US DATA: Strong Domestic Demand, Investment Underpin Wide Trade Deficit
Jan-07 14:55
November's trade deficit - incorporating both goods and services - came in almost exactly in line with expectations at $78.2B (a little higher than October's, which was revised $0.2B lower at $73.6B).
- Imports rose sharply in nominal terms ($11.6B, biggest increase in 2.5 years), and on a broad-based basis with all categories of imports increasing - reflecting a rebound in a dip in October imports, but also potentially reflecting some front-running of possible Trump administration tariffs.
- We also note that "other" goods exports contracted sharply in November (around one-third), reflecting methodological issues with the Canadian customs authorities after a 75% jump in Oct, and which are likely to be revised out of the series with an annual benchmarking later this year.
- By our estimates, the deficit as a percent of GDP remains above 3.0%, where it has stood since April (after briefly dipping below that mark in 2023), with a roughly 1% of GDP services surplus offsetting a 4.1% goods deficit.
- While the wide trade deficit is to be expected given such robust domestic demand, so far, the external sector's impact on Q4 GDP growth is tracking to be relatively neutral vs Q3. Real goods trade continues to grow at a solid clip, with real exports up 4.9% Y/Y and imports 8.2%.
- Real goods exports momentum appears to be slowing though, falling by 2.5% in November on a quarterly annualized basis (weakest since Q2 2023), even as imports remain robust (rising 4.6% on that basis in November). Though again, the Canadian export figures may be distorting the picture.
- Within the latter we note that while both consumer and capital goods imports are growing at a solid clip (over 12% Y/Y each in November), capital goods have exceeded consumer goods for most of the last 2.5 years.
- As we have written many times, we see capital goods demand as being broadly positive for longer-term growth dynamics, but the degree to which tariff front-running is affecting the propensity to import is unclear.
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MNI UST Issuance Deep Dive: Dec 2024 (2/2)
Dec-06 21:53
Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.
- Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
- Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
- MNI's review includes a calendar of upcoming auctions and buyback operations.
US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024 (1/2)
Dec-06 21:51
MNI's latest US Treasury Issuance Deep Dive has just been published (PDF link here):
November proved a dramatic month for Treasuries. Yields were volatile before and after the Nov 5 election - after ending October at 4.28%, 10Y yields peaked at five-and-a-half-month high just above 4.50% mid-month before closing November just below 4.18%, as markets attempted to price in the implications of a Republican “sweep”.
- Also buffeting rates was speculation over the would-be successor to Treasury Secretary Yellen. President-elect Trump’s selection of hedge fund manager Scott Bessent was greeted with bull flattening in the curve, implying perhaps that he’s seen as more cautious on fiscal deficits than some of the alternatives (he has expressed support for halving the annual budget shortfall to 3% of GDP).
- The first quarterly Refunding process of Bessent’s Treasury is in early February, by which point we may start to have a better sense of the incoming administration’s approach to both fiscal policy and to more issuance-specific considerations such as duration management.
- Bessent for instance has argued that Yellen’s Treasury erred from a risk management perspective by boosting short-duration issuance, and there are suggestions he would be in favor of reversing course, telling Bloomberg in June “When rates are very low, you should extend duration…I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”
US LABOR MARKET: MNI US Employment Insight: Soft Enough To Keep Fed Cutting
Dec-06 21:05
Our latest Employment Insight has just been published and emailed to subscribers.
