GB: Merchandise Trade

Tue Jun 09 03:30:00 CDT 2015

Consensus Actual Previous Revised
Level Stg-9.9B Stg-8.56B Stg-10.1B Stg-10.71B
Imports-M/M -4.3% -1.0%
Imports-Y/Y -3.7% -0.1%
Exports-M/M 2.8% 1.4%
Exports-Y/Y -0.8% -7.1%

The shortfall on global trade in goods weighed in at a much smaller than expected Stg8.56 billion in April, its lowest outturn since December 2013. However, March's already sizeable deficit was revised significantly larger to Stg10.71 billion.

Still, at least the headline gain was fully matched by the core shortfall which excludes oil and other erratic items. The red ink here shrank from Stg9.68 billion last time to Stg7.27 billion, also its best performance in more than a year.

Total nominal exports were up 2.8 percent on the month (core 3.4 percent) following a 2.1 percent increase at the end of the second quarter and now show annual growth of minus 0.8 percent. Chemicals and fuels were especially strong. Weakness in miscellaneous manufactures was mainly responsible for imports slumping 4.3 percent versus March (core minus 5.6 percent) to stand 3.7 percent below their year ago mark.

Regionally, the bulk of the improvement was attributable to trade with non-EU countries where the deficit fell more than Stg1.3 billion to Stg2.1 billion. Net exports to the other EU states were up Stg0.8 billion at Stg-6.5 billion.

The April statistics leave underlying trends looking a good deal more healthy. Hence, core exports in February-April were up 2.0 percent versus the previous 3-month period while comparably measured imports were 1.4 percent stronger. The monthly trade data are highly volatile but today's report should ease some worries about the overvaluation of the pound. That said, at Stg30.4 billion, the first quarter goods shortfall was slightly larger than the fourth quarter print (Stg30.1 billion) so a weaker exchange rate still looks very likely medium-term.

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. In the UK the main market focus is the global goods balance as this is seen as a better guide to the economy's competitiveness.

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.

Imports indicate demand for foreign goods and services in the UK. Exports show the demand for UK goods in countries overseas. The pound sterling can be particularly sensitive to changes in the chronic trade deficit run by the United Kingdom, since the trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries as well, 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.

The UK's trade balance is particularly susceptible to swings in the oil account and so within the overall goods balance, financial markets will normally focus on the balance excluding oil and other erratic items.