US DATA: Trade Deficit Continues To Balloon, Potentially Front-Running Tariffs
Jan-29 14:05
The US goods trade deficit widened much more than expected in December, to $122.1B ($105.5B expected), from $103.5B in November. That came on both a large drop in exports ($7.8B to $167.5B) and a rise in imports ($289.6B, up $10.8B).
- The standout items in the imports column are industrial supplies (up 18.9% M/M SA and 22.9% Y/Y NSA), with other categories growing by less than the 3.9% M/M SA headline imports growth (including outright contractions in food, autos, and "other" goods, and just 1.7% M/M growth in capital goods and 3.1% in consumer goods).
- It's hard to gauge to what degree that is commodities price related, as these figures are expressed nominally. Industrial supplies include petroleum and petroleum products and we only get further detail in the final release, but the industrial supply imports figure is the highest in 29 months, and is the 2nd consecutive acceleration. And petroleum import prices were only +0.7% Y/Y (NSA) in December
- It's possible this reflects front-running imports ahead of possible tariffs, as US producers attempt to mitigate disruptions and higher costs in their supply chains.
- Bigger picture, exports are down 1.8% Y/Y (NSA), with imports up 15% Y/Y (NSA), with the trade balance ballooning on a seasonally-adjusted basis from $87.6B in December 2023 to the aforementioned $122.1B in December 2024. The 3MMA as a % of GDP is running at around 4.3-4.4%, with the 12MMA at 4%. (The Services surplus is running at a fairly consistent 1% of GDP, so the goods+services balance is set to come in the low-3s % of GDP in the final trade report, the highest since at least October 2022).
- The surprising increase in the trade deficit will be negative for Q4 GDP, despite our contention that stronger capital and consumer imports reflect strong domestic demand and investment prospects.
- And in some senses such data couldn't come at a more sensitive time, given the Trump administration's focus on the trade gap.
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Historical bullets
FOREX: EURJPY Sharply Lower as Currencies Catch Up to Equity Weakness
Dec-30 14:04
- The extension lower for major equity benchmarks has prompted a solid reversal for the greenback over the past 15 minutes, with EURUSD reversing the entirety of the day’s range to plumb new lows below the 1.04 handle. A bearish condition continues to highlight scope for a test of key support at 1.0335, the Nov 22 low and a bear trigger.
- Price action most impactful for EURJPY, as the Japanese yen benefits from the lower core yields, helping the cross to slide around 130 pips off the earlier session highs. Initial firm support for the cross lies at 162.34, the 20-day EMA. The pullback is considered technically corrective at this juncture.
UKRAINE: Croatian Election Signals Continued Erosion In EU Support For Ukraine
Dec-30 13:41
The Croatian presidential election is set to go to a runoff on January 12, with former Prime Minister Zoran Milanović poised to win re-election. Although the position is largely ceremonial, Milanović's likely re-election is another signal that voters in Europe are softening in their support for Ukraine.
- Politico notes that Milanović and Croatian Prime Minister Andrej Plenković, "are deeply divided on support for Ukraine. Plenković supports military aid to Kyiv. Milanović, a member of the Social Democratic Party (SDP), has spoken out against it and criticized Western sanctions on Russia. In October, he blocked the participation of Croatian soldiers in NATO’s mission to support Ukraine."
- Semafor writes that Milanović's success, "is the latest sign of Europe’s eroding support for Ukraine ahead of US President-elect Donald Trump’s return to office: Europeans’ willingness to countenance peace negotiations has risen markedly, and the numbers who say they care about Kyiv has dropped, according to YouGov."
- Le Monde writes: "Europe has promised to stand by Ukraine against Russia in 2025. But, in reality, it is more than ever caught between Vladimir Putin and Donald Trump... With less than four weeks to go before [Trump] takes office on January 20, 2025, there is nothing to suggest that European capitals will be able to contain the impact of the populist's return to power."
Figure 1: Should Your Country Increase, Maintain, or Reduce Support for Ukraine?
Source: YouGov, Semafor
US TSY FUTURES: Extending Highs
Dec-30 13:13
- Treasury futures continue to march higher, mirroring support in EGBs (see 0754ET bullet), otherwise no substantive headline or Block driver.
- Tsy Mar'25 10Y contract trades 108-25 last (+11) puts it back to last Monday's early range, 10y yield declining .0545 at 4.5709%.
- Curves remain mixed, 2s10s -.050 at 28.792, 5s30s +1.967 at 37.374.
