CANADA DATA: Narrowing Trade Deficit Should Bolster Q3 GDP
The Canadian merchandise trade deficit was a little narrower than expected in July, with the external sector showing tentative signs of stability after prolonged US-Canada trade uncertainty.
- July's goods deficit came in at C$4.94B (C$5.30B expected), though June's was revised about C$130M higher, to C$5.98B. That was the smallest deficit in 4 months, as exports rose by 0.9% M/M with imports down 0.7% (in part due to a one-off large import in June reversing).
- The non-energy trade deficit narrowed to a 4-month low C$14.4B (C$15.1B prior). Additionally, the trade surplus with the US rose to the highest in 4 months, at C$6.7B, from C$3.7B prior (and the ex-US trade deficit rose nearly C$2B to $11.7B, nearing the all-time biggest shortfall of C$12.2B seen in February).
- The overall goods and services balance was likewise a 4-month low C$4.4B, with services posting a record surplus (C$504M) as commercial services and travel services exports rose sharply while commercial services imports dropped.
- Expectations have been for an improvement in net exports in Q3 versus a sharp drag in Q2 (-8.1pp of GDP, biggest drag since the pandemic) that had been caused largely by a tariff-related export pullback that was seen most acutely in April (-11.3% M/M).
- In July, merchandise export volumes rose 0.7% M/M with import volumes falling 1.8%. That still leaves real merchandise exports below levels seen through mid-2022 through early 2025 until the recent tariff-related pullback.
- If there is no change in the levels of real imports or exports in August and September vs July, Q3 will indeed see a strong rebound in GDP contribution from net exports (see chart below).
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LOOK AHEAD: Wednesday Data Calendar: 10Y Note Sale, Fed Speak
- US Data/Speaker Calendar (prior, estimate)
- 08/06 0700 MBA Mortgage Applications (-3.8%, --)
- 08/06 1130 US Tsy $65B 17W bill auction
- 08/06 1300 US Tsy $42B 10Y Note auction (91282CNT4)
- 08/06 1400 Fed Gov Cook & Boston Fed Collins panel event (no text, Q&A)
- 08/06 1610 SF Fed Daly moderated discussion eco-summit
- Source: Bloomberg Finance L.P. / MNI
EURGBP TECHS: Rebound Signals A Bullish Turn
- RES 4: 0.8835 High May 3 2023
- RES 3: 0.8800 Round number resistance
- RES 2: 0.8781 2.236 pro of the Mar 3 - 11 - 28 price swing
- RES 1: 0.8735/8769 High Aug 3 / High Jul 27 and the bull trigger
- PRICE: 0.8703 @ 16:48 BST Aug 5
- SUP 1: 0.8611 Low Jul 31
- SUP 2: 0.8597 50-day EMA
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8508 Low Jun 27
The trend set-up in EURGBP is bullish and the latest recovery from Thursday's low signals the end of the short corrective pullback between Jul 28 - 31. Moving average studies remain in a bull-mode position highlighting a clear uptrend. Key resistance and the bull trigger is at 0.8769, the Jul 27 high. On the downside, support to watch lies at the 50-day EMA 0.8597. A clear break of it would strengthen a bear threat.
US-CHINA: Americans Increasingly Want To Find Areas Of Agreement w/China
Semafor reports: “Americans are starting to think more positively about China, according to new polling from the think tank Third Way... Since 2023, the share of Americans who view China as an “enemy” dropped by seven percentage points, while the share who see it as an “ally or trade partner” grew by eight percentage points.”
- Semafor notes: “A majority of respondents also said they wanted to cooperate and find “areas of agreement” with China, up from 32% in 2023. Third Way conducted the poll in May, after Trump had begun his first round of aggressive tariffs on Beijing.”
- Third Way wrote in a memo: “Americans aren’t softening on China because they hold the country and its leaders in high regard. But they have become more aware of the role China plays in their daily lives and, as a result, have become more hesitant to use blunt force.”
Figure 1: US Perceptions of China (Americans’ Preferences for Dealing with China)
Source: Semafor, Third Way
