Investors head for bonds as US trade gap widens
Charlotte Denny
Wednesday August 21, 2002
The Guardian
Investors scurried for the safe haven of government bonds
yesterday, unsettled by official figures underlining the size of
America's gaping trade deficit.
The US is on course to notch up a $400bn (£262bn) shortfall
between exports and imports this year, with the June deficit of
$37.2bn only slightly lower than the record of $37.8bn set in
May, according to figures published by the commerce
department.
Wall Street fell 130 points on the news, and the gloomy mood
infected share trading in London. The FTSE 100 index of leading
shares closed 57.9 points, or 1.3%, lower at 4,368.9, its first
loss in four trading days.
"Investors are still very hesitant to enter the market," said Diane
Garnick, global investment strategist, State Street Global
Advisors.
"What we're seeing is almost no new dollars being invested in
the market, and, at the same time, lots of dollars leaving the
market."
Some analysts suggested increases in both exports and
imports in June could be a sign of a recovering American and
world economy.
"The trade deficit may be outrageously wide, but the rise in both
exports and imports point to continued economic growth both in
the United States and around the world," said Joel Naroff, head
of an economic forecasting firm in Pennsylvania.
But with the US having notched up its three largest ever deficits
between April and June, most economists be lieve the dollar is
set for a renewed fall against the currencies of its trading
partners.
"US treasury secretary O'Neill is banking on stronger trade to
give third quarter growth a lift," said David Brown, chief
economist at Bear Stearns in London.
"This seems a forlorn hope as the US economy's recent
nosedive has spread abroad. As long as this happens US trade
will not improve; the only way it will improve is if the dollar
slides."
US consumers cut back on spending in the country's largest
stores last week, according to a separate report. Sales fell 0.8%
after a 0.5% drop in the preceding week as early back to school
promotions failed to lure shoppers, according to Instinet
Research's Redbook report.
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