral with Mexico alone) would not particularly extend the markets into even higher levels; or at least not for long.