Canadian merchandise trade (June)

Canada's merchandise trade deficit narrowed massively to $0.5 bln in June, far better than expected, while May's shortfall was revised just slightly lower to $3.37 bln. Exports surged 6.3%, with three major sectors seeing double-digit gains, consumer goods (+17.2%), metal ores and non-metallic minerals (+13.5%) and metal products (+10.8%). Energy was modestly positive, climbing 3.7%. Imports fell 0.6%, with a hefty 19% drop in aerospace and 10.4% plunge in energy weighing. The non-energy deficit narrowed sharply to $5.7 bln, the smallest in 11 months.

"Volumes were a good news story as well, with export jumping 4.8%, and imports down 0.8%. Non-energy exports volumes surged 6.2%, the biggest increase since July 2011. With revisions, net exports for Q2 now look like they'll add between 0.5 and 1 ppt to growth-exports are up 0.7%, imports are down 1.3%.", says BMO Economics.

 However, the huge declines in machinery and electronic equipment imports point to another big drop in business investment in the quarter, which will offset any improvement from trade. Despite recording the second widest trade deficit on record in Q2, the quarter ended on a solid note which is heartening after a seemingly endless string of weak economic data. The "puzzling" weakness in exports that Governor Poloz noted has reversed to some extent. Expect this to be the start of meaningfully better June data, though it's a stretch to anticipate continued gains of this size for exports in the months ahead.

"In addition, the strong June trade figures provide a nice jump off point for Q3, giving us more confidence in our call for a solid rebound in Q3 GDP growth", added BMO Economics.