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Market Wire
Trade War Effects Evident in Trade Data

Matt Eidinger December 5, 2019

Fresh trade data on Thursday indicated that the United States’ trade deficit improved slightly in October as a result of falling imports and rising commodity exports – but from a longer-term perspective, the trade deficit of $520 billion for the year so far is far worse than when Trump took office two years ago and a clear indication of deteriorating trade conditions throughout 2019.

The BEA report indicated that America’s international trade deficit narrowed modestly to -$47.2 billion last month as imports dropped and commodity exports rose.

The trade deficit with China remained the largest ($31.2 billion) as soybean exports decreased by nearly $800 million – reflecting the ongoing trade conflict with China.

A new round of tariffs on consumer goods imported from China will go into effect on December 15, if US and Chinese negotiators cannot nail down the details of what has been labelled “Phase 1” of an interim US-China trade agreement.

Mexico (-$8.7 billion), Germany (-$5.2 billion), and Japan (-$5 billion) also continued to remain substantial contributors to America’s perpetual trade imbalance.

Separately, Statistics Canada reported Canada’s trade deficit improved slightly to 1.08 billion Canadian dollars as a result of rising energy and mineral product exports, which offset increased imports.

Last, the US Department of Labor indicated that new weekly claims for unemployment insurance fell 10,000 to 203,000 during the week ending November 30 – the lowest level since April 13. The more reliable, less volatile, four-week moving average moved down to 217,750.

This morning’s Canadian data was overshadowed by the optimistic tone struck by the Bank of Canada during yesterday’s policy statement. Although interest rates were held at 1.75% – as expected – the central bank struck a less dovish tone than expected in the accompanying press release, prompting the Canadian dollar to rally over a full cent against its southern peer.

This morning was notably different. The greenback held steady just above support levels against the loonie in the minutes after 8:30AM.

Broad-based US dollar strength tempered somewhat this week – the trade weighted dollar index has fallen since Monday as a result of rising oil prices, decreased probabilities of additional interest rate cuts in the US and weaker than expected US private sector payrolls on Wednesday.

Markets will now shift their attention to tomorrow’s dual payrolls in the US and Canada, which may very well set the stage for next week’s final US Federal Reserve meeting and establish the tone for monetary policy in 2020 as well.

Taken with today’s reading on trade and the labor market, which demonstrated some strength, it is evident the Fed’s task will not get easier in 2020. It will continue to face difficulties in managing a slowing economy, which is approaching full employment, and persistently weak inflation amidst a trade war without end.

Matthew Eidinger
Fintech Specialist, Dealing Operations

 

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