Trade Gap Narrows Sharply as Imports Tumble Imports into the U.S. posted the sharpest decline in a year in June, helping to narrow the trade deficit but possibly signaling an easing of domestic consumer demand.
The U.S. trade deficit shrank 7% to a seasonally adjusted $41.54 billion in June from May, the Commerce Department said Wednesday. That was the fastest contraction in the gap since November. Imports fell 1.2% in June, the steepest decline in a year, while exports increased 0.1% to reach a record high.
(German Industry Output Grows Less Than Forecast on Russia
Production, adjusted for seasonal swings, rose 0.3 percent from May, when it declined a revised 1.7 percent, the Economy Ministry in Berlin said today. While that’s the first increase in four months, economists predicted a gain of 1.2 percent, according to the median of 34 estimates in aB loomberg News survey. Production fell 0.5 percent in June from the previous year when adjusted for working days.
Manufacturing increased 0.1 percent, with intermediate-goods production (GRIPIMOM) rising 0.5 percent and consumer-goods output climbing 1.7 percent, today’s report showed. Investment-goods production declined 0.9 percent and energy output was up 0.8 percent, while construction jumped 1.2 percent.
Germany’s Bond Advance Sends 2-Year Note Yield Below Zero German bond gains sent the two-year rate below zero for the first time since May 2013 and 10-year yields to an all-time low as the European Central Bank kept interest rates at a record low today.
Russia Bans Food Imports From West Russian Prime Minister Dmitry Medvedev laid out the details of his country’s response to Western sanctions, banning imports of a wide range of foods and considering wider retaliatory measures
Russia imposes a total ban on deliveries of beef, pork, fruit, vegetables, poultry, fish, cheese, milk and dairy products,” Mr. Medvedev said, opening the weekly government session.
Mr. Medvedev said Russia won’t import those products from the European Union, the U.S., Australia, Canada and Norway for one year, adding that the decision could be reviewed before the end of 12-month period.
Mr. Medvedev said Russia has also prohibited Ukrainian airlines from making transit flights over Russia’s airspace to Azerbaijan, Georgia, Armenia and Turkey. He said Moscow is considering imposing similar restrictions on EU and U.S. companies, banning them from transit flights over Siberia to Asia.
(…) the import bans will have a limited impact on the bulk of Russia’s population, which relies mainly on domestic foods and imports from other former Soviet countries. (…)
The food ban would hit farmers in Eastern Europe, but would have little impact on the EU’s overall economy. The EU last year exported €8.8 billion ($11.79 billion) in food and live animals to Russia, according to Eurostat, a tiny fraction of the bloc’s overall exports.
US food exports at risk in Putin trade ban
According to IHS, Russia is the largest export market for fruit and vegetables from the EU, at €2bn a year, and the second-largest export market for American poultry. (…) Russia accounts for 7 per cent of US poultry exports, worth $303m a year but down from 40 per cent two decades ago, trade groups said.
Russia imports more than 40 per cent of its food and the country’s retailers say a quick switch to domestic sources is impossible. (…)
Draghi Outlook Menaced by Putin as Ukraine Crisis Bites
Evidence is building that the conflict inUkraine and European Union sanctions against Vladimir Putin’s Russia are undermining a euro-area recovery that the European Central Bank president already describes as weak. (…)
The ECB president has said that an external shock that derails the baseline scenario of a gradual recovery in prices would require broad-based asset purchases, or quantitative easing. Getting policy makers to agree on what constitutes a shock may not be easy.
Governing Council member Ewald Nowotny said in an interview on July 10 that he doesn’t see any need for further action in the near future. Fellow council member Ardo Hansson told Bloomberg News on July 16 that there’s no immediate need for large-scale bond purchases. He also said a smaller program to buy asset-backed securities won’t be ready any time soon. (…)
One reason not to jump in with additional steps now is that the barrage of new measures announced in June will take time to feed through to the real economy. The tools include a new targeted lending plan for banks that only starts disbursing cash in September. (…)
World Food Prices Drop to Six-Month Low as Grain to Cheese Costs Decline
An index of 55 food items dropped 2.1 percent to 203.9 points from 208.3 points in June, the UN’s Rome-based Food & Agriculture Organization said in an online report today. Corn entered a bear market last month on the Chicago Board of Trade with U.S. crops developing in good condition, raising speculation that production will climb to a record.
China Home Glut May Worsen as Developers Avoid Price Drop
A reluctance among some developers to sell units at prices lower than they could fetch just months ago threatens to cause a swelling in unsold properties. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and counter policy makers’ efforts to stimulate the real-estate industry with loosened rules. (…)
The inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June, according to Shenzhen World Union Properties Consultancy Inc. data compiled by Bloomberg News. The floor space of unsold new apartments nationwide on June 30 surged 25 percent from a year earlier, government data show. (…)
EARNINGS WATCH
From Zacks Research:
The composite picture for Q2, combining the actual results from the 424 S&P 500 members that have reported with estimates for the still-to-come 76 companies, total earnings are expected to reach a new all-time quarterly record, and increase by +8.0% from the same period last year on +4.2% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.
Note that Zacks calculates that the 424 companies having reported show EPS growth of 9.0% after +1.1% in Q1. Ex-Finance, the growth rate is 11.2% after +3.8% in Q1!
Estimates for the 2014 Q3 have started coming down, with the current +4.2% total earnings growth expected in the current period down from +4.8% last week, and +6.3% at the start of the quarter. But the magnitude of negative revisions in Q3 thus far is the lowest we have seen in more than a year. The chart below compares the magnitude of negative revision to 2014 Q3 estimates over the first five weeks of the quarter to negative revisions over comparable periods in the preceding 5 quarters.
The Q2 earnings is moving along nicely for the small-cap space as well, with results from 435 S&P 600 members or 72.5% of the index’s total membership already out. Total earnings for these 435 index members are up +15.1% on +8.7% higher revenues, with 50.8% beating EPS estimates and 37.7% coming ahead of top-line expectations.
The beat ratios for these 435 S&P 600 members are lower relative to what we have seen from this same group of companies in other recent quarters, but the earnings and revenue growth rates compare favorably to historical levels.