Tag Archives: Exports

Energy products boost U.S. import prices in January

shipping containers

WASHINGTON (Reuters) – U.S. import prices rose more than expected in January amid further gains in the cost of energy products, but a strong dollar continued to dampen underlying imported inflation.

The Labor Department said on Friday import prices increased 0.4 percent last month after an upwardly revised 0.5 percent rise in December. In the 12 months through January, import prices jumped 3.7 percent, the largest gain since February 2012, after advancing 2.0 percent in December.

Economists polled by Reuters had forecast import prices gaining 0.2 percent last month after a previously reported 0.4 percent increase in December.

The dollar extended gains against the euro on the data, while prices for U.S. government debt fell.

Import prices are rising as firming global demand lifts prices for oil and other commodities, but the spillover to a broader increase in inflation is being limited by dollar strength.

The dollar gained 4.4 percent against the currencies of the United States’ main trading partners in 2016, with most of the appreciation occurring in last months of the year.

This suggests that the greenback will continue to depress imported inflation in the near-term even though the dollar has weakened 2.9 percent on a trade-weighted basis this year.

Prices for imported fuels increased 5.8 percent last month

after rising 6.6 percent in December. Import prices excluding fuels fell 0.2 percent following a 0.1 percent dip the prior

month. The cost of imported food dropped 1.3 percent after declining 1.5 percent in December.

Prices for imported capital goods edged down 0.1 percent after being unchanged in December. The cost of imported automobiles dropped 0.5 percent, the biggest decline since January 2015.

Imported consumer goods prices excluding automobiles fell 0.1 percent last month after sliding 0.2 percent in December.

The report also showed export prices ticking up 0.1 percent

in January after increasing 0.4 percent in December.

Export prices were up 2.3 percent from a year ago. That was the biggest increase since January 2012 and followed a 1.3 percent advance in December.

Prices for agricultural exports dipped 0.1 percent last month as falling prices for soybeans offset higher prices for corn. Agricultural export prices fell 0.2 percent in December.

Prices for industrial supplies and materials exports rose for a second straight month in January.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

China Jan FX reserves fall below $3 trillion for first time in nearly 6 years

dollar sign next to other currencies representing economy

By Kevin Yao

BEIJING (Reuters) – China’s foreign exchange reserves unexpectedly fell below the closely watched $3 trillion level in January for the first time in nearly six years, though tighter regulatory controls appeared to making some progress in slowing capital outflows.

China has taken a raft of steps in recent months to make it harder to move money out of the country and to reassert a grip on its faltering currency, even as U.S. President Donald Trump steps up accusations that Beijing is keeping the yuan too cheap.

Reserves fell $12.3 billion in January to $2.998 trillion, more than the $10.5 billion that economists polled by Reuters had expected.

While the $3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling over the speed at which the country is depleting its ammunition, sowing doubts over how much longer authorities can afford to defend both the currency and its reserves.

Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the yuan as it did in 2015, which could throw global financial markets into turmoil and stoke political tensions with the new U.S. administration.

While Beijing quickly downplayed the fall below the $3 trillion level, the breach could bolster China’s argument that it not deliberately devaluing its currency, ahead of the U.S. Treasury’s semi-annual report in April on currency manipulators.

To be sure, the January decline was much smaller than the $41 billion reported in December, and was the smallest in seven months, indicating China’s renewed crackdown on outflows appears to be working, at least for now.

Economists expect more forceful policing of existing regulatory controls after the latest slide, though China’s financial system is notoriously porous, with speculators quickly able to find new channels to get funds out of the country.

“With FX reserves below $3 trillion, we can expect capital controls as well as tightening yuan liquidity to continue, as the authorities try to avoid a further drawdown,” said Chester Liaw, an economist at Forecast Pte Ltd in Singapore, referring the central bank’s surprise hike in short-term interest rates on Friday.

While the world’s second-largest economy still has the largest stash of forex reserves by far, it has burned through over half a trillion dollars since August 2015, when it stunned global investors by devaluing the yuan.

The yuan <CNY=CFXS> fell 6.6 percent against a surging dollar in 2016, its biggest annual drop since 1994.

The crackdown is threatening to squeeze legitimate business outflows from China as well, with some European companies reporting recently that dividend payments have been put on hold and Chinese firms having a tougher time winning approval for overseas acquisitions.

“In their efforts to reduce outflows, the authorities have so far avoided contentious, high profile measures such as formally re-imposing restrictions on outflows or re-introducing

rules on the sale of U.S. dollar receipts by exporters, for fear of damaging the reputation of China’s reform process,” said Louis Kuijs, head of Asia Economics at Oxford Economics.

“Our analysis suggests, however, that they are likely to end up taking such steps eventually.”

COULD HAVE BEEN WORSE?

The drop in January’s reserves would have been worse if not for a sudden reversal in the surging U.S. dollar in January, some analysts said. The softer dollar boosted the value of non-dollar currencies that Beijing holds.

“Based on our calculation, the FX valuation effect alone would lead to a sizeable increase of reserves by US$28 billion,” economists at Citi said in a note.

However, despite tighter capital curbs and a bounce in the yuan, Citi estimated net capital outflows still intensified to nearly $71 billion in January from $51 billion in December.

Adding to the pressure, many Chinese may have exchanged yuan for dollars and other currencies to travel overseas during the long Lunar New Year holidays.

“Today’s FX reserve number suggests that the authorities are willing to trade a relatively stable yuan-dollar exchange rate for falling FX reserves because of financial stability concerns,” the economists at Citi added.

The yuan has gained nearly 1 percent against the dollar so far this year.

But currency strategists polled by Reuters expect it will resume its descent soon, falling to near-decade lows, especially if the U.S. continues to raise interest rates, which would trigger fresh capital outflows from emerging economies such as China and test Beijing’s enhanced capital controls.

The drop in reserves in January was mainly due to interventions by the central bank as it sold foreign currencies and bought yuan, China’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), said in a statement.

But SAFE said that changes in China’s reserves were normal and the market should not pay too much attention to the $3 trillion level.

HOW LOW CAN THEY GO?

While estimates vary widely, some analysts believe China needs to retain a minimum of $2.6 trillion to $2.8 trillion under the International Monetary Fund’s (IMF’s) adequacy measures.

If the dollar’s rally gets back on track, fears of a yuan devaluation would likely spark more intense capital flight.

“The fact that China holds less than $3 trillion in reserves right now means that China has to rethink its intervention strategy,” said Zhou Hao, a senior emerging markets economist at Commerzbank in Singapore.

It does not make much sense to keep sharply draining reserves if market expectations of further yuan weakness are unlikely to change, he added.

(Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Kim Coghill)

U.S. trade deficit falls as exports hit more than 1-1/2 year high

Freighters and cargo containers ready for trade

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. trade deficit fell more than expected in December as exports rose to their highest level in more than 1-1/2 years, outpacing an increase in imports.

The Commerce Department said on Tuesday the trade gap dropped 3.2 percent to $44.3 billion, ending two straight months of increases. The trade deficit rose 0.4 percent to a four-year high of $502.3 billion in 2016. That represented 2.7 percent of gross domestic product, down from 2.8 percent in 2015.

The Trump administration is targeting trade in its quest to boost economic growth. President Donald Trump has vowed to make sweeping changes to U.S. trade policy, starting with pulling out of the 12-nation Trans-Pacific Partnership trade pact.

Trump also wants to renegotiate the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico. Economists, however, warn that the America-first or protectionist policies being pursued by the administration are a threat the country’s economic health.

Economists polled by Reuters had forecast the trade gap slipping to $45.0 billion in December.

When adjusted for inflation, the deficit decreased to $62.3 billion from $63.9 billion in November. The improvement in the deficit at the end of the year could set up trade to be a modest drag on growth in the first quarter.

U.S. financial markets were little moved by the report as the government published an estimate of the goods deficit last month. Trade slashed 1.7 percentage points from gross domestic product in the fourth quarter, leaving output rising at a 1.9 percent annualized rate. The economy grew at a 3.5 percent pace in the third quarter.

EXPORTS INCREASE BROADLY

In December, exports of goods and services increased 2.7 percent to $190.7 billion, the highest since April 2015, as shipments of advanced technology goods such as aerospace, biotechnology and electronics, hit a record high.

There were increases in exports of industrial supplies and materials, capital goods, consumer goods and motor vehicles.

Still, exports remain constrained by relentless dollar strength. The dollar gained 4.4 percent against the currencies of the United States’ main trading partners last year.

Exports to the European Union jumped 10.1 percent, with goods shipped to Germany surging 12.4 percent.

A Trump trade adviser has accused Germany of unfairly benefiting from a weak euro. Exports to China, another sore point for Trump, fell 4.1 percent.

Imports of goods and services rose 1.5 percent to $235.0

billion in December, the highest level since March 2015. Part of the increase in the import bill reflects higher oil prices, as well as strengthening domestic demand.

The price of imported crude oil averaged $41.45 in December, the highest since September 2015. Food imports hit a record high, as did those of motor vehicles.

Imports of goods from China fell 7.6 percent in December. Germany saw a 1.4 percent increase in merchandise shipped to the United States in December.

With both exports and imports falling, the politically sensitive U.S.-China trade deficit dropped 9.0 percent to $27.8 billion in December. The trade deficit with China decreased $20.1 billion to $347.0 billion in 2016.

The trade gap with Germany declined 6.2 percent to $5.3 billion in December. The trade deficit with Germany narrowed $10.0 billion to $64.9 billion last year.

The United States also saw big declines in its trade deficits with Canada and Mexico in December.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

China posts worst export fall since 2009 as fears of U.S. trade war loom

Container boxes at Chinese port

By Elias Glenn and Sue-Lin Wong

BEIJING (Reuters) – China’s massive export engine sputtered for the second year in a row in 2016, with shipments falling in the face of persistently weak global demand and officials voicing fears of a trade war with the United States that is clouding the outlook for 2017.

In one week, China’s leaders will see if President-elect Donald Trump makes good on a campaign pledge to brand Beijing a currency manipulator on his first day in office, and starts to follow up on a threat to slap high tariffs on Chinese goods.

Even if the Trump administration takes no concrete action immediately, analysts say the specter of deteriorating U.S.-China trade and political ties is likely to weigh on the confidence of exporters and investors worldwide.

The world’s largest trading nation posted gloomy data on Friday, with 2016 exports falling 7.7 percent and imports down 5.5 percent. The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009.

It will be tough for foreign trade to improve this year, especially if the inauguration of Trump and other major political changes limit the growth of China’s exports due to greater protectionist measures, the country’s customs agency said on Friday.

“The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of this trend,” customs spokesman Huang Songping told reporters.

“We will pay close attention to foreign trade policy after Trump is inaugurated president,” Huang said. Trump will be sworn in on Jan. 20.

China’s trade surplus with the United States was $366 billion in 2015, according to U.S. customs data, which Trump could seize on in a bid to bring Beijing to the negotiating table to press for concessions, economists at Bank of America Merrill Lynch said in a recent research note.

A sustained trade surplus of more than $20 billion against the United States is one of three criteria used by the U.S. Treasury to designate another country as a currency manipulator.

China is likely to point out that its own data showed the surplus fell to $250.79 billion in 2016 from $260.91 billion in 2015, but that may get short shrift in Washington.

“Our worry is that Trump’s stance towards China’s trade could bring about long-term structural weakness in China’s exports,” economists at ANZ said in a note.

“Trump’s trade policy will likely motivate U.S. businesses to move their manufacturing facilities away from China, although the latter’s efforts in promoting high-end manufacturing may offset part of the loss.”

On Wednesday, China may have set off a warning shot to the Trump administration. Beijing announced even higher anti-dumping duties on imports of certain animal feed from the United States than it proposed last year.

“Instead of caving in and trying to prepare voluntary export restraints like Japan did with their auto exports back in the 1980s, we believe China would start by strongly protesting against the labeling with the IMF, but not to initiate more aggressive retaliation … immediately,” the BofA Merrill Lynch Global Research report said.

“That said, even a ‘war of words’ could weaken investor confidence not only in the U.S. and China, but globally.”

CHINA’S DECEMBER EXPORTS FALL

China’s December exports fell by a more-than-expected 6.1 percent on-year, while imports beat forecasts slightly, growing 3.1 percent on its strong demand for commodities which has helped buoy global resources prices.

An unexpected 0.1 percent rise in shipments in November, while scant, had raised hopes that China was catching up to an export improvement being seen in some other Asian economies.

China reported a trade surplus of $40.82 billion for December, versus November’s $44.61 billion.

While the export picture has been grim all year, with shipments rising in only two months out of 12, import trends have been more encouraging of late, pointing to a pick-up in domestic demand as companies brought in more raw materials from iron ore to copper to help feed a construction boom.

China imported record amounts of crude oil, iron ore, copper and soybeans in 2016, plus large volumes of coal used for heating and in steelmaking.

“Trade protectionism is on the rise but China is relying more on domestic demand,” said Wen Bin, an economist at Minsheng Bank in Beijing.

Prolonged weakness in exports has forced China’s government to rely on higher spending and massive bank lending to boost the economy, at the risk of adding to a huge pile of debt which some analysts warn is nearing danger levels.

Data next Friday is expected to almost certainly show that 2016 economic growth hit Beijing’s target of 6.5-7 percent thanks to that flurry of stimulus.

But signs are mounting that the red-hot property market may have peaked, meaning China may have less appetite this year for imports of building-related materials.

“It is hard to see what could drive a more substantial recovery in Chinese trade,” Julian Evans-Pritchard, China Economist at Capital Economics, wrote in a note.

“Further upside to economic activity, both in China and abroad, is probably now limited given declines in trend growth. Instead, the risks to trade lie to the downside…,” he said, saying the chance of a damaging China-U.S. trade spat has risen since Trump’s appointment of hardliners to lead trade policy.

A decline in China’s trade surplus in 2016, to just under $510 billion from $594 billion in 2015, may also reduce authorities’ ability to offset capital outflow pressures, which have helped drive its yuan currency to more than eight-year lows, ANZ economists said.

(Reporting by Lusha Zhang, Elias Glenn, Sue-Lin Wong and Kevin Yao; Writing by Sue-Lin Wong; Editing by Kim Coghill)

As exports struggle, Israel’s economy faces slower growth

supermarket employee in Israel

By Steven Scheer

JERUSALEM (Reuters) – For decades, Israel’s high growth was driven by exports of oranges, diamonds, pharmaceuticals and software, but the picture is changing due to weak global demand and a strong shekel.

Consumer spending is now a critical growth driver. Businesses fear factories and jobs are at risk if exports, which have declined 10 percentage points over the past decade, fall further.

“We are exporting 80 percent less than our peak” a decade ago, said Joseph Ben-Dor, chief executive of Ben-Dor Fruits & Nurseries on the Jordan River in northern Israel.

Ben-Dor, whose family started the business in 1888, said his main market is Europe, particularly Britain where his largest customers for plums and other fruits are Tesco, Marks & Spencer, Morrisons and Waitrose. He largely blames a strong shekel, rising water, labor and other costs, and government obstacles for lower sales abroad.

Diamond exports, 25-30 percent of Israel’s industrial exports, have slid 30 percent in the past few years, mainly on slower global demand, said Yoram Dvash, president of the Israel Diamond Exchange. Exports to China, a key market, have plunged 70 percent in the last 18 months.

Citing weak global growth that has hurt exports, Israel’s Finance Ministry on Wednesday lowered its economic growth forecast for 2016 to 2.5 percent from 2.8 percent and trimmed estimates through 2019.

The Bank of Israel last month cut its growth estimate from 2.8 percent to 2.4 percent for 2016 and 2.9 percent in 2017.

When exports are hot, Israel’s economy tends to grow between 4 and 5 percent a year. With flat or declining exports in 2014, 2015 and probably again this year, growth is closer to 2.5 percent, well below the average of 4.5 percent from 2004-2011.

“If the trend continues we can witness sustained private consumption growth but we will shift to a lower growth rate,” Nathan Sussman, head of research at the Bank of Israel, said. “Growth will likely be in the 2.5 to 3 percent range if it stays this way.”

With the population growing 2 percent a year, that amounts to per capita growth of just 0.5-1 percent.

NO MAGIC PILL

Ten years ago, net exports accounted for 41 percent of output. Now the ratio is 31 percent. While that tops the 13 percent in the United States and 27 percent for Europe, the decline has strained the economy.

“We need to target growth of 4 to 5 percent so if you want to reach that, you need to turn on the engine of exports,” said Shraga Brosh, president of Israel’s Manufacturers’ Association.

Brosh said the government needed to invest more in research and development and encourage small- and medium-sized factories to become more efficient through tax incentives.

Ohad Cohen, head of the Foreign Trade Administration in the Economy Ministry, said there was only so much the government could do. “We don’t have any magic pill,” he said.

Still, the ministry supports exporters with insurance guarantees and in opening new markets. In recent years, it has doubled the number of offices in Asia to 16. Asia now accounts for 22 percent of Israel’s exports, compared with 31 percent for Europe and 25 percent for the United States.

Israel plans to invest in penetrating markets in Africa and Latin America, Cohen said.

Exports excluding diamonds and start-ups are forecast to fall 1.5 percent this year after a similar decline in 2015. Much of the weakness has come from Europe, in part because the euro has lost 15 percent against the shekel since late 2014.

Another issue is that three companies – Intel, Israel Chemicals (ICL) and Teva Pharmaceutical Industries – control nearly half of industrial exports. For various reasons they have trimmed output.

Intel is shifting production to a new chip plant in Israel, while falling demand and prices for potash have weighed on ICL. Teva said its exports are “characterized with monthly and seasonal fluctuations” but are not falling on an annual basis.

Concerned by sluggish exports, the central bank continues to buy dollars to try to prevent further shekel strength. It has bought about $70 billion of foreign currency since 2008, but the shekel has not weakened enough to spur an export recovery.

(Editing by Janet Lawrence)

Nervy global investors revisit 1930s playbook

Unemployed man during the Great Depression

By Mike Dolan

LONDON (Reuters) – Global investors are once again dusting off studies of the 1930s as fears of protectionism, nationalism and a retreat of globalization, sharpened by this week’s Brexit referendum, escalate anew.

With markets on tenterhooks over Thursday’s “too close to call” vote on Britain’s future in the European Union, the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left-field political shocks.

As such, the Brexit vote will not be an open-and-shut case regardless of the outcome. Broader worries about global trade, frail growth and dwindling investment returns have festered since the banking shock of 2007/08 and have mounted this year.

Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade, with growth now hovering just above the 2.0-2.5 percent level most economists say is needed to keep per capita world output stable.

Three-month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months, according to the Dutch government statistics body widely cited as the arbiter of global trade data.

And it’s not a seasonal blip. Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3 percent over the intervening seven years was itself half that of the 25 years before, according to Swiss asset manager Pictet. 2016 is set to be the fifth sub-par year in row.

A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4.2 percent average for the past 200 years.

Foreign direct investment growth of 2 percent of world output is also at its lowest since the 1990s, while the hangover from the credit crunch has seen annual growth rates in cross-border bank lending grind to a halt from some 10 pct in the decade to 2008.

Parsing the big investment themes of the next five years, Pictet this month highlighted “globalization at a crossroads” – offering both benign and malignant reasoning and implications.

One of these was that trade deceleration was due in part to the inwards reorientation of the world’s two mega economies, the United States and China — the former due to the shale energy boom and the latter’s planned shift to consumption from exports.

Another factor cited was a shift in the world economy towards services and digital activity that is not captured by statistics on merchandise trade.

But Pictet had little doubt about what brewing developments could swamp all that — rising nationalism on the far right and left of the political spectrum in Europe and the United States.

Britain “threatens to drive a fault line” through one of the world’s biggest free trade blocs, it said, and both presumptive candidates for November’s U.S. presidential election have talked of renegotiating the still-unratified Trans Pacific Partnership binding economies making up 40 percent of world trade.

“If the rising tide of nationalism results in greater protectionism, then the decline in international trade the world has experienced so far could well morph into something more pernicious,” the Swiss firm said, adding that multinationals — particularly banks and tech companies — were most vulnerable.

“1937-38 REDUX?”

Against that backdrop, this year’s market wobbles make total sense — especially as near-zero interest rates limit central banks’ ability to insulate against further shocks.

But echoes of the last major hiatus in trade globalization during and between the World Wars has economists looking again to the 1930s for lessons and policy prescriptions.

In a paper entitled “1937-38 redux?”, Morgan Stanley economists detail the mistakes that saw monetary and fiscal policy tightened too quickly once a recovery from the 1929 stock market crash and subsequent Depression started in 1936.

Over-eagerness to reset policy before private sector confidence in future growth and inflation had picked up saw a relapse into recession and deflation by 1938. The devastation of World War Two followed, and with it huge government spending on military capacity, war relief and eventually reconstruction.

Morgan Stanley goes on to draw a parallel with the global response to 2008’s crash and subsequent world recession.

Waves of monetary and fiscal easing by 2009 underpinned economic activity, but government budgets have again tightened quickly and before inflation expectations or private investment spending and capital expenditure have been restored.

The second world recession in a decade is now seen as a threat, but with a heavier starting debt burden, historically low inflation and interest rates, stalled trade and a worsening demographic profile. That could mean another global government spending stimulus is needed to re-energize private firms.

“The effective solution to prevent relapse into recession would be to reactivate policy stimulus,” Morgan Stanley said.

Success in preventing a new recession without the cataclysm of a world war would be a profound lesson learned. Political extremism, isolation and protectionism make the task far harder.

(Editing by Catherine Evans)

U.S. goods trade deficit narrows sharply in boost to first-quarter GDP

Freight and Cargo

WASHINGTON (Reuters) – The U.S. goods trade deficit narrowed sharply in March as imports tumbled, suggesting economic growth in the first-quarter was probably not as weak as currently anticipated.

The Commerce Department said in its advance report on Wednesday that the goods trade gap fell to $56.90 billion last month from $63.44 billion in February.

March’s comprehensive trade report, which includes services, will be released next Wednesday.

Goods imports fell 4.4 percent to $173.6 million last month, outpacing a 1.2 percent drop in exports.

The small goods deficit suggested there could be an upside surprise in gross domestic product growth for the first quarter. Economists polled by Reuters have forecast GDP rising at a 0.7 percent annualized rate in the first three months of the year.

“It suggests that first-quarter GDP growth will be much stronger than we previously believed,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

“We now estimate that first-quarter GDP growth was 1.4 percent annualized, whereas we previously thought it would be only 0.8 percent.”

The government is scheduled to publish its advance first-quarter GDP growth estimate on Thursday.

(Reporting by Lucia Mutikani; Editing by Paul Simao)