The US advanced goods trade balance for June was recorded at -$85.99 billion, contrasting with the -$98.2 billion estimate. This is an improvement from the prior month’s balance of -$96.42 billion. Exports of goods in June totalled $178.2 billion, a decrease of $1.1 billion from the previous month. Imports were $264.2 billion, reflecting a drop of $11.5 billion from May.
All major categories of goods saw declines, potentially due to tariffs affecting import levels and competitiveness. There might also be a slowdown from importers who had pre-emptively increased inventories. Although most export categories rose, Industrial Supplies fell by -8.65%, equating to a $5.7 billion decrease.
Trade Balance Improvement
The trade balance narrowed, improving by $10.44 billion or 10.83%. Total exports fell by $1.1 billion, marking a 0.61% decline. Foods, Feeds, and Beverages exports rose by 4.50%, and Industrial Supplies exports dropped by 8.65%. Capital Goods increased by 0.33%, and Automotive Vehicles went up by 3.59%. Consumer Goods and Other Goods grew by 1.42% and 5.09%, respectively.
Total imports declined by $11.18 billion or 4.06%. Foods, Feeds, and Beverages imports decreased by 2.82%, while Industrial Supplies imports fell by 5.60%. Capital Goods imports were 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 is deceiving. We see that this was driven by a massive $11.5 billion drop in imports, not a surge in exports. This points toward a slowdown in US consumer and business demand, which is a warning sign for the economy.
Global Demand Weakness
The most alarming signal for us is the sharp 8.65% drop in industrial supplies exports. This is a strong indicator that global demand for raw and manufactured goods is weakening significantly. This isn’t just a domestic issue; it reflects a broader global manufacturing slump.
This trade data confirms other recent trends we’ve been watching. The latest Non-Farm Payrolls report showed job creation slowing to just 150,000, and recent manufacturing PMI data from both Europe and China has shown contraction. Combined, these factors paint a picture of a synchronized global slowdown gaining momentum.
Given these signs of economic weakness, we believe US Treasury yields are likely to fall in the coming weeks. Traders should consider buying call options on bond ETFs like TLT to profit from rising bond prices. While the US dollar may get a brief lift from the headline deficit number, we expect it to weaken if the Federal Reserve begins to signal future rate cuts in response to the slowdown.
For equity markets, this data is bearish, especially for cyclical sectors. We are looking at buying put options on industrial (XLI) and consumer discretionary (XLY) sector ETFs as they are most exposed to this slowdown. An increase in broad market uncertainty also makes buying VIX call options a sensible hedge against a potential stock market decline.
The collapse in industrial supplies trade is a direct hit to commodity demand. We anticipate this will put downward pressure on prices for crude oil and industrial metals like copper. Derivative traders could look to short commodity futures or purchase puts on relevant commodity ETFs to position for this expected weakness.
