Morning Metrics

We've got two important economic measures coming out today: the international trade balance (due at 8:30 AM) and consumer sentiment (due at 9:55 AM).

International trade is the bigger of the two measures, since it represents our trade surplus (unlikely) or deficit (probable). November had an unexpected improvement to a trade deficit of only $38.3 billion, but analysts are not particularly optimistic about December's possibilities. We're looking for a consensus estimate of a trade deficit that has expanded to $40.5 billion.

How did we do? Well, the US Census Bureau reports that the December trade deficit expanded to $40.6 billion, which technically misses expectations. But not by a lot, so the markets probably will not get bent out of shape about that. Drilling down, we learn that:

• The goods trade deficit was $53.5 billion, an increase of $2.2 billion from November.
• The services trade surplus was $13 billion, effectively unchanged from November.

The total goods and services trade deficit for 2010 came in at $497.8 billion, an increase of $122.9 billion from 2009. This included a $44.8 billion deficit in industrial supplies and materials, a $37.5 billion deficit in automotive vehicles, parts and engines, a $39.3 billion deficit in consumer goods, and a $3.7 billion surplus in foods and beverages. Yes, that's right. The only thing we're exporting more of than we're importing is food.

Our trade deficit with Canada increased $6.1 billion to $21.8 billion, our trade deficit with China increased $46.2 billion to $273.1 billion, and our trade deficit with the European Union increased $18.6 billion to $79.8 billion.

There is a glimmer of optimism for consumer sentiment, however. January saw the index rise to 74.2, and a further 80 bps increase to 75.0 is expected for February. But we'll check on that here in about half an hour.

The Market's Up. Why?

There's green in them thar hills. The three major indices are, at the moment, up. Why should this be?

First off, there's the good news about our narrowing trade deficit in October. Domestic traders love that sort of thing[1]. But on top of that, China announced that it saw a 16% decrease in it's November trade surplus (down to $22.9 billion).as their imports jumped 37.7%. Domestic traders also love that sort of thing[2], because it means we can sell more of our stuff to them. And because it could point another trade deficit improvement in November.

Speaking of China, they have increased their reserve requirements again. For the third time. In the past month. The 50 basis point increase takes effect on December 20, and brings the requirement to 16.5%.[3]. Even more interesting, analysts that follow China are expecting to see that requirement continue to go up - possibly as high as 23%. The end result of this is to reduce China's money supply, which could be a signal that Chinese interest rates won't be going up.

Beyond that? Well, the tax cut "compromise" deal still looks dead in the water. The Senate will vote on it on Monday but, with Capitol Hill Democrats chanting "Just say no!" in closed-door meetings intended to rally the troops, that vote looks like a failure waiting to happen. President Obama remains confident that it will pass, because he feels that nobody on either side of the isle wants to look responsible for making "people's paychecks smaller on January 1st because Congress didn't act."

And finally, we have Consumer Sentiment. November came in nicely improved at 71.6%, and analysts are looking for a further (mild) increase to 72.0%. The actual results indicate a 74.2%, which is almost breathtakingly better than expected. The official press release is not out yet, but can be read here when it is.

[1] Unless they've bet hard against the US economy and invested heavily in the EU and the BRIC. But we care nothing for those unpatriotic fools! Nothing!

[2] See [1] above.

[3] In other words, if a Chinese bank wants to loan out 100,000 yuan it must have 16,500 yuan in cash on hand. For comparison the United States has a reserve requirement of 0% on loans under $10.7 million, 3% on loans from $10.7 to $58.8 million, and 10% on loans over $58.8 million.

The Trade Deficit Is Looking... Well... Not Terrible

The International Trade balance is out now. This is our nation's net exports. If the number is positive, we are exporting more than we are importing. If it is negative, we're importing more. This is one of those huge market movers, because net exports are a component of GDP calculations. Positive numbers mean a (potentially) improving GDP, while negative numbers mean a (potentially) worsening GDP.

And the estimates for this month indicate a potentially worsening GDP. For September, we came in at a net -$44.0 billion. Looking to October, the analysts are anticipating a second month at -$44.0 billion. As long as we don't come in worse than this, traders will feel minimal need for sorrow.

And where does that international trade balance stand? Well, counting both goods and services, we exported $168.7 billion and imported $197.4 billion in October. That works out to a net of -$38.7 billion, which is a substantial 12% improvement from September. Total exported goods came in at $112.3 billion and goods imports came in at $163.7 billion (a net of -$51.4 billion, which does represent a $5.7 billion improvement from September). Total exported services came in at $46.4 billion while services imports came in at $33.7 billion (a net of $12.7 billion, a $0.2 billion improvement from September).

All in all, not too bad. It would have been nice to see even more improvement in manufacturing exports - since that would be a really nice sign for the US manufacturing and production sectors - but I guess we shouldn't look a month-over-month 10% improvement in the mouth.