Oil surges and loonie rises but markets muted on new NAFTA deal

TORONTO — The price of oil hit a four-year high and the Canadian dollar rose to its highest level since May on Monday, but the reaction in North American markets to a tentative trade deal to replace NAFTA was pretty subdued.

After rising sharply in early trading, markets ended the day moderately higher mainly due to the performance of the important energy sector in Canada and of General Electric Co. in the U.S.

The S&P/TSX composite index hit a high of 16,193.06 but closed up just 31.29 points to 16,104.43.

“It’s got to be good news for just about everybody but it is a bit of a muted response,” Michael Currie, vice-president and investment adviser at TD Wealth, said of the reaction to the new U.S.-Mexico-Canada Agreement.

The energy sector led the market, rising two per cent on the back of a 38-per-cent increase in MEG Energy Corp. shares following a hostile takeover offer by Husky Energy Inc. valued at $6.4 billion, including the assumption of $3.1 billion in debt. 

On top of that, reports have suggested LNG Canada, an estimated $40-billion gas liquefaction plant and pipeline that was delayed in 2016, could be officially sanctioned shortly.

“We haven’t seen many deals out of the energy patch of this size in quite a while,” Currie said in an interview.

Crude prices gained almost three per cent Monday with the November crude contract up US$2.05 to US$75.30 per barrel.

“If you are in the oilpatch you couldn’t ask for a better day.”

Shares of Canada’s largest auto parts company, Magna International Inc., closed up 2.2 per cent at $69.36, while Linamar Corp. was up 6.3 per cent to $63.26 and Martinrea International Inc. was up 10.5 per cent to $14.57.

U.S. President Donald Trump had threatened to impose punishing auto tariffs on Canada if it didn’t reach an deal to replace the North American Free Trade Agreement.

As a side deal to the new pact, called U.S.-Mexico-Canada Trade Agreement, or USMCA, the Trump administration has agreed to exempt Canada if the United States imposes 25 per cent tariffs on imported vehicles and auto parts.

Excluding energy, the TSX likely fell as information technology led sectors on the downside with BlackBerry shares falling 5.1 per cent.

The loonie was trading at and average of 78.11 cents US, up from an average of 77.25 cents US on Friday. That’s the highest level since May 22.

The increase is directly attributable to the trade deal involving Canada, the United States and Mexico, said Currie, who noted that bank economists are predicting the loonie could head to the 80-cent range.

Removing the trade uncertainty likely also means the Bank of Canada will increase its interest rate by 0.25 percentage.

“It looks like full steam ahead for a rate hike this month and that pushes up the Canadian dollar too.”

Meanwhile in New York, the Dow Jones industrial average was up 192.90 points to 26,651.21. The S&P 500 index was up 10.61 points at 2,924.59, while the Nasdaq composite was down 9.05 points to 8,037.30.

The November natural gas contract was up 8.6 cents at US$3.09 per mmBTU.

The December gold contract was down US$4.50 at US$1,191.70 an ounce and the December copper contract was down 1.75 cents at US$2.79 a pound.

Ross Marowits, The Canadian Press