Japanese Trade Retreats Further

Analisi Giornaliera - 21/11/2016

Stronger Yen Weakened Exports in Spite of More Upbeat Outlook


Japanese trade figures reported overnight for the month of October were another disappointment for the Bank of Japan as a stronger Yen hurt the export economy.  Imports also tumbled, with the figures highlighting the dependence on a weaker Yen for reaching the ambitious inflation target and restoring economic activity.

Japanese Export Contraction Deepens

In another blow to Abenomics and the Central Bank’s easing activities, Japanese trade remained under pressure during October, with both exports and imports sliding on an annualized basis.  According to the Ministry of Finance, exports contracted for the 13th straight month in October, declining-10.30% on an annualized basis.  The export figure printed well below estimates of a -8.60% loss, only outpaced by the steep -16.50% drop in imports over the same period.  The main reason behind the drop was falling shipments to the United States, China, and the European Union.  The result was a trade surplus that narrowed modestly to JPY 496 billion from JPY 498 billion a month earlier.  However, the dramatic weakening in the Yen over the last month might fuel a reversal in November.  In the meantime, the Yen remains on the mend, sustaining the overnight strength.


Dollar Rally Faces Slowing Momentum

After significantly higher momentum over the last two weeks that saw the dollar rise to its highest point in years against a basket of currencies, the US currency is facing a fresh retreat with most technical indicators suggesting the dollar is overbought.  The result has been a steep slight pullback in the currency that may well be accompanied by a deeper correction over the course of the session.  With the dollar giving back ground, precious metals are trending higher while stocks are trading more mixed.  After reaching new record closes last week, Dow futures are slightly lower after the weekly reopening while the Nasdaq Composite and S&P 500 are recovering from last week’s losses.  Meanwhile, gold prices have managed to bounce back from May lows, trending just shy of $1215 per troy ounce.


OPEC-Led Output Cut Chatter Drives Oil Higher

With the Vienna meeting rapidly on the approach, oil prices are climbing once more amid speculation that OPEC members will lead the way when it comes to paring existing oil output.  While on a headline basis the development is positive for oil prices, driving WTI back above $46.00 per barrel, there still remain significant hurdles to any deal implementation.  Although Iran might come to the table if they are exempted from cutting output and instead only required to freeze production, the onus on Gulf countries to cut production may scuttle any potential deal.  In the meantime, the American oil drill rig count continues to rise, with the latest Baker Hughes report showing that the count has risen in 22 of the last 24 weeks.  Without more demand growth, the resulting higher production globally may negate any output cuts implemented by OPEC.



China Forges Ahead With New Trade Agreements

In a bid to steal the spotlight with the Transpacific Partnership talks on the rocks, China is working to go ahead and build its own Asian free trade agreement with 21 other nations.  Promoted by Chinese President Xi Jingping as an opportunity to develop more sustainable partnership through the Asia-Pacific region, the deal is already in the process of negotiation.  With the void left by the fallen TPP deal, the Chinese are rapidly looking to fill the role of dealmaker in the region as the country struggles to maintain growth.  The Yuan has continued to fall versus the US dollar, with the offshore Yuan plunging to the lowest levels on record overnight.  Considering faltering global trade, the next stop for USDCNH may be 7.0000, accelerating the pace of capital outflows from the nation.


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