US Imports Are Falling Hard...
- Marc Bentin
- Jun 1
- 7 min read
BentinPartner Weekly
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US stocks ended the month of May not too far away from record highs, with tech (and Mag7) outperforming as investors continued to buy what is left of the dip despite renewed concerns expressed by Ray Dalio (Bridgewater) and J. Dimon (JPMorgan). China and Europe lagged behind.
US imports fell 19.8% in April to $276bn (from $344.4bn in March), according to the Census Bureau’s Advance Economic Indicators report. At the same time, exports rose 3.4% in April to $188.4bn (from $182.217bn in March). The Advance trade deficit of goods also narrowed to $87.6b (vs. $110bn expected and $162.3b last month).
If the objective of the Trump medicine was to reduce the trade deficit, it seems to be working, even if it can also be argued that the US consumer is weakening (as shown last week with annualized GDP QoQ dropping -0.2% while consumption also slowed) and that chain supplies are getting disrupted in the process.
Wall Street Strategists can never stay wrong for too long and Morgan Stanley took the decision of the US court of international trade on Wednesday to block the imposition of the tariffs based on the International Emergency Economic Powers Act (IEEPA) (which will likely be re-instated with some other forms of authority) as a reason to support a more optimistic outlook.
“…Returning to our outlook for markets after that detour, we take comfort in the notion that despite unprecedented policy uncertainty, the global economy is still in expansion mode, albeit with slowing growth. Substantial monetary easing lies ahead, along with the benefits of deregulation, making our outlook for markets relatively constructive. We believe that US assets will remain compelling versus the rest of the world. US Treasuries, equities, and credit outperform their rest-of-the-world counterparts on our forecasts.”
If this prediction turns into reality, investors will be wrong-footed. Without even considering deteriorating economic and debt dynamics, geopolitical developments (and their rapid escalation) in Europe, could easily restore US assets as safe havens, especially with investors and strategists having spent most of the first half of the year worrying about and unloading the USD, US stocks and bonds, and being positioned defensively on those.
Some tapering off in European stock market outperformance would likely not apply to European industrials focused on sustaining growth and focused on rapidly developing a war economy.
Bond markets also rallied last week, overcoming initial fears related to the 40Y Japanese government debt auction that drew the lowest demand in 10 months, causing a brief spike of its yield, in a move that reverberated towards other foreign long duration bonds, before ebbing back (as Japan considered trimming the issuance of super-long bonds). 10Y US Treasury yields closed the week 11bps lower, in line with European government bonds that saw Bunds underperform (vs. BTPs and OAT’s) as the perspective of ever more common debt issuance erodes the Bund quality premium. 10Y swap rate stood at 4.12% vs. US Treasuries at 4.48% which continues to be an upside-down situation vs. the norm of swap rates trading over so called “risk free” government bonds.
“Governments across the globe must curb their ‘relentless’ rise in public debt as higher interest rates make fiscal paths for some countries unsustainable, A. Carstens, General Manager of the BIS said. Large deficits and high debt appeared sustainable when interest rates were kept low after the global financial crisis, allowing fiscal authorities to avoid making hard choices such as cutting spending or raising tax, he said. ‘But the days of ultra-low rates are over. Fiscal authorities have a narrow window to put their house in order before the public's trust in their commitments starts to fray,’ Carstens said.
As credit markets keep scoring points, avoiding most of the undesirable April roller coaster, the ECB escalated its scrutiny of lenders’ exposures to private markets amid concerns that the fast ascent of related asset classes raises substantial new risks. Private credit has become a $1.7 trillion private credit industry, with the volume of loans to private debt funds soaring 145% over the past five years. The watchdog sent letters to executives at certain banks cautioning them on their practices in financing private funds, in a move likely also motivated by the risk that banks prefer to loan to private debt funds (with highly secured loans and high yield)…than to EU governments or even corporations directly.
The US investment-grade primary bond market is having its busiest May since 2020 as well as easing tariff pressure led companies to borrow while they can, Bloomberg reported. Bond sales arranged by bankers across Europe also surged past €1 trillion for the year in the quickest time ever.
Elsewhere, while the US and China seemed on course to stepping back from an escalating and dangerous war of tariffs following the May 12th truce announcement in Geneva, last week threw some cold water on the most optimistic expectations with moves still likely that will be potentially even more damaging to trade and global supply chains. In particular, on Wednesday, President Trump suspended the shipment of American semiconductors and some aerospace equipment needed for China’s commercial aircraft, the C919, a signature project in China’s push toward economic self-reliance, the NYT reported. More hard-lined perhaps, Secretary of State Marco Rubio said that the US plans to start ‘aggressively’ revoking visas for Chinese students.
Precious metals corrected slightly last week with Gold dropping -2% while broad commodities dropped by a similar amount on weak growth dynamics.
Over the past week, the S&P500 gained 1,1% (0,6% YTD) while the Nasdaq100 gained 1,0% (1,5% YTD). The US small cap index gained 0,9% (-7,2% YTD). AAPL dropped -0,3% (-19,8%).
The Equally Weighed SP500 gained 0,8% (0,7% YTD), underperforming the S&P500 by-0,3%. The median SP500 YTD return closed the week at 0,6%.
Cboe Volatility Index sold off by -8,4% (7,0% YTD) to 18,57.
The Eurostoxx50 gained 0,8% (11,7%), underperforming the S&P500 by-0,3%.
Diversified EM equities (VWO) dropped -1,3% (6,7%), underperforming the S&P500 by-2,3%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,4% (-6,7%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,1% (5,5%).
10Y US Treasuries rallied -11bps (-17bps) to 4,40%. 10Y Bunds dropped -7bps (13bps) to 2,50%. 10Y Italian BTPs rallied -10bps (-4bps) to 3,48%, outperforming Bunds by -3bps.
US High Yield (HY) Average Spread over Treasuries dropped -15bps (28bps) to 3,15%. US Investment Grade Average OAS dropped -4bps (8bps) to 0,95%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -4bps (-2bps) to 0,62%.
Gold sold off by -2,0% (25,3%) while Silver dropped -1,5% (14,1%). Major Gold Mines (GDX) rallied 3,0% (49,4%).
Goldman Sachs Commodity Index dropped -1,9% (-2,3%). WTI Crude dropped -0,7% (-15,2%).
Overnight in Asia…
S&P future -18 points; Hong Kong -2.2%; Nikkei-1.4%; China -0.5%
The nationalist candidate seems geared to win Poland’s presidential election, defeating the centrist mayor of Warsaw in a blow to the country’s pro-European Union government, Bloomberg reported. K. Nawrocki, a conservative historian and former boxer, won 51%, while R. Trzaskowski took 49%, according to a projection based on preliminary returns and polling. A first exit poll had the centrist ahead. Official results are due early today.
Over the week end and just days after German Chancellor Merz authorized the use of German missiles to strike deep into Russia, Ukraine struck a military base deep in Russia in Murmansk, taking out several strategic bombers and hit the city of Severomorsk, housing Russia’s nuclear submarines, marking a major escalation raising the odds for potential global consequences (that probably also sealed dead so-called peace negotiations ostensibly wished by no one).
“If China doesn’t want NATO being involved in Southeast Asia or in Asia, they should prevent North Korea from engaging on European soil,” Macron said in a keynote address at the annual Shangri-la defense summit in Singapore, amidst an ongoing debate in the EU about how the bloc should go about with the war in Ukraine (closer to home).
Over the week end, Federal Reserve Governor Christopher Waller said he continues to see a path to interest-rate cuts later this year. Waller said tariffs will raise inflation in the “coming months,” but he supports looking through any near-term rise in price growth when setting policy as long as inflation expectations remain anchored. “Assuming that the effective tariff rate settles close to underlying inflation … I would be supporting ‘good news’ rate cuts later this year…” Waller said in Seoul.
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