CA: Merchandise Trade

Wed Jun 03 07:30:00 CDT 2015

Consensus Actual Previous Revised
Level C$-2.0B C$-2.97B C$-3.02B C$-3.85B
Imports-M/M -2.5% 2.2%
Imports-Y/Y 4.1% 6.8%
Exports-M/M -0.7% 0.4%
Exports-Y/Y -3.1% -3.1%

Having fallen further into the red than ever before in March (revised even larger to C$3.85 billion) the trade deficit narrowed but to a wider than expected C$ 2.97 billion in April.

The reduction in the shortfall reflected a 0.7 percent monthly fall in exports that was more than offset by a 2.5 percent reversal in imports. Exports to the U.S. were up 1.6 percent which, with imports 1.0 percent lower, saw the bilateral black ink expand from C$1.62 billion to C$2.42 billion.

Meantime the drop in the nominal trade deficit was largely mirrored in the real balance as exports volumes rose 0.5 percent on the month and price adjusted imports declined 1.8 percent.

The monthly drop in total nominal exports was driven by a 6.0 percent slide in consumer goods. Other sizeable falls were recorded in forestry products and building and packaging materials (5.0 percent), metal ores and non-metallic minerals (5.8 percent) and aircraft and other transportation equipment and parts (3.2 percent). However, energy products rose 5.9 percent, helped by higher prices.

Overall imports were weighed down decreases in metal and non-metallic mineral products (11.3 percent), basic and industrial chemical, plastic and rubber products (4.8 percent) and consumer goods (6.2 percent). Energy expanded 7.4 percent.

March made for an unexpectedly soft conclusion to the first quarter economy but April's sharp turnaround in real net exports boosts the chances of a rebound in the current period. The BoC's April MPR put second quarter GDP growth at 1.8 percent (saar) and today's data leave this nicely on track.

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.