foxex: Markets Thank Canada on Q4’s Opening Day

Insight after the bell

By Caleb Silver, Editor in Chief

Monday:

Markets respond to the treaty formerly known as NAFTA
GE has a new leader
The unbreakable Netflix
The Canadian dollar parties on the new trade deal

#1 Markets thank Canada on Q4's opening day

O Canada… Thanks for coming back to the table and making a deal. Even though the U.S. and Canada are connected by a thin border, we appeared light years apart from a trade deal 48 hours ago. But that's all in the past thanks to the USMCA, aka the new NAFTA.

Why it Matters: Here are the key points of the deal, which still needs to be approved by Congress through a vote, likely early next year.

U.S. dairy farmers gain more access to the Canadian market
Reduced tariffs and trade restrictions on automobiles and trucks produced in the US, Canada and Mexico. This is a win for all countries, but especially for U.S.-based automakers, who have manufacturing facilities and parts suppliers throughout North America
At Canada's insistence, the preservation of a trade dispute settlement mechanism to protect its lumber producers

Currency investors are woke to this deal in a big way. Check out our Chart of the Day to see how the Canadian Dollar reacted to the announcement (below).

What's Next: The Dow closed +192.90 points today, but don't get too comfortable - the most difficult trade issues are still looming as the tariff war between China and the U.S. intensifies. Emboldened by the USMCA victory, President Trump is not likely to back down from Beijing.

10 High-Margin Stocks To Survive The U.S.-China Trade War

Why are Chinese Government Bonds so Important Right Now?

#2 GE stock pops on CEO ouster
Either John Flannery, GE's former Chairman and CEO, was a terrible manager and custodian of the legendary conglomerate, the new Chairman and CEO H. Lawrence Culp, Jr. is the second coming of Warren Buffett, or investors were looking for any reason available to stop selling the stock. I'll take option #3, because a 13 percent rally on GE shares following the change in the corner office makes no sense. GE is still the same GE it was last week, and 13 months ago when Flannery took over.

Why it Matters: Perception is everything, sometimes. NYT Columnist and CNBC co-anchor Andrew Ross Sorkin, among others, report that Flannery was moving way too slow on GE's transformation and deleveraging and the board was growing tired of watching billions of dollars' worth of market value evaporate on a daily basis.

What's Next: GE reports earnings on Oct. 25 and investors will want to hear very specific details from Culp on his plan to deleverage and sell off even more businesses.
Read more:
GE's Press Release
Top Shareholders of GE
Top Companies Owned By GE

#3 If content is king, Netflix holds the throne
Credit Suisse raised its price target on Netflix to $470 per share over the next 12 months citing a "meaningfully stronger" content slate for 2019. Keep in mind, shares of the original streaming service have doubled so far in 2018.

Why it Matters: Netflix is already planning to spend $13 billion in content in 2018. That spend is helping it finance projects from cinema and TV legends, including Martin Scorsese, Al Pacino, Michael Bay and Shonda Rhimes. Reed Hastings, Netflix co-founder, Chairman and CEO, realized a long time ago that he could get investors and subscribers to pay for this premium content by simply driving down EPS to spend more on content licensing and creation, or by raising the price of a subscription by a dollar every six to twelve months. Guess what? He was right. Please step forward if you cancelled your Netflix subscription because the price went from $9.99 to $10.99 for standard streaming. I didn't think so.

What's Next: Netflix is testing its "Ultra" pricing model in Europe that allows subscribers to stream HDR (High Dynamic Range) content to four devices simultaneously. The price: between EUR 13.99-16.99 a month. It's still cheaper than one movie ticket in the U.S., and will allow you and your family of four to completely tune one another out in the comfort of your own home.
Read More:
How Netflix Makes Money
Netflix: 7 Secrets You Didn't Know

Chart of the day: Canadian dollar surges on new NAFTA replacement

The Canadian dollar surged sharply against other major currencies on Monday, extending its rise from late last week, as President Trump aggressively promoted the newly-struck USMCA as an "extraordinary" replacement for NAFTA. The past several weeks had been fraught with uncertainty over the state of U.S.-Canada trade relations, which kept consistent pressure on the Canadian dollar against its major counterparts, including the U.S. dollar.

The situation changed dramatically in recent days as it became clearer that the U.S. and Canada would indeed reach a deal. As a result of the new trade agreement over the weekend, the Canadian dollar made sharp gains on Monday against the euro, British pound, Japanese yen and U.S. dollar, among others. Though the U.S. dollar was also up on Monday, USD/CAD showed an acute drop, which accentuated the strength of the Canadian dollar against the greenback. As USD/CAD fell, it broke down cleanly below both its 200-day moving average as well as the key 1.2900 support level, establishing a new four-month low in the process.

The immediate future could potentially see further gains for the Canadian dollar – which should result in further losses for USD/CAD – as confidence continues to grow that Canada is once again on mutually beneficial trading terms with its largest trading partner.