CA: Merchandise Trade

Wed Nov 04 07:30:00 CST 2015

Consensus Actual Previous Revised
Level C$-1.9B C$-1.73B C$-2.53B C$-2.66B
Imports-M/M -1.3% 0.2% 1.5%
Imports-Y/Y 3.5% 5.0% 5.8%
Exports-M/M 0.7% -3.6% -2.9%
Exports-Y/Y -0.7% -1.6% -1.1%

The merchandise trade balance stayed firmly in the red in September. However, a C$1.73 billion shortfall was at the lower end of expectations and well short of August's slightly larger revised C$2.66 billion print.

The reduction in the red ink reflected a 0.7 percent monthly increase in exports that only partially reversed August's 2.9 percent decline and a 1.3 percent drop in imports, their first fall since April. The nominal bilateral surplus with the US was essentially stable at C$3.17 billion.

Meantime, the real trade balance also improved sharply as a 0.7 percent advance in export volumes combined with a 2.1 percent decrease in price adjusted imports.

Within the monthly increase in total nominal exports the main areas of strength were consumer goods (4.6 percent), energy products (3.7 percent) and metal and non-metallic mineral products (3.2 percent). Metal ores and non-metallic minerals (1.4 percent) also had a good month but there were sizeable falls in motor vehicles and parts (3.7 percent), basic and industrial chemical, plastic and rubber products (2.0 percent) and aircraft and other transportation equipment and parts (1.7 percent).

Imports were depressed by a 12.3 percent monthly slump in energy and a 14.3 percent nosedive in metal and non-metallic mineral products. Basic and industrial chemical, plastic and rubber products (5.2 percent) similarly fell heavily.

After an indifferent August when real GDP expanded just 0.1 percent, the tidy bounce in merchandise net export volumes may point to a slightly stronger finish to the quarter. Indeed, the pick-up here makes the BoC's recently upgraded 2.5 percent (saar) growth forecast look rather more attainable. If so, and assuming that the economy loses no more momentum than the central bank already expects this quarter, the outlook for official interest rates should still be flat well into 2016.

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.