The American trade deficit shrank unexpectedly in April after the United States sold $175.6 billion in goods and services overseas, the most exports on record …
Someone, please correct me if I am wrong, but if U.S. exports in April increased to a record level, doesn’t that mean the U.S. is actually producing more goods and services? Moreover, if I am correct, doesn’t this suggest the fundamentals of the U.S. economy are still intact, which, if true, then suggests that the recent concern about a double-dip recession is just a tad overblown?
No matter the reality, though, the market often ignores fundamentals and moves on perception, and once that happens, technical trading takes over, and the next thing you know, the market is going higher or lower based strictly on numeric values.
One contributor to the current negative perception is the belief at the global economy is failing, as demonstrated by the talk of a double-dip recession in the U.S. China’s deceleration in its rate of growth also contributes to the perception that the global economy is failing. Many are taking the export/import numbers China reported today as evidence for this conclusion.
Some are now arguing that the weaker-than-expected export figures point to a protracted global slowdown. As always, though, the yin has a yang, and in this case, the yang is China’s import numbers, which showed a stronger-than-expected increase. Clearly, as China’s largest trading partner, a good portion of our exports contributed to the increase in China’s imports. This reality, along with the reality that domestic demand in China remains healthy, suggests that both China and the U.S. are still contributing to global growth.
Another contributor to the negative perception is the sovereign debt issue plaguing Europe. Although the potential consequences of not containing this are huge, current statistics indicate that the economic fundamentals of that economy are intact as well. As in the case of U.S. exports to China, so it goes with Europe. Europe is just about as large a trading partner with China, and like the U.S., it is producing goods and services that are finding their way to China.
As the issue of European debt contributes to the negative perception in the market, so does the same here in the U.S. As we move closer to August 2, it seems the anxiety in the market is rising, which might account for some of the recent market decline. In fact, the perception that our politicians might not be able to do what has been done without fail for some 250 years might be a larger contributor to the negative perception than anyone thinks. The topic is coming up on a regular basis now and virtually everyone, save a few politicians who actually believe a default would not really hurt the U.S. or global economy, is raising their voices about the dire consequences to the global economy if the debt ceiling is not raised.
Today, we crossed some key technical levels on the downside, and we all know what this could mean, don’t we? Yes, unfortunately, perception, one again, becomes reality.
Trade in the day – Invest in your life …
