While Trump met with Canada’s Prime Minister this week, relations with Mexico remain tense – what could this mean for the future of trade? Could two different deals emerge out of NAFTA? Get all the details in this edition of Steady Investor’s Week…
Playing Favorites? – The future of the North American Free Trade Agreement (NAFTA) continues to be scrutinized intensely, with market participants eager to understand details of the trade situation with Canada and Mexico. Relations with Mexico are tense at the moment, with the latest bit of news being that President Enrique Pena Nieto canceled a meeting with President Trump a few weeks back. No progress there. This week, President Trump met with Canadian Prime Minister Justin Trudeau, calling the trade situation “less severe” than the situation with Mexico. Does this suggest two different deals will emerge out of NAFTA? That would not necessarily be the ideal outcome, and would require a lot of time and resources to set up deals and streamline processes. Canada sends 75% of its exports to the United States, equivalent to 20% of the country’s gross domestic product.
The Perilous Future of Trade – speaking of trade (which we’ll probably do quite a bit this year), leaders from some of America’s largest retailers are making their case in Washington this week against a Trump-proposed import tax. These business leaders may have a valid point – an import tax would disturb supply chains, and make the cost of imports more expensive. Many goods are not necessarily made in Mexico, but some of the parts originate in Mexico and the final product is assembled in the U.S. This allows companies to keep costs low and in turn pass along lower costs to consumers. CEOs from companies like Target, AutoZone, and Best Buy plan to make their case. Best Buy has reportedly been circulating flyers to lawmakers on the hill indicating that their analysts forecast a 20% import tax would turn a $1 billion profit to a $2 billion loss. Abroad, some U.S. trading partners have begun laying the groundwork for a legal challenge the border tax, which could trigger the biggest case in World Trade Organization history. Stay tuned.
Japanese Economic Revival? – The Japanese economy grew at an annualized pace of 1% in the fourth quarter of 2016. For the full year of 2016, the GDP growth rate also stood at a measly 1%. Believe it or not, there is market optimism about these figures! The reason is because the long-term growth potential of the Japanese economy is set around 0.5%. When the economy grows at double the long-run expectation, it’s viewed as a positive.
Hottest IPO of 2017? The social media messaging app Snapchat appears poised to deliver the biggest blockbuster IPO of 2017. Snap, Inc. is the company filing for the IPO, and it’s expected to be priced between $14 and $16 per share according to new regulatory filings. That could value the company at over $20 billion.
From the future of trade and tensions surrounding NAFTA to Japan’s economic state, one thing is clearer than ever change is in the air. What direction this change will go has yet to be answered. But, with so many factors up in the air, ultimately the question becomes—what is the overall state of our economy and how could these factors affect the market? We at Zacks Investment Management are always looking at hard data instead of getting caught up in the headlines to provide context for investing decisions. If you want an inside look at what we’re seeing, download our Economic Outlook Report. Learn more by clicking on the link below.
Disclosure