The US advanced goods trade balance for June was -$85.99 billion, which is better than the -$98.2 billion forecast. This shows improvement from May’s balance of -$96.42 billion. In June, goods exports totaled $178.2 billion, a small decrease of $1.1 billion from the previous month. Meanwhile, imports reached $264.2 billion, down by $11.5 billion from May. Every major category of goods saw a decrease, likely due to tariffs affecting imports and competitiveness. There may also be a slowdown in demand from importers, who had previously stockpiled goods. Although many export categories improved, Industrial Supplies saw an 8.65% drop, amounting to a $5.7 billion decrease.

Trade Balance Improvement

The trade balance improved by $10.44 billion, or 10.83%. Total exports declined by $1.1 billion, a drop of 0.61%. Exports for Foods, Feeds, and Beverages increased by 4.50%. In contrast, Industrial Supplies exports fell by 8.65%. Capital Goods rose by 0.33%, and Automotive Vehicles increased by 3.59%. Consumer Goods and Other Goods grew by 1.42% and 5.09%, respectively. Total imports dropped by $11.18 billion, or 4.06%. Imports of Foods, Feeds, and Beverages declined by 2.82%, while Industrial Supplies fell by 5.60%. Capital Goods imports went down by 0.98%, Automotive Vehicles by 1.93%, and Consumer Goods by 3.11%. Other Goods imports decreased by 1.73%. The much smaller-than-expected trade deficit for June can be misleading. It resulted primarily from a significant $11.5 billion decline in imports, rather than a boost in exports. This suggests a decrease in consumer and business demand in the US, which is a concerning sign for the economy.

Global Demand Weakness

The worrying sign here is the sharp 8.65% decline in industrial supplies exports. This strongly indicates that global demand for both raw and manufactured goods is significantly falling. This is not just a domestic issue; it highlights a broader decline in global manufacturing. This trade data aligns with other trends we’ve observed. The latest Non-Farm Payrolls report showed job growth slowing to just 150,000. Additionally, manufacturing PMI data from Europe and China has shown contraction. Together, these factors suggest a widespread global slowdown is gaining strength. Given these signs of economic weakness, we think US Treasury yields are likely to decrease in the next few weeks. Traders might want to consider buying call options on bond ETFs like TLT to benefit from rising bond prices. Although the US dollar may receive a short-term boost from the trade deficit number, we expect it to weaken if the Federal Reserve hints at future rate cuts due to the slowdown. For the stock market, this data is negative, especially for cyclical sectors. We are looking at buying put options on industrial (XLI) and consumer discretionary (XLY) sector ETFs since they are most vulnerable to this slowdown. Increased uncertainty in the market also makes buying VIX call options a smart way to hedge against a potential decline in stocks. The drop in industrial supplies trade directly impacts demand for commodities. We expect this will put downward pressure on the prices of crude oil and industrial metals like copper. Derivative traders might consider shorting commodity futures or purchasing puts on relevant commodity ETFs to prepare for this anticipated weakness. Create your live VT Markets account and start trading now.

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