Canada's May Merchandise Trade Deficit Deteriorates

Canadian merchandise trade for May was much worse than expected, posting a wider 3.34bn deficit (est 2.55bn) from 2.99bn in April. That's the second largest on record after the extreme set in March. Details were weak as well with a big drop in exports driving the deficit. 

What's most important is that in real terms, nonenergy exports were down 2.7%y/y-which certainly does not fit with the BoC's rotation story. If we assume June trade is flat, the tracking for trade impact on Q2 GDP is about 1.5pp-much worse than BoC had been looking for. This report adds to expectations for a BoC cut next week, and markets have priced in another 1-2bps. That leaves the implied probability at about 50% now