CA: Merchandise Trade

Tue Apr 05 07:30:00 CDT 2016

Consensus Actual Previous Revised
Level C$-0.7B C$-1.91B C$-0.66B C$-0.63B
Imports-M/M -2.6% 1.1% 1.6%
Imports-Y/Y 2.3% 4.4% 4.7%
Exports-M/M -5.4% 1.0% 2.0%
Exports-Y/Y 2.1% 7.3% 7.5%

The trade balance was C$1.91 billion in the red in February after an essentially unrevised C$0.63 billion shortfall in January. The increase was the first since October and made for a much larger than expected deficit as exports slumped 5.4 percent on the month while imports fell only 2.6 percent. The bilateral surplus with the U.S. narrowed from C$3.81 billion to C$2.68 billion as sales across the border dropped 5.6 percent and purchases declined 2.7 percent.

Meantime, the real trade position also worsened significantly as exports volumes decreased 2.2 percent and price-adjusted imports fell 1.2 percent.

Within the monthly change in total nominal exports consumer goods collapsed 14.3 percent. Other hefty falls were recorded by energy (14.4 percent), industrial machinery, equipment and parts (8.1 percent), basic and industrial chemical, plastic and rubber products (6.8 percent) and forestry products and building and packaging materials (6.4 percent). However, aircraft and other transportation equipment and parts (25.2 percent) were very strong and metal and non-metallic mineral products (3.0 percent) also had a good month.

Import weakness was also widespread and led by energy (minus 29.7 percent) ahead of metal ores and non-metallic minerals (9.2 percent) and metal and non-metallic mineral products 4.8 percent).

January saw real GDP expanding a surprisingly large 0.6 percent on the month, matching its best performance since July 2011. Today's trade data suggest that February will be nothing like as strong. Nonetheless, unless retail sales and manufacturing shipments surprise on the downside first quarter GDP should still look quite decent. Certainly the likelihood of any near-term BoC ease remains very slim.

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.