A return to ‘normal’ trade levels is
far away but movement towards those levels has both positive
and negative implications.
On the positive side, it is a reflection of economic
healing both in the
U.S.
and abroad. On
the negative side, it is likely a return to chronic trade
deficits that weaken the U.S. dollar and increase the
holdings of
U.S.
debt abroad. For
better or for worse, the June trade figures released today
point to a solid stabilization in trade if not the beginning
of a recovery but no such trend is evident elsewhere.
How can this be reconciled with asset
markets (stocks and commodities) in an upward trend?
First asset markets are a reflection of investor
confidence of the future.
Mostly, though, you can credit corporate behavior in
the face of adverse conditions.
The latest round of quarterly earnings in the U.S. (reflecting the quarter from
April to June ‘09) was a series of surprises to the upside.
Profits recovered not because of revenue growth but
because of cost reductions.
Global trade is more closely correlated
to corporate revenues rather than profits.
With that trade at best trending flat, revenues will
remain stagnant.
Around the globe, costs for millions of workers have been
shifted from corporate to government expenses.
This has improved corporate profits but also caused
government deficits to balloon around the world.
We have simply shifted a portion of the workforce
from one set of books (corporations) to another (government
unemployment).
EU trade is still sliding.
Trade to and from the European Union followed a
pattern of declines from October ’08 through February of
this year similar to the U.S.
However, after an uptick in March, European external
trade has continued to slide.
Detailed figures are only available through May but
preliminary retail trade figures show another 2% drop in the
EU zone. This
suggests that a bottom had not been reached through June
’09.
European financial institutions have
historically operated with leverage levels that are even
higher than American banks.
In addition to the deleveraging that must go on in
Europe (along with the U.S.),
Eastern Europe remains a particularly weak.
The Baltic states of Estonia, Latvia,
and Lithuania,
for example, are suffering the hangover from a
property-bubble and lending spree that makes the
U.S.
subprime mess look tame.
The strong Euro, to which these countries peg their
currencies’, only hastens the problem. While these three are
not EU countries, their plight has affect on their EU neighboors.
Canadian trade surplus is no more.
Canada has served as a model for
fiscal soundness and financial regulation during much of
this decade.
CIBC (CM)
was the only major Canadian bank to see write downs on par
with its American and European peers.
With surpluses in trade and government finances, it
is hard to take issue with the Canadian economy.
However, the last year has shown that Canada
had been capitalizing on positive global trends through 2008
rather than uniquely positioned in some way.
Rising prices in commodities and energy
throughout much of the decade has boosted exports.
Canada,
not the Middle East, is the largest supplier of energy to
the U.S. This
combined with easy access to the American consumer through
NAFTA has allowed Canada to run a
current account balance all years of this decade through
2008. That
surplus in trade has evaporated and overall trade with
Canada
remains in a downward trend.
Chinese surplus is can’t keep
Australian exports rising.
A few months ago,
I wrote about the impressive contrarian trend in
Australian exports led by raw materials shipments to
China.
That trend peaked in March and Australian exports are
hitting new lows for the year despite shipments to China running at
rates far above those of 2008.
Australia, so
far about the only industrialized nation to skirt a serious
recession, benefited from a strong rebound in most metals
prices this year.
Now, in addition to slack demand around the globe,
they face two recent problems.
First, the stockpiling of raw materials in China has run its course.
Going forward, demand for its iron ore and coal will
be more closely linked to what Chinese factors produce and
sell rather than what they accumulate.
Secondly, the contentious price negotiations between
Australian miners and Chinese steel mills have concluded
with price concessions of more than a third.
BHP Billiton’s (BHP)
earnings released today reflected as much.
Japanese trade has recovered some
yet remains very weak.
Japanese exports have taken the largest plunge of any of
the large exporting nations, down 54% from peak to trough.
Despite a recovery to the ¥4 trillion level, each month
this year has been running at a minimum of 40% decline from the
prior year period. Japan is exporting at levels not
seen since 2003. By
comparison U.S. and EU
monthly exports are on par with figures from 2006 and 2005
respectively.
With Japanese exports so dominated by
automobile shipments to the United States, I would expect to see
export numbers pick up further by the end of the summer.
This would simply be on the back of the successful ‘Cash
for Clunkers’ stimulus program in the U.S.
Companies like Toyota (TM) benefited greatly from the
program. But as that
program has a finite budget, the likelihood of a sustain
recovery is far from certain.
Japan is a large exporter of complex materials to
China
such as chemicals, plastics, and manufactured steel.
Such shipments remain off 15% to 30% of 2007 peak levels
despite robust Chinese growth.
If the first-in, first-out argument is correct, the United States will be the first of
the industrialized nations to emerge from the recession.
Global trade is just one indicator but it is one less
susceptible to questionable government assumptions.
There are no price deflators (used in GDP calculations)
or assumptions about number of workers that have left the
workforce (used for unemployment calculations).
Trade figures reflect no ‘V-shaped’ recovery or apparent
boost from inventory rebuilding.
However, of the industrialized countries, the
U.S.
is showing signs of stabilization and possible rebound.
Trade of other industrialized nations remains in a
downward trend through May or June.
Disclosure: No Positions
Global Trade Indicates the
U.S.
Is Leading OECD in Recovery
August 12, 2009
by
Bryan Banish
From the enthusiasm of the equity markets
in the last few months, one would think that the global economy
has gotten back onto its feet.
In
my last look at global trade, the
U.S.
had been showing signs of stabilizing at about $200 billion
dollars per month. Through
the first five months of the year, exports of
U.S.
goods are down 22% to roughly an $80 billion monthly rate while
imports have dropped more than 30% to a rate of $120 billion per
month. While the U.S. numbers appear to have
stabilized including an uptick in June, trade figures for other
industrialized nations have declined since March.
