United States:
U.S. Trade Deficit Narrows as Exports, Imports Both Plummet
The U.S. trade deficit narrowed in April as both exports and imports tumbled, highlighting the impact of President Donald Trump’s tariffs even before negotiations with China unraveled and he threatened levies on Mexican goods. The deficit in goods and services shrank to $50.8 billion, nearly in line with economist estimates, from a revised $51.9 billion the prior month, according to a Commerce Department report Thursday. The merchandise-trade gap with China increased to $29.4 billion while the Mexico deficit narrowed to $7.9 billion. Exports fell the most in three years, partially reflecting lower demand for civilian aircraft following the worldwide grounding of Boeing Co.’s 737 Max model, though the decline in shipments abroad was broad-based. A narrower deficit overall will add to economic growth and allow Trump to claim some victory on pledges to reduce the gap, though it’s come at a cost to American companies that have lost export business or are paying higher prices. Goods shipments to China fell to $8.5 billion in April from $10.2 billion the prior month and are down 20% year-to-date, while imports from the nation have declined 13.2% in 2019. Meanwhile, merchandise exports to Mexico are little changed so far this year while imports are up 6.1%, highlighting the diverging paths of U.S. trade with Mexico and China since Trump imposed the first wave of China tariffs in mid-2018.
Europe:
ECB Will Keep Record-Low Rates for Longer Amid Inflation Slump
The European Central Bank stepped up support for the euro-area economy by extending its pledge to keep interest rates at record lows, while also reaching agreement on how to infuse lenders with more cheap cash. Some investors expressed disappointment with President Mario Draghi and colleagues for not doing more in a week when global central banks including the Federal Reserve turned more dovish. German bond yields and the euro rose. Still, bank stocks gained on the new loan details. The Governing Council, which met in Vilnius, now expects borrowing costs to stay on hold at least through the first half of 2020, or six months longer than previously. The cost of long-term bank loans can fall as low as the deposit rate, currently minus 0.4%, plus 0.1 percentage point. Central banks elsewhere have turned to easing measures as the global economy is buffeted by trade tensions. Australia reduced rates on Tuesday for the first time in three years and India cut for a third time this year on Thursday, while Fed Chairman Jerome Powell shifted closer to acting in the U.S.
Asia:
Growth Pangs in India Put More Interest Rate Cuts on the Radar
A marked slowdown in Asia’s third-largest economy pushed growth concerns to the top of the Reserve Bank of India’s agenda, suggesting more policy easing will follow its third interest-rate cut of the year. Governor Shaktikanta Das and the inflation-targeting RBI he leads is now squarely focused on boosting investment and consumption after quarterly growth cooled to a five-year low at the beginning of 2019. A benign inflation outlook and a dovish turn by the U.S. Federal Reserve strengthened the case for policy makers to switch to an “accommodative” stance on Thursday, indicating further easing ahead. The RBI was the first of the world’s major central banks to cut interest rates this year as Das identified early on the growth risks facing the economy. Since then Australia, New Zealand, Malaysia and others have followed as policy makers seek to shore up their economies against a worsening U.S.-China trade war. Even the Fed is being pressured to ease, while the European Central Bank will decide on Thursday whether it needs to provide more stimulus to the euro zone.