Release Explanation: A country’s exports minus its imports; the largest component of a country’s balance of payments. An increase or decrease in the Trade Balance will help determine the future economic outlook and growth numbers in a region. It can impact all aspects of an economy as it is the way that region balances its books.
This is a standalone valuation of the reliance, or not, of imported Goods compared to what is being sent abroad. A currency will be greatly impacted by this report as the costs of buying Imports, or selling Exports, is reliant upon a currency’s valuation to a degree. A country that Exports more than it Imports (China for example) will benefit from a weaker currency; its Exports are cheaper for foreigners to buy, and vice verse.
Trade Desk Thoughts: The U.S. trade balance narrowed to the smallest deficit in nearly six years in December, the Commerce Department said today, as the recession caused oil prices to fall and consumer spending to decline. The deficit shrank just over 4% to $39.9 billion, the smallest since February 2003. For all of 2008, the deficit in trade narrowed to $677.1 billion.
Imports in December fell 5.5% to $173.3 billion, the least since September 2005, while exports fell 6% to $133.8 billion as auto sales fell to their lowest level since November 2004.
In real terms, adjusted for inflation, the trade deficit widened to $43.3 billion last month. Trade in real terms is used in calculating GDP, which is expected to contract again this quarter after shrinking by 3.8% in the fourth quarter of 2008. Exports are expected to decline as the global economy expands by just 0.5% in 2009, the weakest pace since World War II, according to a forecast from the International Monetary Fund.
The deficit in trade with China declined to $19.9 billion while imports from the European Union caused the deficit there to reach $7 billion.
Forex Technical Reaction: S&P futures were recently trading up 0.2%, unchanged from prior to the report. The dollar gained strongly yesterday after equity markets sold off in reaction to Treasury Secretary Tim Geithner's sppech regarding the financial rescue plan.