CA: Merchandise Trade

Thu Sep 03 07:30:00 CDT 2015

Consensus Actual Previous Revised
Level C$-1.4B C$-0.59B C$-0.48B C$-0.82B
Imports-M/M 1.7% -0.6%
Imports-Y/Y 5.8% 4.4%
Exports-M/M 2.3% 6.3%
Exports-Y/Y -0.2% -1.0%

The merchandise trade balance returned a much smaller than expected deficit of C$0.59 billion in July after a larger revised C$0.82 billion shortfall in June. The improvement was due to a 2.3 percent monthly bounce in exports that more than offset a 1.7 percent increase in imports.

The real trade balance also strengthened as export volumes climbed 1.0 percent and imports rose 0.5 percent.

However, the surplus on trade with the U.S. shrank from C$4.36 billion to C$3.59 billion as sales across the border advanced 2.1 percent and purchases climbed 4.3 percent.

Within the overall monthly gain in exports there were sizeable increases in aircraft and other transportation equipment and parts (19.2 percent), motor vehicles and parts (9.9 percent) and industrial machinery, equipment and parts (5.5 percent). The main fallers were metal ores and non-metallic minerals (11.6 percent) and energy (5.7 percent).

Imports were boosted by solid increases in aircraft and other transportation equipment and parts (22.9 percent), energy (12.8 percent) and metal ores and non-metallic minerals (10.9 percent). Metal and non-metallic mineral products (minus 9.6 percent) saw the only decline.

Overall net foreign trade added just a tick to quarterly economic growth in the April-June period with exports little better than flat. However, the fall in the value of the local currency should provide a boost to export volumes over time and today's report suggests that there may be some impact as soon as this quarter. The report should be a small plus for the local currency.

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.