Trade gap narrows as import/export mix tips towards imports

Old stock and depot equipment from Shipping Container Rentals will go under the hammer.
Old stock and depot equipment from Shipping Container Rentals will go under the hammer. Contributed


The trade gap deteriorated in October to $529mn, from $271mn in September. Exports slipped 0.1% and imports rose 0.8% in October.

The slight fall in exports was the first drop in four months. However, the annual pace of export growth continues to outpace import growth. Exports grew at the strongest annual pace in more than 2 ½ years.

Share Markets: 

Good news was treated as bad news once again in share markets, as stronger-than-expected economic growth raised expectations the Federal Reserve could taper its quantitative easing program sooner rather than later.

This was despite the detail for GDP data being less impressive and a Fed official downplaying the outcome (see below for more details).

US equities fell for a fifth straight session with the Dow and S&P500 falling 0.4% and the Nasdaq losing 0.1%.


US treasuries fell (yields rose) on growing expectations the Federal Reserve will start to slow its monthly asset purchases.

Yields on 10-year bonds rose to their highest in three months. Although yields remain lower than what they were when markets were strongly expecting the Fed would taper in September, bond markets are "pricing in" an increasing chance that it could occur in coming months.

Foreign Exchange:

Despite growing expectations of Fed tapering, the US dollar failed to gain against the major currencies.

The euro rose to its highest in five weeks against the US dollar, after the ECB left interest rates unchanged Draghi failed to signal further easing measures.

The AUD hovered just above a near three-month low for most of the overnight session, but recovered slightly to 0.907.


Commodity prices were broadly weaker, as the prospect of Federal Reserve tapering weighed on metals including gold and copper.

Gold prices dropped 1 per cent in volatile trade. Expectations of stronger demand however helped offset worries of Federal Reserve tapering and provided support for oil prices. 


The European Central Bank (ECB) left rates on hold at 0.25%.

At the press conference, ECB chief Draghi updated the staff's 2014 GDP forecast for the Eurozone, little changed at 1.1% with further acceleration to 1.5% forecast for 2015. Risks were still assessed to be to the downside.

Draghi "confirmed forward guidance that ... key ECB interest rates [would] remain at present or lower levels for an extended period of time".

United Kingdom:

The Bank of England (BoE) left both rates and its asset purchase program unchanged. There was little detail in its statement. 

United States:

US GDP growth was revised up from 2.8% to 3.6% annualised in Q3, better than consensus forecasts of 3.1%.

Although an impressive result, the test for the US economy will be GDP data in Q4, when the shutdown and fiscal showdown is expected to weigh on growth.

The detail in Q3 was less positive as the upward revision was from stock-building - inventories contributed 1.7 percentage points. Given that a large proportion of growth was driven by inventories rather than demand, it increases the risk of weaker GDP data in Q4. 

Personal consumption growth was revised down a tick to 1.4%, its slowest growth rate yet of the post 2009 recovery. Growth in business investment (equipment) was revised up from -3.7% to 0.0%; housing was revised down slightly to a still solid 13.0% and exports and imports growth were revised lower/higher respectively.

Atlanta Fed President Lockhart (a non-voting member) has said that "The strong third quarter doesn't make a trend" and highlighted that estimates for fourth quarter growth were "pretty low".

In other data, factory orders fell 0.9% in October, indicating business investment did not begin Q4 too well.

US initial jobless claims fell 23k to 298k in the week ending 29 November, although this data might have been distorted as it was around the holiday period.

Topics:  economy exports finance imports st george terms of trade

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