U.S. Trade Gap Widens
The nation’s trade deficit expanded by 43.1% in March from February, the largest monthly widening since 1996, the Commerce Department said Tuesday. A record level of non-petroleum imports flowed into the U.S. after a labor dispute at West Coast ports ended, causing the seasonally adjusted trade gap to widen to $51.37 billion.
That was significantly larger than economists had forecast, even with pressure from a strong dollar and weak global growth. As a result, revisions could push the official reading for first-quarter gross domestic product into negative territory from the paltry 0.2% annualized gain initially reported last week. (…)
“It’s really a global challenge right now,” said Marc Skalla, president of Atlanta-based SASCO Chemical Group Inc., which makes chemicals for tires and other industries. The firm expects sales to grow by 20% this year, but the stronger dollar is squeezing export profits.
A stronger dollar has “taken contracts that we worked on last year and completely changed them,” Mr. Skalla said. “We’ll feel it on the margins.” (…)
From Haver Analytics:
Overall exports improved 0.9% (-3.3% y/y) following four straight months of decline. Auto exports recovered 6.9% (-4.4% y/y) after an 8.4% drop. Capital goods exports rebounded 3.3% (-1.3% y/y) making up most of a 3.6% decline and auto exports rose 6.9% (-4.4% y/y) following an 8.4% shortfall. Foods, feeds & beverage exports gained 3.1% (-11.8% y/y) after a 1.8% drop while nonauto consumer goods exports declined 9.5% (-1.6% y/y) after a 7.9% rise. Industrial supplies & materials exports gained 0.9% (-12.9% y/y) following a 3.7% drop. Services exports improved 0.3% (4.2% y/y) but travel exports were off 0.7% (+1.8% y/y).
Overall in Q1, exports are down 3.7% (-15.6% SAAR).
From Ed Yardeni:
More significantly, real merchandise exports edged up just 1.1% m/m and are showing a flattening tendency over the past year. On a y/y basis, imports are up 10.1%, while exports are up only 0.3%. The slowdown in exports probably reflects secular stagnation in the global economy as well as the negative impacts of the strong dollar and the port strikes.
From BloombergBriefs:
A number of surveys have noted concern from domestic producers that demand for their goods is being squelched by a flood of cheap imports.
Q2 BOUNCE WATCH: ATLANTA FED DOES NOT SEE ANY BOUNCE YET
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.8 percent on May 1, down slightly from 0.9 percent on April 30.
BTW, the Atlanta Fed nailed the low Q1 GDP number on the head.
David Rosenberg, who is in the top 10 range above, lists the evidence of a Q2 bounce:
- Core capex orders for March have been revised to +0.1% from –0.5%.
- Jobless claims keep falling.
- Home prices are accelerating.
- Pending home sales are rising.
- ISM Manufacturing new orders are +1.7 to 53.5 in April with export orders +4.0 back above 50.
- Fully 15 of 18 manufacturing industries reported expansion last month. Rising orders-to-inventories suggest continuation in May.
- The U. of Michigan consumer sentiment surveys did not validate the Conf. Board slide and remains high.
- The ECRI LEI reached a 6-month high in April.
- Copper is up 10% in the past 2 weeks.
- Borrowing activity is picking up.
- So are wages and salaries.
Rosenberg’s analysis says that temporary headwinds drained 2-3 GDP points in Q1.
Some no so positive stats Rosenberg omitted:
- Car sales have stalled.
- Construction is weakening.
- Core durable goods orders are falling.
- New home sales declined in March.
- Lumber prices are falling during the seasonally strong period.
- The Conf. Board LEI improved only modestly in March.
This a.m.:
ADP National Employment Report: Private Sector Employment Increased by 169,000 Jobs in April
ADP notes that manufacturing employment declined in April.
And now, there is this:
Oil hits 2015 highs as Libya output slows, Saudis raise prices
(…) Protests stopped crude flows to the eastern Libyan oil port of Zueitina on Tuesday. Libyan output is below 500,000 barrels per day (bpd), a third of what the country pumped before 2010.
Saudi Arabia raised official selling prices (OSPs) for its Arab Light grade crude to Northwest Europe to reflect a price rally in rival grades in recent weeks. (…)
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Oil rebound tests its limits Bulls in charge as Brent rises above $69 a barrel
Crude has been boosted by production shut-ins in Opec-member Libya, a weaker dollar and signs of growing global demand, but the scale and pace of the rally since prices bottomed near $45 a barrel in January has raised questions about its longevity. (…)
Traders said a surprise fall of 1.5m barrels in US oil inventories reported by the American Petroleum Institute overnight had provided further price momentum.
If confirmed by data later on Wednesday from the US Energy Information Administration, the statistical arm of the Department of Energy, it would mark the first weekly drop in US crude oil inventories since January. Last week US crude oil inventories stood at 490m barrels, the highest since records began. (…)
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Shale groups rise to oil price challenge EOG raises prospect of production growth before end of the year
(…) EOG said that if benchmark US West Texas Intermediate crude rose to $65 per barrel or higher — compared with its price of about $60 on Tuesday — then the company could resume “double-digit” production growth, while covering its capital spending from its operating cash flows. (…)
Timothy Leach, Concho’s chief executive, said: “We expect to deliver higher production growth on a lower capital spend and with fewer rigs.”
Anadarko (…) said it had cut the average cost of drilling a well in the Eagle Ford shale of south Texas by 14 per cent since the last three months of 2014. (…)
Canada’s energy industry, already buffeted by low oil prices and stalled pipeline projects, is bracing for more setbacks after a New Democratic Party that pledges to raise corporate taxes was swept to power in Alberta.
The NDP, led by Rachel Notley, ended a 44-year Progressive Conservative dynasty by winning a majority of districts in elections Tuesday, according to preliminary results. The NDP promises to boost corporate taxes, review the government’s take on energy revenue, scale back advocacy for pipelines and phase out coal power more quickly. (…)
States Look to Boost Taxes About a dozen states are considering significant tax increases this year.
SENTIMENT WATCH
Market U-Turn Rams Hedge Funds A broad market reversal is battering hedge funds, spoiling the industry’s strongest annual start since the financial crisis.
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Are we there yet? The long awaited, much predicted start of the great turning point in bond markets after which yields will rise, prices fall and teeth nash has arrived. Maybe.
Here’s Jen Nordvig of Nomura late on Tuesday:
The size of bond moves today should not be underestimated. For example, the moves in the Italian 30-year bond today were substantially larger than anything seen in the Euro-crisis! (in price terms, which is what matters for PnL).
Importantly, bond weakness is a global phenomenon, and the very largest bond markets are impacted. Hence, the moves certainly have potential to impact sentiment through portfolio contagion.
FYI:
The cat trap could be pretty narrow! …
EARNINGS WATCH
- 407 companies (87.1% of the S&P 500’s market cap) have reported. Earnings are beating by 7.3% while revenues have met expectations.
- Expectations are for revenue, earnings, and EPS of -3.1%, +1.1%, and +2.9%. Excluding Energy, growth would be 2.2%, 8.5%, and 10.6%, respectively. This excludes the likelihood of beats for unreported companies.