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Prospects daily: U.S. trade deficit narrows on lower oil imports

Global Macroeconomics Team's picture

Important developments today:

1. Corporate bond markets resurgent following recent sell-off.

2. U.S. trade deficit narrows on lower exports and oil imports.

3. Initial U.S. unemployment claims ease in latest reporting week


Corporate bond markets resurgent following recent sell-off. Companies are aggressively tapping the debt markets once more, as receding concerns about European sovereign risk and renewed confidence in the tenor of world economic recovery underpin demand. The rebound in capital markets comes after a brief sell-off in February, when several companies were forced to postpone their bond offerings amid market jitters over Greece’s financial distress.

In the United States, corporate bond issuance is on track for one of the busiest weeks of the year, with a massive $27 billion in new supply already sold so far. Yield spreads over Treasuries continue to decline, allowing companies to seize the opportunity to borrow at lower cost. Indeed, the extra yield investors demand to own U.S. corporate bonds over Treasuries tightened to 159 basis points yesterday, the lowest level this year, from as high as 174 bps in early January. U.S. firms have sold $195 billion of bonds thus far in 2010, excluding government –guaranteed bonds, up from $167 billion during the like period of 2009. The European corporate bond market was also busy, with non-financial borrowers issuing €4.2 billion of new bonds this week, a sum that already exceeding 60% of February’s total.


Source: Department of Commerce

U.S. trade deficit narrows on lower exports and oil imports. The trade deficit narrowed in January under the double impact of a 1% (m/m) decrease in exports and a 2.2% falloff in monthly imports, according to the latest report from the Commerce Department. In large measure the slowdown in imports was due to a 3% decline in imports of petroleum and products, which comprise a large portion of the import bill. The resulting deficit was a seasonally adjusted $48 billion for the month (on a FAS basis), about 5% lower than in December.

Net exports contributed 0.3 percentage points to GDP growth in the fourth quarter of 2009, when the economy grew a revised 5.9% on an annualized basis. The recent moderation in exports does not mean that the contribution from trade to economic recovery will wane in the short term; indeed, momentum growth of exports remains strong at 42% (saar), while imports were growing at a 35% clip over the same period.

Initial U.S. unemployment claims ease in latest reporting week. New claims for unemployment insurance dropped slightly by 6,000 in the week ending March 5th to a seasonally adjusted 462,000 claims, a second week of declines following a period of increased layoffs in February. The 4-week moving average of claims increased by 5,000 to 475,500, still under the influence of the spike in layoffs during the exceptionally severe bout of winter weather in the eastern part of the country. Claims are likely to resume a downward trend over the coming weeks as conditions in manufacturing improve (in part on the back of export performance) and continue to drive the economic recovery. The number of people receiving extended benefits decreased by 174,000 to 5.69 million in the previous week, another sign of increasing stability in job markets.


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