EM LATAM CREDIT: LATAM Credit Market Wrap

The slightly smaller-than-expected trade deficit in June keeps Q2 GDP on course to print slightly negative when it's released at the end of the month (Aug 29). 

• June data released by StatCan Tuesday showed the goods deficit widened slightly from a revised figure: at C$5.9B (C$6.3B expected), it was up from C$5.5B prior (rev from C$5.9B). Exports were up 0.9% M/M after 2.0%, rising largely thanks to energy shipments, with imports up for the first time in 4 months (1.4%) due to a one-off factor (StatCan: "in large part the result of an increase in imports of industrial machinery, equipment and parts, for which a one-time high-value shipment was reported in June. Excluding this product section, total imports were down 1.9%"). In volume terms, exports were down 0.6% M/M with imports up 2.0%.
• For the quarter, the services account posted a deficit of C$1.96B in nominal terms, combining with goods' C$19.0B for a grand total of just under $21B - easily a quarterly record.
• On a volumes basis, exports fell 31% Q/Q SAAR on the quarter with imports down 6%. In this sense from a GDP perspective, net exports could subtract 7+ percentage points from the overall GDP growth figure (see chart). Consensus is for a -0.5% Q/Q SAAR reading, after +2.2% in Q1.
• The Bank of Canada's latest Monetary Policy Report has a -1.5% Q/Q SAAR GDP estimate for Q2 which looks pessimistic versus the monthly industry GDP which is closer to flat. However the BOC assumption includes a -6.8pp contribution from net exports (-10pp exports, +3.2pp imports) which isn't reflected in the industry estimate, which may in fact be boosted by the aforementioned industrial machinery investment even as overall GDP is weighed down by large net imports.
• The pullback will be transitory in some respects, even if the BOC expects the jump in cross-border tariffs to permanently impair Canadian output. The BOC published in its "current tariff" outlook scenario: "After falling sharply in the second quarter due to tariffs, exports stabilize in the second half of 2025. They increase modestly over the rest of the scenario horizon as Canadian exporters adjust to the new trade environment. Non-commodity exports remain well below their pre-tariff levels, reflecting the permanent damage done by US tariffs".

US President Donald Trump is shortly due to sign an Executive Order in the Oval Office that will create a task force ahead of the 2028 Summer Olympics in Los Angeles. LIVESTREAM

• As this will be Trump's first formal remarks to the press since Friday, there will be considerable market interest in Trump's comments on unrelated issues. Particularly on Russia ahead of a Friday deadline for Russian President Vladimir Putin to seek a ceasefire agreement with Ukraine or face new sanctions or tariffs.
• Trump is also likely to expand upon comments this morning, suggesting that Kevin Hassett, the director of the National Economic Council, and Kevin Warsh, a former Fed official, are two of the favourites to replace Fed Chair Jerome Powell next May.  

• RES 4: 1.4111 Apr 10  
• RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg 
• RES 2: 1.3920 High May 21
• RES 1: 1.3879 High Aug 1
• PRICE: 1.3782 @ 16:51 BST Aug 5
• SUP 1: 1.3716/3557 20-day EMA / Low Jul 03
• SUP 2: 1.3540 Low Jun 16 and the bear trigger
• SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
• SUP 4: 1.3473 Low Oct 2 2024

A short-term bullish corrective phase in USDCAD remains in play despite sharp weakness Friday. On the recent run higher, price traded through the 50-day EMA at 1.3739 and this has been followed by a break of resistance at 1.3798, the Jun 23 high. Clearance of 1.3798 represents an important short-term bullish development, signaling scope for a stronger recovery. Sights are on 1.3920 next, the May 21 high. On the downside, initial firm support to watch lies at 1.3716, the 20-day EMA.