Trade Deficit

• Fears Mount That Portugal Will Need a Second Bailout (WSJ)
• EU to Have No Deadline for End of Greek Talks (Bloomberg)
• Japan economy predicted to shrink in 2011 (AFP)
• Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
• Berlin ready to see stronger ‘firewall’ (FT)
• Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
• EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
• China's Oil Imports from Iran Jump (WSJ)
• Croatians vote Yes to join EU (FT)
• Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
• Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)

More reasons why quality blogs should be staple fodder for those who are serious about real information and analysis. Now reporters, editors, bankers, analysts, managers, politicos & regulators frequent blogs. Do you wonder why?

White House report claims credit for making America competitive with low-wage countries. But it wasn’t meant for the rank and file....

All you need to know.

Bloomberg headlines confirm the Chinese export-led growth dynamo is growing dimmer by the day:

• CHINA'S `NOT TOO OPTIMISTIC' ABOUT EXPORTS IN 2012, CHEN SAYS
• CHINA'S TRADE GROWTH MARGIN DECLINED IN DECEMBER, CHEN SAYS
• CHINA EXPORTS 2 PERCENTAGE POINTS LOWER IN EACH MONTH OF 4Q
• CHINA 2011 IMPORT GROWTH RATE 5 PCT POINTS HIGHER THAN EXPORTS
• CHINESE COMMERCE MINISTER CHEN DEMING SPEAKS AT GENEVA BRIEFING

Translation: the next several Chinese monthly surplus reports will not be pretty, and even more importantly, The Chinese trade defict, as predicted by Albert Edwards some time ago, is finally coming (read here, here and here). Lastly, it means the CNY is about to reverse: expect Congress to go nuts once China undergoes several weeks in a row of Renminbi devaluation. The trade war that will follow should be quite epic.

In today's weekly dose of BS from the BLS, we get the previous week's massive beat of 401K revised to 405K, cutting the 410K estimate beat in half. But what is important is that the expectation for this week of 405K was once again "massively beaten" by a whopping 1K at 404K. Of course, next week this number will be revised to 408K meaning the consensus was  missed but no robots will care. As for the non-noise, non seasonally adjusted claims soared by 66,442 in the week from 332,394 to 398,836. Spin cycle to commence imminently. In some modestly good news, the "cliffers", those on EUCs and Extended benefits, which have declined by 1.3 million in the prior year, increased modestly by 2K, meaning those playing Xbox and collecting benefits actually rose for the week. In other news, the Trade Balance came in line with expectations, at a deficit of 45.6 billion. However, last month's number which gave all the banks hope that Q3 GDP was going to be a whopping beat and got so many Lemmings to re-revise their GDP forecast higher, was reduced from -44.8 billion to -45.6 billion, meaning Q3 GDP is right back down where it belongs. Most notably, the Chinese trade deficit hit a politically convenient record, increasing from $27.0 billion in July to $29.0 billion in August. Exports increased $0.2 billion (primarily soybeans, fish and shellfish, and nonferrous metals) to $8.4 billion, while imports increased $2.2 billion (primarily other household goods and toys, games, and sporting goods) to $37.4 billion. Expect Chuck Schumer's head to explode in 5...4...3...

Prepare for two consecutive quarters of sub 1% GDP. The culprit: the surge in the June trade deficit which came earlier at $53.1 billion, far, far higher than expectations of $48 billion, and much worse than the May $50.8 billion which also was a major downside miss. So following the revised 0.4% GDP in Q1, we are about to get a second revision to Q2 GDP that will bring it below 0.9%. And Obama bitches at the S&P for not believing (as neither does his former budget chief Orszag) that America will grow at a rate of 5% for the next decade.

When we reported on the record surge in Chinese exports over the weekend we said that "the official read of the US trade deficit which will be reported on
Tuesday, will almost certainly spike, pushing GDP expectations lower yet
again." Sure enough, the US May trade deficit just exploded to $50.2 billion, far above the consensus of $44.1 billion, and much worse than April's revised $43.6 billion. Imports, not surprisingly, surged to an all time high $225.1 billion with exports lagging, even despite the relatively weak dollar in May, which declined modestly to $174.9 billion. From the report: "The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $174.9 billion and imports of $225.1 billion resulted in a goods and services deficit of $50.2 billion, up from $43.6 billion in April, revised. May exports were $1.0 billion less than April exports of $175.8 billion. May imports were $5.6 billion more than April imports of $219.4 billion." Accoding to Bloomberg's Brusuelas, the key culprits were petroleum and industrial supplies. For those wondering what America exports and imports: "In May, the goods deficit increased $6.7 billion from April to $64.9 billion, and the services surplus increased $0.1 billion to $14.7 billion." So why do people care about the manufacturing CPI again? Bottom line: the bean counters will now be forced to revise their Q2 GDP forecasts well lower. And while Q2 is now a scratch, the problem is that this weakness is now continuing into Q3.

Busy economic calendar with two notable bond auctions out of the US Treasury.

For those who may not have noticed it, the headline says "deficit" and pertains to Japan: once upon a time a booming export economy. The reason: the ongoing collapse in export trade, after May exports dropped by 10.3% from a year ago, and just better than April severe economic contraction of 12.4%. Consensus was for an 8.4% decline. The net result was a monthly deficit of 853.7 billion yen, or $10.7 billion, the second biggest inverse surplus ever. And just like in Europe, where things are going to go from insolvent to perfectly solvent any minute now... just not yet... so in Japan the economic renaissance which will cause the economy to surge (unclear how: no new monetary stimulus, and the recently announced fiscal stimulus of Y500 billion in new loans will do precisely nothing to boost anything except for some corrupt bureaucrats Swiss bank accounts) is coming any minute.... just not yet. Bloomberg says: "Shortages of power and parts have disrupted production and slowed overseas sales, prompting Japanese companies including Honda Motor Co. to forecast weaker earnings. Higher unemployment in the U.S. and weakening demand in Asia indicate Japan won’t be able to rely on global demand to pull itself out of a slump caused by the quake." And the understatement of the weekend comes from BNP economist Azusa Kato: "The state of the global economy is a little worrying. Both the U.S. and Europe aren’t doing that great and emerging economies are also tightening at an incredible pace, increasing uncertainty." Surely this enough is enough to explain why futures are up, since the Fed has no option but to do QE3. Alas, as the dumber by the minute algos continue to not realize, the market has to plunge from here (just like what crude has been doing for the past 2 weeks), before the Fed gets the greenlight to engage in Operation Twist 2.

And just as Citigroup predicted, US imports surge even as US exports jump to a record $172.7 billion. But the story is once again in the GDP reducing imports which jump by a whopping $220.8 billion, a $10.4 billion jump M/M. The total deficit of $48.2 billion is the highest since the June 2010 spike which hit $49.9 billion. From the release: "Exports increased to $172.7 billion in March from $165.0 billion in February. Goods were $124.9 billion in March, up from $117.8 billion in February, and services were $47.7 billion in March, up from $47.2 billion in February. Imports increased to $220.8 billion in March from $210.4 billion in February. Goods were $187.0 billion in March, up from $176.9 billion in February, and services were $33.8 billion in March, up from $33.5 billion in February. For goods, the deficit was $62.1 billion in March, up from $59.1 billion in February. For services, the surplus was $13.9 billion, up from $13.7 billion in February." Ah, financial innovation being exported as per usual. Look for another round of Q1 GDP downgrades as this number takes out a few basis points in growth. As we know from China that April exports to the US jumped even more, this import surge will likely carry over into Q2 and result in more GDP cuts.

Recently Jan Hatzius cut his Q1 GDP as was reported first on Zero Hedge, to 2.5%, even as the Goldman chief economist is still (we give it 2 weeks) keeping his FYE GDP outlook constant (who says bulge brackets don't believe in hockeysticks). Following the just released ugly trade data which as we suspected would lead to even more GDP downgrades, Dudley's successor is out with yet another warning that should come as manna from heaven to those who continue to believe in non-dilutable assets: "Through February, the trade data suggest a large drag on GDP growth in the first quarter and suggest downside risk to our 2.5% forecast." Gee whiz, Jan, if Q1 when the bulk of the tax stimulus is concentrated (which was the reason for Goldman's December bullish 180 on the economy) is unable to post an economic improvement, what is left for the rest of the year, when no more fiscal stimulus is projected, and when, gulp, QE3 is ending? We can't wait to hear your explanation for this.

Another month, and another confirmation that the US export segment is non-existent. In February the US posted a $45.8 billion trade deficit compared to $47 billion in January, but worse than expectations of $44 billion. Importing our way to prosperity and #Winning_the_Future continues. Comparing the Chinese reported trade surplus with the US and the US reported trade deficit with China we get just a 100%+ difference: $7.8 billion versus $18.8 billion. Gotta love two administrations that just make up numbers trying to reconcile their fraud. This number also means that Q1 GDP will see another major revision lower. And so will Q2, Q3 and so forth, leading to QE3. And while we are at it, let's just make it stagflation: the US import price index surged from 1.4% to 2.7% on expectations of 2.1%: the largest rise since June 2009.

And another piece of bad news for both the US economy and US exporters in particular, even despite prevailing dollar weakness over the past several months: the January US trade deficit printed at $46.3 billion, on imports of $214.1 billion ($10.5 billion higher M/M) and exports of $167.7 billion ($4.4 billion higher). This was the worst number since August 2010. The December deficit was revised to $40.3 billion from $40.6 billion. The December to January increase in imports of goods reflected increases in industrial supplies and materials ($4.4 billion); automotive vehicles, parts, and engines ($2.7 billion); capital goods ($2.1 billion); consumer goods ($0.9 billion); and foods, feeds, and beverages ($0.5 billion). A decrease occurred in other goods ($0.6 billion). The December to January increase in exports of goods reflected increases in industrial supplies and materials ($3.7 billion); automotive vehicles, parts, and engines ($1.3 billion); and foods, feeds, and beverages ($0.1 billion). Decreases occurred in consumer goods ($0.6 billion); capital goods ($0.4 billion); and other goods ($0.3 billion). And unfortunately for Wall Street, few are importing US financial innovation any more: "Services exports increased $0.5 billion from December to January." So how much lower does the dollar have to plunge before someone actually starts importing US goods? And an amusing discrepancy: according to the US, the January trade deficit with China was $23.3 billion. According to China, the trade surplus with the US in January was $13.6. Just 100% off between two departments of truth. Due to notable weighting of trade data in GDP calculations, look for another round of downward GDP revisions. The Goldman spin is becoming increasingly difficult at this point. Next up: Next up: Hatzius on the Dudley hotline asking for instructions?

Today at 8:30 am the US trade deficit for December will be revealed. The consensus is $40.5 billion. Yet the final number could come well worse of even the bleakest expectations. Citi's Stephen Englander looks at export patterns by key trading partners and concludes "that the risk of a big negative surprise and a number beyond the pessimistic Citi forecast is not out of the question. We already have indications from a number of US trading partners about their exports to the US and these indications point to a sharp surge in US imports." In addition to the logical substantial deterioration to GDP numbers, a surge in the trade deficit would have one other key consequence, namely that "a deterioration in US trade performance, if it persists, would suggest that much of the direct impact of QE2 was spilling abroad." In other words QE worked... Just not for the US. Look for a sharp drop in the dollar if Englander is proven true.