The Tuesday note - 28 August 2018

• The FTSE 100 rose by almost 19 points last week to a close of 7,577.5 on Friday, as the index shadowed the bull run for global equities markets. The 10-year Gilt yield stood at 1.27%. 
• A study by Goldman Sachs pointed to a significant rise in the number of investors short selling the pound. The investment bank also said investors are relative bullish on the outlook for the US dollar. 
• The net rate of return for UK services companies fell to 17.2% in Q1 2018, according to ONS. This was down from 18.4% in Q4 2017, the lowest since late 2013. 
• The USA and Mexico reached an agreement on a trade agreement to replace NAFTA. Attention will now turn to negotiations between the US and Canada. 

Chief Economist comments: 

Trump’s new trade deal with Mexico will be applauded by those who share his economic nationalist views, but it potentially contains a ticking time bomb for the President.

The agreement insists that 75% of the parts in Mexican cars bound for the US be made in North America; and 40% of those vehicles must be made by workers earning a minimum of $16 an hour.

Western consumers have got used to paying low prices for most factory-made goods thanks to cheap imports from emerging markets, but Trump wants America to pay more to keep production local. The big question now is: how will US voters react when prices go up?