Now hear me out, I’ll keep it short:

While this morning’s trade report provides yet more fuel for the Administration’s fire (the “deficit” came in above consensus expectations), I would argue that it was actually a very bullish report and totally supports Washington’s ambitions going forward.


Here are the highlights:

International Trade in Goods

Released On 3/28/2018 8:30:00 AM For Feb, 2018
Highlights

The nation’s trade deficit in goods failed to improve in February, at a very steep $75.4 billion which is nearly $1.5 billion deeper than Econoday’s consensus and little changed from January’s revised $75.3 billion. Imports rose 1.4 percent in the month with foods rising sharply along with imports of capital goods and industrial supplies as well. Imports of vehicles rose sizably but not consumer goods which posted only a small gain.

Exports are actually strong in this report, up 2.2 percent with gains centered in vehicles, which are usually a weak category, and also capital goods which is the nation’s strength. Exports of consumer goods, a major weakness, declined sharply after bouncing higher in January.

So why is that so good? Well, for starters, it suggests that the American consumer is in very good shape (let’s keep it that way!). Plus, U.S. exporters actually had a very good month, per paragraph two. But it’s the bigger picture that plays perfectly for the Administration (and for us) going forward: The $75.4 billion representing the surplus of dollars (the result of us buying more from foreigners than they bought from us) in the hands of foreigners represents the capital that has to ultimately flow back in the form of direct investment into the U.S.. That investment will come to no so small degree in the form of purchases of U.S. treasury securities, which will be sorely needed if interest rates are to stay reasonable while Washington ramps up the spending, just after passing a major tax cut.


Which makes yesterday’s announcement that Washington is fixing to limit foreign investment in the U.S. all the more confusing, and quite negative, for the market.