Daily Commentary BY THE CURVE TEAM –

Trade Balance Numbers & Trump At It Again

9th of March, 2018

We take a deeper look into yesterday’s domestic trade balance numbers for January, while there is a chance that Trump might actually follow through with one of his many promises…

Australia’s trade balance on goods and services for the month of January was a surplus of $1,055m. This represents a turnaround of about $2,200m on the December 2017 deficit, which halted the run of seven months in a row of surplus (see graph attached). Trade balance surplus was a theme in 2017 but it is interesting to note that prior to this run we had 31 months in a row of deficit, originating in the early months in 2014.

Diving into the nuts and bolts of the balance, a big contributor to the strong exports number was non-monetary gold, up 54% in January to $2,198m. Non-rural goods on a seasonally adjusted basis drew a robust number, with a big increase in transport equipment, albeit on a percentage basis.

January’s debits were fairly steady but consumption goods fell 7% in seasonally-adjusted terms. The main detractors were textiles, clothing and footwear, down 14%.

In the US, Trump’s proposed tariffs on steel and aluminium have been highly publicised over the last few days. The President is due to host a meeting tonight with the intention of finalising his tariff proposal. The timeline of the meeting has the potential to stretch into next week due to the legal intricacies of the deal.

Trump made a promise to exclude Australia from any imposed tariffs during a meeting with Prime Minister Turnbull last year, largely based on our strong military ties. Another possible reason might be the fact the US runs a trade surplus with Australia, despite the US trade deficit currently running at a nine-year high.

It was said on Monday that there would be no country exclusions on the proposed tariffs. However, President Trump overnight indicated there may well be a few exclusions, notably Canada & Mexico. The door is still ajar for Australia as we wait to hear more news but as White House spokeswoman Sarah Sanders said, “it will be country by country, based on national security.”

In terms of data to watch out for tonight, the US non-farm payrolls report will add to the current narrative regarding growth, unemployment and wages.

James Winder

Associate Director - Interest Rate Markets