US DATA: March Trade Deficit Blowout On Pharma Front-Running
Final March trade data confirmed a new record (nominal) deficit and the largest on a relative basis since 2005/06 in the imbalances ahead of the Great Financial Crisis. However, pharmaceutical tariff front-running and continued heavy imports of gold are greatly clouding interpretation of underlying trends.
- The goods & services trade deficit was larger than expected in final March data, at $140.5bn (cons 137.2bn) after a slightly upward revised $123.2bn (initial $122.7bn) in Feb. It exceeds the $130.7bn in Jan.
- It came as the goods deficit confirmed a new record high of $163.5bn (larger again than the $162.0bn in the advance release) whilst the new data on the services surplus fell from $23.8bn in Feb to $23.0bn in Mar for the smallest surplus since Apr 2023.
- Of course, these are nominal figures whereas a better historical comparison is in % GDP terms. Here, and looking on a 3mth basis to smooth the data out, the goods deficit confirmed its widening to 6.2% GDP (last larger, and only just, in the 2005/06 imbalances before the GFC) whilst the services surplus held at 1.0% GDP as has broadly been the case since mid-2021.
- Pharmaceutical products, a point of contention for the Trump administration, were behind the 28% surge in consumer goods imports, attributing $20.9bn of the $22.5bn monthly increase.
- Specifically, pharma imports increased from $29.5bn to $50.4bn (71% M/M, and vs an average $20.5bn in 2024). That mostly tallied to a $15.5bn increase in imports from Ireland at $30.7bn – see the below chart for just how unprecedented this is in likely front-running ahead of previously touted pharmaceutical tariffs.
- Imports of monetary gold were off highs from Jan & Feb but still unsurprisingly had an outsized impact, with imports of finished metal shapes worth $21.3bn in March. That’s compared to $31.7bn in Feb and $34.2bn in Jan but an average of just $4bn in 2024. Comex inventories imply a significant moderation in this category in April.
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AUSSIE 10-YEAR TECHS: (M5) Strong S/T Bounce
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.915 - High Apr 4
- PRICE: 95.860 @ 16:42 GMT Apr 04
- SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.640 - 1.0% 10-dma envelope
Aussie 10-yr futures extended a recent strong bounce through to the Friday close, putting prices through the top end of the recent range. The confirmed breach of 95.851, the Dec 11 high on the continuation contract, reinstates a bull cycle and focuses attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
USDCAD TECHS: Bearish Structure
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4308 50-day EMA
- RES 1: 1.4242 High Apr 4
- PRICE: 1.4196 @ 17:10 BST Apr 4
- SUP 1: 1.4028 Low Apr 3
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD rallied Friday, but remains lower on the week after Thursday’s downleg. The move down has confirmed a clear reversal of the bull cycle between Sep 25 ‘24 and Feb 3. Price is through a key support at 1.4151, the Feb 14 low. This signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4308, the 50-day EMA.
CANADA DATA: Unexpected Jobs Contraction Boosts Implied April BOC Cut Chances
Canadian employment unexpectedly contracted in March, falling by the most since January 2022 at -32.6k (+10.0k expected, +1.1k prior) in a sign that the trade war with the US is spilling over increasingly into the "hard" data. The unemployment rate ticked up 0.1pp to 6.7%, in line with expectations and below the November 6.9% high, though unrounded it rose from 6.55% to 6.71% - the largest increase since November.
- The drop in employment was largely due to a 62.0k drop in full-time positions (after -19.7k, the 2nd straight drop), with part-time up for the 4th consecutive month at 29.5k (after 20.8k prior) - that mix is clearly indicative of hiring uncertainty among firms.
- The monthly full-time drop was the 2nd largest since the pandemic lows in the labour market (April 2020). Goods producing jobs fell by 12k (2nd consecutive decline), while services shed 21k (wholesale/retail trade and Information, culture and recreation led losses).
- The participation rate dipped 0.1pp to 65.2%.
- Wages were soft, dropping 0.2% M/M for the first drop since November, with the Y/Y rate slipping to 3.6% from 3.8% prior. The rise in permanent employees' wages of 3.5% Y/Y was well below the 4.1% expected (4.0% prior).
- Market-implied probability of an April BOC rate cut rose to as high as 68% after the data before settling the day at around 55%. That compares to 40% prior to Wednesday's US tariffs announcement.
