Europe's trade imbalance in focus

4 minute read



One of Friday's US ecostats looked good. The University of Michigan's consumer sentiment index gained full four points to reach a provisional 97.8. An unusual pattern within the results showed the improvement "was entirely due to households with incomes in the bottom two-thirds of the distribution… Sentiment fell among households with incomes in the top third". The other US statistics were less impressive. Industrial production increased by just 0.1%in February after falling 0.4% the previous month. The New York Fed's manufacturing index was five points lower at 3.7, having been expected to rise to 10.1.

The USD reacted negatively to the production number before recovering most of the lost ground after the Michigan index came out. On average the dollar came away with an average loss of 0.2% to the other ten most actively-traded currencies.


Euroland scarcely featured in today's truncated list of  global ecostats.  Its only contribution was January's balance of trade, which widened to a seasonally-adjusted €17.0 billion. The zone's surplus with the United States and its deficit with China both increased, setting the scene for potentially increased tension in both directions: Europe has already set out a ten-point plan to balance trade with China and the US president is well-known to be on Europe's case, especially with regards to German autos.

News that Germany's Commerzbank and Deutsche Bank are in merger talks sent their stock higher this morning and, with them, the EUR. It is not immediately obvious why the EUR should be a beneficiary: an eventual deal would mean tens of thousands of job losses, hardly a good thing for Germany's troubled economy. However, the EUR is higher, up by 0.3% against the USD.


The Loonie was feeblest of the lot on Friday, falling 0.1% against the USD.  A 0.8% fall for WTI crude did it no favours but was not big enough to do real damage. Leaders attending a meeting of oil producers in Baku, Azerbaijan, noted that competing factors are pulling oil in both directions: consumption is under pressure from slowing growth, while OPEC cuts combine with sanctions on Iran and Venezuela to limit supply.

As for the outlook for the CAD, an analysis by Bloomberg Friday suggested that the "good times may be a thing of the past". "Prospects for the Canadian dollar  have shifted considerably to the downside over the medium term", according to TD Securities, and "the positives are hard to find".  


Sterling led the major currencies again on Friday, continuing its week-long daily swings between first and last position. It was less successful in Europe this morning and is just about unchanged against the USD. There was one statistic for investors overnight- the Rightmove index of asking prices for residential real estate. The index rose 0.4% in March to a level 0.8 below its level a year ago.

The Brexit Saga continued during the weekend, with finance minister Philip Hammond confirming that the prime minister will try this week for a third time to get her withdrawal bill through the House of Commons. It will only happen if Theresa May sees a realistic possibility of success, which cannot be achieved without the backing of Northern Ireland's Democratic Unionist Party.


Japan's merchandise trade data revealed a bigger-than-expected surplus of ¥116.1 billion in February. The improvement came at a high cost though: imports fell 6.7% while exports were down by 1.2%.

The figures were helpful to the JPY, though most of the work had been done on Friday morning. The JPY is 0.2% higher on the day against the USD after covering a range of less than half a yen.

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