U.S. trade gap edges up; deficit with China at 11-month high
The U.S. trade deficit increased less than expected in July as both exports and imports fell, suggesting that trade could contribute to economic growth in the third quarter. The Commerce Department said on Wednesday the trade gap rose 0.3 percent to $43.7 billion. June’s trade deficit was revised down slightly to $43.5 billion from the previously reported $43.6 billion. Economists polled by Reuters had forecast the trade shortfall widening to $44.6 billion in July. When adjusted for inflation, the trade deficit increased to $61.6 billion from $60.8 billion in June. The so-called real goods deficit in July was below the second-quarter average of $62.4 billion. While that suggests trade could add to gross product in the third quarter, economists at Wrightson ICAP cautioned that Hurricane Harvey could significantly impact commodity prices and trade volumes, and push up the trade deficit in September. The politically sensitive U.S.-China trade deficit increased to an 11-month high in July. That ongoing deficit has grabbed the attention of President Donald Trump, who has blamed it for helping to decimate U.S. factory jobs as well as stunting U.S. economic growth.
Japan’s second quarter GDP seen revised down on smaller capex gains
Japan’s economy likely grew at a slower pace than initially estimated in the second quarter, on expected downward revisions in capital spending growth, a Reuters poll showed on Wednesday. The world’s third-largest economy is seen expanding at an annualized pace of 2.9 percent in April-June, the poll of 17 analysts found, which would be a significant downward revision from the 4.0 percent growth seen in the preliminary data. That would translate into 0.7 percent growth from the previous quarter, revised down from an initial reading of 1.0 percent, the poll showed. “Capital spending is likely be revised down. But overall, the economy maintained its high rate of growth helped by consumer spending and public investment,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. He expects the economy will continue its recovery in July-September and after. “Both domestic and external demand will likely perform well thanks to the global economic recovery. But we need to watch downside risks from China’s economy and a possible downturn in consumer spending due to bad weather.”
Euro zone bond yields drift back up on firmer oil, ECB caution
Euro zone bond yields drifted higher on Wednesday, reversing early falls, as the impact of strong gains in the U.S. bond market faded and focus turned to higher oil prices and the need for caution a day before a keenly anticipated ECB meeting. U.S. Treasury yields fell to almost 10-month lows on Tuesday as worries about further nuclear tests by North Korea and the impact of powerful storm Irma sparked demand for safe-haven assets. When a bond yield falls, its price rises. That provided a positive backdrop for European bond markets, with German 10-year yields hitting their lowest levels in just over a week in early trade. But as the session wore on, bond yields across the bloc reversed course, rising 1-2 basis points. Analysts said a rise in oil prices helped explain the move. Brent crude oil prices rose almost 1 percent to their highest levels since May as strong global refining margins and the reopening of U.S. Gulf Coast refineries provided a more bullish outlook after sharp drops due to Storm Harvey. “We’ve got the oil price higher, which is something that is often consistent with a move higher in bond yields,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “After such a significant downward move in U.S. Treasury yields, there’s also a bit of retracement there.” Germany’s 10-year bond yield was up 1 basis point at 0.35 percent, up from one-week lows hit earlier at 0.325 percent.