CA: Merchandise Trade

Fri Mar 06 07:30:00 CST 2015

Consensus Actual Previous Revised
Level C$-1.2B C$-2.45B C$-0.65B C$-1.22B
Imports-M/M 0.0% 2.3%
Imports-Y/Y 8.8% 7.7%
Exports-M/M -2.8% 1.5%
Exports-Y/Y 3.4% 7.9%

The trade gap widened out by much more than expected at the start of the year. At C$2.45 billion, the fourth shortfall in a row was up C$1.3 billion versus December's sharply upwardly revised C$1.22 billion deficit and the largest since July 2012. January's deterioration was wholly attributable to a 2.8 percent monthly drop in exports as imports remained flat at their December level.

Exports to the U.S. fell 3.1 percent on the month which, with imports off just 0.1 percent, was enough to see the bilateral surplus with the U.S. nearly halve to C$1.21 billion, the smallest black ink since September 1992.

Weaker prices had an important impact on both sides of the balance sheet and export volumes were only 1.3 percent lower on the month. Even so, with price adjusted imports down just 0.1 percent, the real trade balance still deteriorated.

The overall monthly drop in nominal exports was dominated by energy which posted a hefty 14.7 percent decrease, the eighth straight decline. Elsewhere metal and non-metallic mineral products were off 8.6 percent and basic and industrial chemical, plastic and rubber products 1.8 percent. Partial offsets were provide by gains in farm, fishing and intermediate food products (4.5 percent), aircraft and other transportation equipment and parts (8.0 percent) and motor vehicles and parts (3.1 percent).

Cash imports were also dragged down by energy (minus 19.2 percent) but this was largely mitigated by increases in industrial machinery, equipment and parts (8.2 percent), electronic and electrical equipment and parts (9.3 percent) and aircraft and other transportation equipment and parts (9.0 percent).

Expectations that January was not a good month for the Canadian economy will find support in today's report. However, the BoC is already looking for growth to slow to around 1.5 percent (saar) this quarter and its unchanged monetary policy vote just Wednesday suggests that additional weakness will be needed for another cut in official rates.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. This is particularly true for Canada which relies on exports and particularly those to the U.S. for growth. It should be noted that this report focuses solely on goods trade - it leaves services trade for the quarterly national accounts and balance of payments reports.

Imports indicate demand for foreign goods while exports show the demand for Canadian goods in the U.S. and elsewhere. The Canadian dollar is particularly sensitive to changes in its trade balance with the U.S. For the most part, Canada's trade balance is in surplus thanks to its exports to the U.S. Both the nominal export and import values are split into volume (real) and price components. This permits trade data to be analyzed for both changes in trade patterns as well as changing prices. This has been particularly important of late given energy price volatility and the impact on Canada's merchandise shipments. A word of caution -- the data are subject to large monthly revisions. Therefore, it can be misleading to form opinions on the basis of one month's data.

The bond market is sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.