Japan's Trade Balance Slips to Deficit Pressures Metals

By FX Empire Analyst - Barry Norman
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Asian equity markets opened weak after weak a closing of the US exchanges and further declined due to narrowing Japan’s trade balance. Yesterday US markets saw the Dow reach a new high before turning to decline. Japan slipped back into a trade deficit in July, as exports languished and imports of gas and generating equipment surged, the Ministry of Finance has reported. The deficit was 517.4 billion yen (6.5 billion US dollars) in July, according to provisional trade figures. That compares with a 69.7 billion yen surplus a year earlier and a modest surplus of 62 million yen in June of this year. Exports fell 8% from a year earlier in July to 5.3 trillion yen (66.9 billion US dollars), while imports rose 2% to 5.83 trillion yen (73.6 billion US dollars), the ministry said.

Japan has managed to eke out small trade surpluses in some months over the last year, but reported a record annual trade deficit for the fiscal year that ended in March.

Base metals are trading down by 0.1 to 0.63 percent at the London Metals Exchange. Early morning, pessimism has again crept in the markets in the form of weak trades data indicating continued weakness in economic activity. Further, the Chinese equities have also remained weak though the Premier hinted at $23 billion of investments in durables and housing to boost demand for industrial metals including iron-ore.

 During the European session yesterday, the Luxemburg Prime minister also the chief among the Euro-zone finance ministers would visit the Greek counterpart to discuss the possibilities ahead of the European summit. Further Germany is scheduled to auction 5 billion 2-year notes and amidst such developments, investors may grow weary regarding the actions and may likely weaken metals.

There are no major releases scheduled from the European Union and metals may remain subdued and continue to fade along with the shared currency.

As the US session opens later today, markets should perk up and may become volatile.  The US existing home sales and mortgage applications may increase at a slower pace after recent surge in leading and coincident indicators and may support gains in base metals. Also the minutes of FOMC may provide some reaction while similar to BOJ the Fed may also refrain from additional easing and may disappoint gains.

Anticipation of better US housing might limit other currency pairs and may boost dollar index restricting other currency buying.

Gold prices are trading almost flat at $1639 levels may be taking slight ease breath and preparing to make a rally ahead of the FOMC minutes.

Meanwhile, weaker than expected trade figures of Japan today has further weighed although there doesn't seem to be much impact on gold rather this may prompt investors’ to remain long in gold.

Data releases from US are likely to have marginally positive impact on the dollar or gold.

An important point to discuss here is minutes of FOMC meeting held last month is likely to turn markets upside down if depending on comments and interpretations of the minutes.

This morning silver prices are trading at $29.27 slight dip from previous close. Certainly, when all Asian equities are trading down we should see some dip in the industrial metals and so the impact is now felt over silver this morning. As discussed above the Japanese trade balance has shrunken for the month of July we have been seeing all Asian peers are in red now. Of course, negative cues have been also followed from last day’s Wall Street’s performance. As discussed, going ahead we do not see any data releases from euro-zone/Germany but likely meeting may have optimism on euro so we could see precious metals or few other asset classes might perform better, so we could see some more soothing on silver trend. Nevertheless, equities movement across the globe should have to be tracked carefully. By any means, if equities continue to trade down then we might see slight submissive impact on silver too. The FOMC minutes, would have the same affect here as for gold and the metals pack.

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