OIL: Pakistan Refinery Limited to Import First Bonny Light Cargo

While the French goods trade deficit to GDP is broadly back in line with pre-covid levels (~3%), the downward trend in both exports and imports is reflective of a broader sluggishness in activity. Weak demand is constraining imports, while trade uncertainty and soft partner demand is limiting export growth.

• The trade deficit was E7.8bln in May according to Ministry of Commerce data, up from E7.7bln in April. Exports (ex-military equipment) fell 0.3% M/M to E48.8bln. Export growth has been negative on an NSA sequential basis for four of the last 5 months (March was an exception with +5.3% M/M growth).
• Meanwhile, imports (ex-military equipment) fell 0.2% M/M to E56.7bln, following a 3.0% M/M fall in April. Imports were down 1.7% Y/Y in May (vs -2.6% in April, +3.4% in March), consistent with weak domestic consumption and industrial production trends seen in recent months.
• Net exports pulled Q/Q real GDP down by 0.7pp in Q1. Recent export weakness suggests a similar drag may also be seen in Q2.

The German trade surplus increased in May to E18.4bln (seasonally-adjusted, vs E15.5bln cons; E15.7bln prior, revised from E14.6bln). Both exports (-1.4% M/M vs -0.5% cons; -1.7% prior, revised from -1.6%) and imports (-3.8% M/M vs -1.7% cons; 2.2% prior, revised from 3.9%) declined. 

In real terms, as a % of nominal GDP on a 12-month rolling basis, the trade balance series extended its current downtrend, at 5.1% as of May, 0.9pp below levels seen around a year ago (vs 8.0% 2015 high, 2.1% 2022 low, bottom left chart).

• Across countries, an export drop to the US is consistent with the firmer tariff stance in the country. Exports to China meanwhile also dropped, sitting close to their post-pandemic lows, suggesting that an April jump might have been a one-off (mid-left chart).
• May German factory orders data showed the series holding up comparatively well from the foreign side - that could suggest some rebound in exports over the next months.
• Lower imports across the board of constituencies (mid-right chart) seen in May can be indicative of low domestic demand in the month.
• IFO export expectations fell in June, to -3.9 (-3.0 May), remaining well subdued on a historical comparison.
• "The United States has offered an agreement to the European Union that would keep a 10 percent baseline tariff on all EU goods, with some exceptions for sensitive sectors such as aircraft and spirits", Politico quoted an EU diplomat overnight - arguably, that would be quite favourable conditions for the bloc.

• On the commodity front, a recent move lower in Gold resulted in a breach of the 50-day EMA, and a trendline drawn from the Dec 30 ‘24 low and connected to the Feb 28 low. A clear break of both trend tools would signal scope for a deeper correction, and open $3245.5, May 29 low. Note that the latest recovery highlights a possible false trendline break. A resumption of gains would refocus attention on $3451.3, the Jun 16 high. The bear trigger lies at $3248.7, the Jun 30 low.
• In the oil space, WTI futures maintain a softer tone following the reversal from the Jun 23 high, and recent gains appear corrective. Support to watch is the 50-day EMA, at $64.96. It has been pierced, a clear break of it would signal scope for a deeper retracement. This would expose $58.87, the May 30 low. Initial resistance to watch is $71.20, the 50.0% retracement of the Jun 23 - 24 high-low range. Key resistance is at $78.40, the Jun 23 high.