The larger than expected US trade deficit widening to $50.1 bln in July, followed downward revisions in all the 2018 trade deficits, leaving oscillations below a revised $55.0 (was $55.5) bln cycle-high in February. The July gap was $0.3 bln wider than indicated by the “advance” trade report thanks to a larger downward revision in exports than imports. A boost in Q2 GDP growth to 4.3% is expected from 4.2%, with a $1 bln offsetting downward bumps for both exports and imports, alongside a $3 bln boost in construction. The GDP is expected to growth of 3.5% in Q3, with a $51 (was $48) bln net export subtraction after a $58.6 bln addition in Q2.

Meanwhile, the real export is anticipating a growth of -3% in Q3 after an estimated 8.9% (was 9.1%) Q2 surge, and a 4% Q3 growth rate for real imports after a -0.5% (was -0.4%) Q2 clip.US goods exports fell in July after robust Q2 levels thanks partly to efforts to ship goods before new tariffs. Strength was seen in Q2 exports of food and capital equipment before July declines, while consumer goods exports fell into June and July after elevated levels since February. Consumer goods imports posted a July drop after a June pop.

Therefore, a widening in the current account deficit to $112.3 bln has been forecast in Q3, after falling to an estimated $103.3 bln in Q2 from $124.1 bln gap in Q1 that is likely to be revised lower. An annual current account gap of $447 bln is expected in 2018, after a $449 bln expansion-high in 2017.

The Dollar was little changed after the in-line trade report, however politics where the ones that have driven the market in the last hour. Treasury yields and USDJPY have bounced up to 111.70 with those of bunds and the Cable after reports that the UK and Germany have dropped key Brexit demands.

The Cable rallied 150 points to just under 1.2980 on Bloomberg reports that Germany has agreed to drop key Brexit demands, perhaps paving the way to a deal. Germany is apparently set to accept a less detailed agreement. The Cable had bottomed at 1.2786 into the NY open.

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Andria Pichidi

Market Analyst


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US trade gap widened to -$50.1 bln