The US stock market continues to trade more like a cryptocurrency, with the Dow Jones Industrial Average up another 300 points at one point on Thursday to add to its 800-point rally off the lows on Wednesday. Unusually – certainly over the past couple of months - the higher equity market was accompanied by a higher US Dollar whose index against a basket of major currencies rose to a 5-week high of 90.15 as the EUR and GBP were both hit by softer economic data. By the end of the day, the USD just beat the CAD into top spot on our one-day performance table. As President Trump is reported this morning to be looking at an additional $100bn of tariffs on Chinese goods, futures markets are signaling a loss of around 200-points for the DJIA, though the USD index is steady at 90.05.
With all the focus on tariffs and trade over the past few weeks, Thursday brought a timely reminder of why President Trump is so agitated about the subject. The US trade deficit grew by 1.6% in February from $56.7bn to $57.6bn and was the highest monthly trade deficit in ten years, going back to the GFC in 2008. Exports of goods and services increased $3.5bn, or 1.7% , in February to $204.4bn. Exports of goods increased $3.0bn and exports of services increased $0.5bn. On the other side of the ledger, imports of goods and services increased slightly more in absolute dollar terms, by $4.4bn, or also 1.7% of total, in February to $262.0bn. Imports of goods increased $3.3bn and imports of services increased $1.1bn. When analysed by trading partner, the figures show surpluses, in billions of dollars, with South and Central America ($3.4), Hong Kong ($3.1), Brazil ($0.9), United Kingdom ($0.6), and Singapore ($0.5). Meanwhile, the countries with whom the US runs the largest trade deficit are China ($34.7), European Union ($15.3), Germany ($6.7), Mexico ($6.6), Japan ($6.0), Italy ($2.8), OPEC ($2.3), India ($1.9), Taiwan ($1.5), France ($1.4), South Korea ($1.1), Saudi Arabia ($0.4), and Canada ($0.4).
The President’s chief economic advisor did what he’s known best for and toured the TV studios to talk up the markets and produce some wildly optimistic US growth forecasts. He said on Fox Business that the US will get a trade deal with China "over a period of time" as the latest measures are "just proposals right now" and that barriers will come down on both sides. He also said that China's "unfair and illegal" actions that are "damaging to economic growth for the US, for China and for the rest of the world." Kudlow, who said the focus of his job is "growth", then added that the US economy might expand between 3% and 4% this year and that 5% growth is possible, but likely won't be sustained for long.” As far as Q1 is concerned, that’s not quite how things are shaping up. After the news on the trade deficit, the Atlanta Fed yesterday revised down its GDP forecast from 2.8% to 2.3%. Ahead of the March labor report later today, the USD index opens this morning in North America around 90.05.