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Dual Trade Data Disappointments Reflect Tariffs, Energy Price Declines

Matt Eidinger December 6, 2018

During a week when international economics are at the epicenter of discussions everywhere, trade data for the United States and Canada revealed the impact of two key drivers of the global economy – trade tariffs and energy prices.

Data from the US Bureau of Economic Analysis showed the trade deficit widened to $55.5 billion during October. According to the headline data points, exports decreased 0.1% and imports increased by 0.2%.

The monthly trade deficit with China widened to $41.1 billion, while Mexico remained relatively stable at $7 billion. Notably, the trade deficit with Europe widened by almost $10 billion, largely because of stagnant exports and rising imports from Germany, the UK and France.

As expected, the monthly decrease in soybean exports ($837 million) continued – largely as a result of recent tariffs from America’s largest export market, China. Crude oil (+$699 million) and fuel oil (+$316 million) exports rose.

After losing more than 50 bps overnight against the greenback, the CAD was trading on slightly better footing against its southern peer just after 8:30 am.

Statistics Canada reported Canada’s trade deficit widened to C$1.2 billion last month, principally because of declining oil prices which caused energy exports to drop a whopping C$2.2 billion to C$7.9 billion. Canada’s trade deficits with Mexico (C$900 million) and China (C$1.1 billion) remained relatively stable, while the trade surplus with the United States fell to C$3.1 billion.

In other news, the US Department of Labor reported that seasonally-adjusted initial jobless claims fell to 231,000 during the week ending December 1st. This is slightly worse than market expectations, which were set at 225,000, but still indicative of a healthy labor market.

The advance reading on continuing jobless claims were unchanged from last week, coming in at 1,631,000 for the week ending November 24th.

The Dollar Index (DXY) has been stable at around 97 since the start of December. Immediately after this morning’s set of releases, the DXY was a modest 0.1% lower.

Financial markets have been perturbed by tumbling oil prices and blindsided by President Trump’s twitter feed this week. First, oil prices reversed their gains from earlier this week amid the potential for a smaller-than-expected production cut from OPEC – possibly as the result of Alberta’s decision to cut production by January first. Furthermore, in a series of tweets, Trump appeared to reverse his implicit commitment to a ceasefire in the ongoing trade conflict with China.

Bottom Line: Despite recent market turmoil, the US labor market remains strong according the weekly jobless claims. Regarding the trade deficit, the US has definitely been hit by recent Chinese tariffs and the trend is likely to continue until a permanent solution is found. North of the border, concerns related to sliding energy prices will weigh heavily on the Bank of Canada as we move into 2019.

Matthew Eidinger
Fintech Specialist
Dealing Operations

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