Citi’s FX guru Steven Englander thinks that trade deficit data to be released this Friday will show surprise deterioration, as data form our trading partners shows robust exports to the US, and exports from the US show signs of fizzling.
The consensus expects a modest deterioration of the US trade deficit from $38.3bn to $40.5bn in the US trade data to be released on Friday. Citi economists expect the trade deficit to come in at $42bn. Some data suggests that the risk of a big negative surprise and a number beyond the pessimistic Citi forecast is not out of the question. We already have indications from a number of US trading partners about their exports to the US and these indications point to a sharp surge in US imports (Figure 1). The countries in our sample of early reporters report export increases in the US of about 4.6%, about 2.5bn. Historically this is associated with an increase of close to $5bn in imports. The countries in our sample are not oil exporters so this suggests that there is risk from the non-oil components beyond about $1bn of deficit deterioration implied by already published import and export price data. We do not have nearly as stung early indication on exports but it is worth noting that loaded outbound containers from west coast ports fell in December for the first time in four months, so there is some indication that export growth may have stagnated a bit.
These data rarely have much of an immediate currency impact these days, and often the impact is indirect through whatever revision occurs in GDP estimates. However, a deterioration in US trade performance, if it persists, would suggest that much of the direct impact of QE2 was spilling abroad. Broadly speaking it also suggests some USD risk down the road, as global investors may come to be reluctant to willingly finance a widening US trade deficit at the rates that are on offer.
And here’s the sign that exports may fizzle a little: