U.S. Trade Balance Plummets In December As Currency Wars Strike A Blow

The U.S. international trade balance plummeted in December as currency movements threw monetary and goods flows out of whack. For the month, the trade balance fell to $38.5 billion from $48.6 billion in November, worse than expectations of a balance of $46.0 billion.

Currencies were to blame in the latest report, as the euro strengthened in the month of December and the yen weakened. The change in foreign exchange rates alters the dollar value of trade. Mainly, trade with Europe fell month-over-month nearly by a third

Trade with the eurozone fell from a deficit of $12.2 billion to a deficit of $8.7 billion. Specifically, the deficit with Germany, a large exporter, fell by about $1 billion or one sixth.

It is also interesting to note that the trade deficit with OPEC nations fell substantially in December from November, showing a potential steep decline in oil imports in December.

The trade deficit with OPEC nations fell to $3.4 billion in December from $6.6 billion in November. Also, the trade deficit nearly halved with other oil producing nations including Venezuela and Nigeria.

It is also important to note that exports did increase in December for November, a good sign for the U.S. economy. A large increase in exports of industrial supplies and materials helped increase the exports of goods.

On the services side, increases in exports of transportation services, mainly freight and port services, added to exports.

As Steve Liesman of CNBC pointed out on Squawk Box Friday morning, each $1 billion miss in the trade deficit should cause GDP forecasts to rise 0.1 percent. Thus, based on the recent data, he expects fourth quarter GDP to revised sharply higher to between +0.6 and +0.7 percent, much better than the initial estimate of a decline of 0.1 percent in the fourth quarter.

U.S. equity futures were largely unchanged on the data as investors shrugged off the report as a side effect of the global currency wars. The dollar was slightly stronger following the report as the Dollar Index recouped about half of its pre-market losses as the euro fell below 1.34 against the greenback and the dollar gained massively against its Canadian counterpart, part in due to the weak Canadian employment report.

BY Matthew Kanterman