Over the weekend, Trade Balance figures out of China showed the first quarterly deficit since Q1 2004, on an increase in commodity prices, a rise in imports (up 27.3% from the 19.4% rise in February) and seasonal slowdowns in business activity.  The data comes as G20 central bank members meet in Washington to discuss conflicts in the Middle East and Japan, as well as the complexities of the European sovereign debt agreements that are currently being written.

For the month of March, the Chinese government reported on Sunday that the trade balance reached a surplus of $139 million after the $7.3 billion deficit that was registered for the month of February.  This translates to a deficit of $1.02 billion for the first quarter of 2011, which is the first quarterly trade deficit since the first quarter of 2004.

Consensus expectations are still projecting that China will post a trade surplus for the remainder of 2011 as cyclical factors level out and raw materials imported early in the year are processed and exported to foreign markets.  The yearly surplus, however, is expected to decrease in relation to 2010 as the Yuan continues its slow rise, labor costs increase and inflationary pressures make the prices of exports higher.

These factors come as commodity prices remain at elevated levels, increasing the costs of imported raw materials.  Market expectations are calling for a 2011 trade surplus of roughly $150 billion.  If these predictions are correct, it would show a drop of 20% from the levels seen in 2010 and create the third consecutive yearly drop in China’s trade figures.

In commodities, gold has once again reached record highs and silver has passed $41 per ounce, making gains for the 9^th consecutive day and matching the biggest rally since the beginning of 2008.  Investors use these metals as a means for hedging against inflationary pressures in the global economy.  Metals are not the only commodities pushing higher, as we see crude oil currently at a 30-month high above $113 per barrel as Middle Eastern turmoil still has not reached a resolution.

Gold prices have risen 3.8% so far in 2011, after the 30% rally that was seen in 2010.  Investors preparing for widespread currency debasement and higher inflationary pressures looked to commodities as a safe alternative to the equities and currencies markets.  Political battles in the Middle East, environmental catastrophes and energy worries in Japan and unresolved debt repayments in the Eurozone have only added to this sentiment and created greater enthusiasm for precious metals.

Technicals:

The Nikkei is continuing to maintain a position at the upper end of its recent range after bouncing forcefully off of support at 8230.  We are seeing higher lows on the hourly charts, which is encouraging but prices have still not managed to overcome resistance at the 100 day EMA (currently at 9840) or at the 61.% Fib retracement of the decline from 10900.  A daily close above these technical indicators would be a significant bull signal and would open the way for a test of support turned resistance at 10390.  Without this, we look to be range trading near term.  First support comes in at 9490.