Canada merchandise trade (July)

Canada's merchandise trade deficit unexpectedly narrowed to $593 mln in July from an upwardly revised $811 mln gap in the prior month. Exports rose 2.3%, with the increases focused on non-energy sectors. There were big gains in aerospace (+19.2%) and autos (+9.9%). Consumer goods was also surprisingly strong rising another 7.3% on the back of the June's 16.6%. This time the increase (about ($600 mln) was driven by "articles of precious metal" destined for consumers (maybe gold coins), but that gain will likely be reversed next month. Energy exports fell 5.7%, while metals shipments were softer as well. Imports climbed a lesser 1.7%. Notably, imports of machinery rose 0.6%, while electronic equipment increased 4.4%, suggesting business investment might be starting to improve.

Export volumes were up 1.5%, building on June's 3.7% gain (though that was revised down from the initial 4.8% print). Non-energy volumes also climbed 1.5% to their best level since late 2007. Import volumes fell 0.3%, but June is now flat revised from -0.8%. If export volumes hold steady for the rest of the quarter (admittedly optimistic) they would be up 14.8% a.r., while imports if they hold steady would be down slightly. It looks like net exports are going to add heavily to Q3 GDP growth.

"There's no two ways about it, this is a solid report. It looks like better U.S. growth and the weaker C$ might finally be providing a boost to trade. The very strong volume figures, coupled with June's big GDP print, give us even more confidence in our call for 2.8% growth in Q3. Assuming markets don't totally melt down over the next week, it looks like the Bank of Canada will very likely hold policy rates steady at next week's meeting", says BMO Economics.