US DATA: US-China Trade Fell Further In May Despite Mid-Month Truce [2/2]
- Looking by country, the pullback in goods exports was broad-based but most pronounced in China (from $8.6bn to $6.9bn, lowest since early 2010) and Switzerland (from an unusually high $9.1bn in April - likely on gold flows back to Europe judging by Comex inventories - to a still elevated $6.5bn).
- Exports to the EU were close to historical highs though, with the obvious caveat that this is a nominal measure, at $33.5bn or $32.0bn excluding Ireland (for consistency with imports, below).
- On the imports side, there are increasingly sustained declines from China ($20.9bn in May after $28.3bn in Apr, $34.9bn in Mar and $38bn in Feb vs average $36.6bn in 2024) with a continued decline despite the temporary de-escalation in trade announced May 12 after weekend talks in Geneva. Canada sees a less extreme version ($29.1bn in May after $29.0bn in Apr, $35.0bn in Mar and $38.0bn in Feb vs average $34.3bn in 2024).
- There has been no material moderation in imports from the EU (when looking ex-Ireland to try and control for pharma-specific swings) as EU officials appear increasingly resigned to a best case trade deal with a 10% baseline tariff. Imports from EU ex Ireland amounted to $42.7bn in May after $41.6bn in Feb and an average $41.9bn in 2024.
- Taking a step back, the latest three months to May (covering the peak deficit in March before the abrupt pullback) saw a goods & services trade deficit of 3.6% GDP vs the 3.0% GDP averaged in 2024.
- It’s entirely driven by goods (-4.6% GDP vs -4.1% GDP in 2024) whilst the services surplus holds steady (1.0% GDP vs 1.1% GDP in 2024).
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OUTLOOK: Price Signal Summary - Bullish Bund Theme Intact
- In the FI space, a bullish theme in Bund futures remains intact and the contract continues to trade at its recent highs. The latest recovery suggests the move down between Apr 22 - May 15, has been a correction. A continuation higher would strengthen the reversal and open 132.03, the Apr 7 high. Key short-term support to watch is 129.13, the May 15 low. First support lies at 130.39, the May 29 low.
- Gilt futures have recovered from their recent lows and strengthened this week, however, gains are still considered corrective and this has allowed a short-term oversold condition to unwind. The bear trigger has been defined at 90.11, the May 22 low. Key short-term resistance to watch is 91.87, the May 20 high. It has been pierced, a clear break of this level is required to highlight a stronger reversal.
EUROPEAN FISCAL: EU Opens EDP Against Austria
The EU has recommended opening an excessive deficit procedure against Austria. This isn't too surprising a development. Last month's press conference from finance minister Marterbauer detailed Austria's targets for a budget gap of 4.5% and 4.2% of GDP in 2025/26 and plans to reach the EU's 3% of GDP budget gap target only in 2028 - marking a sizeable deterioration from 2025 deficit estimates in the range of 3.3-3.8% GDP as recently as Apr 3rd.
Some highlights from the EU release:
- "The Commission Spring 2025 Forecast projects a general government deficit of 4.4% of GDP in 2025 and 4.2% in 2026. Government investment is projected to remain at 3.9% of GDP in 2025 and to increase to 4.0% in 2026. Based on the Commission’s estimates, the fiscal stance is projected to be contractionary, by 1.3% of GDP, in 2025. The growth in nationally financed primary current expenditure in 2025 is projected to provide a contractionary contribution to the fiscal stance, amounting to 0.9% of GDP".
- "Overall, the debt sustainability analysis indicates high risks over the medium term. The baseline debt trajectory is sensitive to macroeconomic shocks. According to the stochastic projections, which simulate a large range of possible temporary shocks to macroeconomic variables, there is a high likelihood that the debt ratio in 2029 will be higher than in 2024".
EU: Trade Comm Told USTR 50% Steel Tariff "Does Not Help Negotiations"
EU Trade Commissioner Maros Sefcovic speaking at a press briefing at the OECD trade ministerial in Paris. Says that the main message at the talks "is strong support for multi-lateral ties [and a] strong rules-based system." In a similar line to that taken earlier, Sefcovic says that he had a "substantive and constructive discussion" with USTR Jamieson Greer, and that these talks will continue. On the escalation in US steel tariffs to 50% (calls it a "surprise"), Sefcovic he said he discussed the matter with Greer and that he "told him we strongly regret it, and it does not help negotiations." Says talks with the US "are covering all the issues". Sefcovic: "We clearly have the same challenges as the US on steel, which is global overcapacity."
- Sefcovic: "I still believe in negotiations with the US [and] believe we can achieve a positive result, but [we] are ready to defend our interests." Says that discussions on EU countermeasures are ongoing, "We are following a rules-based procedure".
- On other nations:
- China: Sefcovic says he had a "focused" meeting with Chinese Commerce Minister Wang Wentao. Says "we are working hard to address issues and prepare for the July EU-China summit."
- India: Says that talks focused on agriculture will allow the trade negotiation process to advance further.
- Australia: Sefcovic says there has been "re-engagement in our free trade agreement negotiations" and he "believes we can achieve substantial progress this year."
