Release Explanation: This is a nation’s total exports of Goods, Services, and Transfers, deducted from its total imports of them. (Not to be confused with the Trade Balance that looks solely at imported and exported Goods).
Current Account Balance calculations exclude transactions in financial assets and liabilities. It is a comprehensive accounting review of a nation’s Global trade that includes the Trade Balance in its figures. An increase or decrease in the Current Account may reflect an economy’s strength or weakness, but only over a long period of time as a trend builds.
There are many components of this report that can cause fluctuations, including commodity costs, currency valuations and the cost of war. This is a culmination of the reports that have preceded it. A currency will be impacted by this report mainly as a knee-jerk reaction of Institutions re-aligning existing positions. The longer term trend will normally take time to reverse and therefore take time to impact currency valuations.
Trade Desk Thoughts: The current account deficit decreased to $132.8 billion during Q4 2008, from an upwardly revised $181.3 billion the previous quarter, the Commerce Department said today. The third-quarter deficit was originally reported as $174.1 billion. That was smaller than economists' expectations for a shortfall of $137.1 billion for the period, and the lowest deficit since Q4 2003
For all of 2008, the deficit totaled $673.3 billion, down 7.9% from the $731.2 billion deficit in 2007.
Fourth-quarter imports plunged to $464.6 billion from $562.5 billion, pushed down by declines in nearly all major commodity categories. Exports also dropped, as the U.S. recession spreads abroad and hurts sales of American goods overseas. Fourth-quarter sales fell to $290.5 billion from $346.3 billion.
While U.S. trade of goods was at a deficit, services trade remained in surplus. But the surplus fell to $33.7 billion from $35.4 billion in the third quarter.
Offsetting the overall current-account deficit was a $36.5 billion surplus of income, up from a $29.6 billion surplus in the third quarter. That occurred as foreign investors rushed into the safety of U.S. debt as stock markets around the world plunged in the wake of what's been called the worst financial crisis since the Great Depression.
The trade report showed that foreigners bought a net $89.5 billion of U.S. Treasury securities during the quarter, up from $89.1 billion of purchases in the prior three months. Foreigners sold $3.7 billion worth of U.S. corporate bonds during the quarter, after net sales of $35.5 billion the previous quarter. They sold $21.4 billion of agency bonds, down from $58.8 billion in third-quarter sales.
Meanwhile, foreigners sold a net $3.6 billion of U.S. stocks, after buying $2.9 billion in the third quarter.
Foreign direct investment in the U.S. increased $80.6 billion, after rising $57.3 billion in the third quarter.
Forex Technical Reaction: S&P futures were trading lower by 0.8% on the session, but the euro was reaching its best level of the session against the dollar.