The US released its Trade Balance for April coming in with a widened deficit of 60.9 billion, which is even worse than the projected reading of -60 billion and the prior revised reading to -56.5 from -58.2. However, excluding inflation, the real trade deficit fell by 0.1% to the lowest level in almost five years.
Trade of international goods and services increased by 7.8 percent in April but this increase will definitely not cushion the blow in the economy! Trade is a big contributor to the gross domestic product and as the deficit widens, it will contribute less and less in the economy and won't help battle the ongoing housing slump and record high oil prices.
April imports to the US rose 4.5 percent offsetting a 3.3% rise in exports which was supported by a weaker dollar and the appreciation of other major currencies. Imports for crude oil totaled $29.34 billion inclining from $25.03 billion March as the average price per barrel jumped $6.96 to mark a record of $96.81 from $89.85. Overall, the US paid $38.19 billion for imports of energy-related products.
Concerning exports, sales overseas leaped by $817 million in April for consumer goods. Capital goods rose $2.22 billion supported by aircraft sales, Auto exports rose $642 million and sales of industrial supplies also increased by $1.08 billion. Food and beverages were up by $130 million.
The deficit widened with major trading partners as it jumped with China to $20.4 billion while with Japan to $7.59 billion. The trade gap with Canada and Mexico rose $7.61 billion and $6.82 billion respectively while the deficit with the Euro Zone rose $7.47 billion from $6.19 billion in March.
The effect in the market as we see dear reader, is still the dollar strengthening against majors after statements from Fed Chairman Mr. Ben Bernanke, treasury Secretary Mr. Henry Paulson and Dallas Fed Mr. Fischer all concerned with inflation and how the spike in prices is still pressuring inflationary rates to the upside.
With all this in mind, many took the words as a signal of a rate hike in the next meeting in which post-speech trading just flipped with all the charts illustrating the dollar strength. However, opposing and contradicting what was said, Boston Fed President Mr. Eric Rosengren, one of the most dovish of the Feds, said that the spike in food and energy prices had minimal effect on inflation rates.
As a result, he believes that a slowing economy will slowly drag inflation down with it similar to the approach Australia is taking. But how effective will this approach be and how far will it cool down inflation? He suggested a more aggressive cut in the last meeting by 50 basis points yet the rest of the hawks were for a quarter-point cut with some even opposing that cut!!
Well its just time that is the factor to help us determine on whether the Feds will tighten their monetary policy or keep it as is...Wait and see dear reader and start placing your bets now...are you with the hike or against it?! The answer will soon be revealed!!