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Holiday slowdown quiets emerging markets; focus shifts to NAFTA negotiations
By Rebecca Melvin
New York, Dec. 21 – Emerging market credit was quiet on Thursday as personnel at many financial firms thinned ahead of the year-end Christmas and New Year’s holidays.
Market observers said focus was shifting from the U.S. tax reform bill, which now awaits President Donald Trump’s signature after passing both chambers of the legislature, to negotiations of the North American Free Trade Agreement.
“It’s really uncertain and too early to say how the tax plan is going to impact emerging markets,” a New York-based market source said. “It may impact U.S. dollar strength but it could also lower issuance from the U.S. market, which would benefit emerging markets.”
In the latest NAFTA talks, Mexico and Canada were holding firm in their resistance to the most contentious changes to NAFTA proposed by the United States, but substantive alternative proposals have not yet been forthcoming.
There are 28 areas of negotiation going on covering such things as labor, gender perspectives and corruption.
Canada says that it is waiting for softer U.S. demands, but U.S. legislators had been focused on U.S. tax reform and had not had a chance to alter NAFTA proposals.
U.S. interest rates and NAFTA are among the largest risks to emerging market returns, some sources said. But not everyone agreed. “I think the Mexico election could have a bigger impact than NAFTA. If they elect a leftist candidate, that’s going to have a big impact,” a source said.
“While the renegotiation of NAFTA hasn’t made material progress thus far, “I think the three countries will find a way. There’s no real deadline; NAFTA has no existing deadline,” the source said.
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