U.S. Trade Deficit Surprise – Currency Thoughts
U.S. Trade Deficit Surprise
February 28, 2025
Financial markets around the world had been looking ahead all this week to today’s U.S. January report of personal income, consumption and PCE price deflator, which is the Federal Reserve’s favorite inflation measure. As things turned out, the price index arrived pretty much as investors had been expecting. The overall PCE deflator’s 12-month rate of increase settled back 0.1 percentage point to a 2-month low of 2.5%, and core PCE price inflation dropped 0.3 percentage points to an 8-month low of 2.6%. A 0.9% rise in personal income during January was well above forecast, but a 0.2% drop in personal consumption expenditures after December’s 0.8% advance undershot expectations although dovetailing with recent indication of slumping consumer confidence.
Today’s biggest shocker, however, came from a different U.S. data release, an early bird estimate of the January merchandise trade deficit. Just as December’s report had revealed a record imbalance up to that time of $122 billion, the ensuing deficit learned today was also the biggest ever, but here’s the kicker. January $153.3 billion deficit was $31.3 billion, or 25.6% wider than December’s previous record. President Trump hates to see trade deficits of any size, so this report is bound to make him furious.
Financial markets are handling things in stride. There had already been significant overnight decline extensions in the prices of Bitcoin (-4.5%) and oil (-1.4%), as well as several Pacific Rim stock markets such as Japan (-2.9%), China (-2.0%), Hong Kong (-3.3%), South Korea (-3.4%), India (-1.9%), Indonesia (-3.3%), Taiwan (-1.5%), and Australia (-1.2%). European stocks, by comparison, are only moderately lower, and U.S. equities did not open with a thud. 10-year sovereign debt yields in the U.S., Japan, and Europe are a tad lower, too.
Being the final day of February, this Friday saw a deluge of data get released by other countries. Below are some of the highlights.
Japanese industrial production, down 1.1% monthly in January, fell for the third straight time. January’s production level was 2.0% lower than the fourth quarter average but 2.6% above the year-earlier level. Also from Japan, retail sales rose 0.5% on month and 3.9% on year (most in 11 months). A 4.6% on-year drop in housing starts in January was the deepest in five months, while construction orders were 12.2% higher. Tokyo core consumer price inflation settled back to 2.2% in February from January’s 11-month high of 2.5%.
French GDP growth last quarter was confirmed at -0.1% on quarter and a 16-quarter year-on-year low of 0.6%.
Other European GDP releases for last quarter involved Belgium (up 0.2% on quarter and 1.1% on year), Finland (down 0.2% versus 3Q but a +1.2% on year), Sweden (+0.8% on quarter and 2.4% on year), the Czech Republic (revised upward to gains of 0.7% on quarter and 1.8% on year), Iceland (down 1.4% on quarter but up 2.3% on year), Portugal (+1.5% on quarter and 2.8% on year), and Lithuania (+0.8% on quarter and 3.8% on year). The next estimate of Euroland GDP and employment growth is due next Friday.
GDP in India posted year-on-year growth of 6.2% last quarter and 6.5% in fiscal 2024/2025. A 1.7% quarter jump in Turkish real GDP last quarter followed back-to-back contractions in the prior two quarters was the biggest quarterly gain in six quarters, which also lifted on-year growth to 3.0%.
Among price data today,
- German consumer price inflation in February matched January’s 2.3%. Such was 2.6% in December and has been as low as 1.6% in September. German import price inflation fo 3.1% in January was up from 2.0% in December and the most in 23 months.
- French consumer prices were unchanged in February, lowering their 12-month rate of increase to a 4-year low of 0.8%, with the energy component diving to -5.7% from +2.7% in January.
- At 1.7% this month, Italian consumer price inflation reached a 17-month high but stayed below the ECB target and that indicator’s October 2022 peak of 11.8%.
- Portuguese CPI inflation edged down to a 4-month low of 2.4% this month.
- Austrian producer price inflation, which imploded from 22.1% in September 2022 to as low as -7.2% in January 2024, remained in negative territory this past January at -0.4%.
- Cypriot producer prices in January were 0.2% below their year-earlier level.
- Hungarian producer price inflation rose to a 20-month high of 9.1% last month from 9.0% in December and -7.2% at the end of 2023. Bulgarian PPI inflation more than doubled to a 2-year high of 12.5% in January.
- In Estonia and Slovakia, by contrast, producer prices in January were unchanged from a year earlier.
- Slovenian PPI inflation settled back to 1.6% from an 8-month high of 2.0% in the prior month.
- in Singapore, PPI inflation jumped 4.0 percentage points to a 26-month high of 5.5% in January.
Swiss retail sales underperformed expectations in January, dipping 0.1% on month and rising just 1.3% on year.
Swedish retail sales also fell 0.1% in January but were 3.2% above their year-earlier level.
Canadian GDP expanded 0.6% last quarter, or 2.6% when expressed in annualized terms. That followed 2.2% in the third quarter and 2.8% in the second quarter of 2024.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: U.S. personal consumption and PCE price deflator, U.S. trade deficit
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