CA: Merchandise Trade

Wed Jan 06 07:30:00 CST 2016

Consensus Actual Previous Revised
Level C$-2.6B C$-1.99B C$-2.76B C$-2.49B
Imports-M/M -0.7% -0.8% -1.1%
Imports-Y/Y 2.8% 1.5% 1.1%
Exports-M/M 0.4% -1.8% -2.0%
Exports-Y/Y -1.6% -3.5% -3.3%

The merchandise trade balance returned a smaller than expected C$1.99 billion deficit in November following a downwardly revised C$2.49 billion shortfall in October. This was the fourteenth consecutive month that the balance has been in the red but the first sub-C$2 billion deficit since July.

November's improvement reflected a 0.4 percent monthly gain in exports, compounded by a 0.7 percent decline in imports. Exports to the U.S. were up 1.3 percent which, with imports from across the border 0.1 percent lower, put the bilateral surplus at C$2.11 billion after a C$1.68 billion excess last time.

The overall monthly rise in exports was led by motor vehicles and parts (5.9 percent) and supported by metal ores and non-metallic minerals (20.4 percent) and basic and industrial chemical, plastic and rubber products (2.4 percent). Forestry products and building and packaging materials (5.5 percent) also had a good month but energy products fell again (6.6 percent).

Imports were held in check by a sharp drop in metal ores and non-metallic minerals (11.0 percent) together with smaller declines in energy (6.4 percent) and electronic and electrical equipment and parts (2.9 percent).

Meantime, the real trade balance also strengthened as export volumes expanded 0.7 percent versus October and constant price imports shrank a sizeable1.6 percent.

2015 was a lousy year for the C$ which lost the best part of 20 percent versus its U.S. counterpart. Weakness in energy markets remains the key driver but should the Fed tighten again, interest rate differentials will also move further in favour of the U.S. unit which, given rising geopolitical uncertainty, could well gain from safe haven flows anyway. Despite boding rather better for November GDP, today's data will do little to improve investor sentiment towards the C$ which looks set for a very rough first quarter.

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.