In contrast to BHP Billiton’s gloomy outlook for China demand for iron ore announced yesterday, Australia’s Bureau of Resources and Energy Economics (BREE) issued its latest forecasts – and it was certainly upbeat. The agency expects iron ore exports to rise by more than 50 percent by 2016/17 compared with last year on the back of strong demand from China’s steel mills. The AUD managed to claw back almost half of the losses incurred yesterday, helped along by a better overall risk sentiment today. Chinese stock markets recovered almost half of yesterday’s sell-off and this helped Asian bourses recover early losses and stand close to flat by midday.
On the data front, New Zealand posted a narrower current account deficit in Q4 2011 at –NZ$2.76 bln versus a revised –NZ$4.75 bln gap in Q3. The improvement came from higher dairy exports as well as knock-on one-off benefits from the 2011 Rugby World Cup. However, prospects for continued success on the dairy export front look slim as the latest Fonterra auction indicated a steep 4.5 percent decline in world dairy prices (4th decline in a row and steepest one in 8 months). NZ finance minister English warned as much in a speech today where he expected the c/a deficit to widen, though he expects a small budget surplus by 2014/15. The NZD was content to ignore any negative inputs and rallied along with other risk currencies on the back of better sentiment.
Fed chairman Bernanke’s House testimony on Europe has been released already, with the Fed chief outlining that strains within the European financial system have eased, though a full resolution of the crisis would require further strengthening of the banking system. He assured his listeners that US financial institutions have limited exposure to the most vulnerable Euro-zone countries, even suggesting that in the event of a sovereign default, US institutions would be net recipients of any payout.
The CAD suffered as oil prices fell after Saudi Arabia’s oil minister commented that current oil prices were unjustified and the Kingdom stood ready to increase output by as much as 25% to counter any shortfalls in future production.
US data flows were mixed with housing starts falling an unexpected 1.1 percent m/m, but building permits rose to 3 year highs suggesting a better outlook for spring data.
Data Highlights
US Feb. Building Permits out at +5.1% m/m vs. 0.6% expected and 1.6% prior
US Feb. Housing Starts out at -1.1% m/m vs. +0.1% expected and +3.7% prior
NZ Q4 Current Account Balance out at –NZ$2.763 bln vs. –NZ$2.825 bln expected and –NZ$4.599 bln prior
AU Jan. Westpac Leading Index out at +0.6% m/m vs. +0.7% prior
AU Feb. DEWR Internet Skilled Vacancies out at -0.2% m/m vs. -0.1% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP All Industry Activity Index (0430)
Swiss M3 Money Supply (0800)
GE PPI (0700)
Swiss Industrial Production (0815)
UK BOE Minutes (0930)
UK Public Finances (0930)
US MBA Mortgage Applications (1100)
UK Budget Speech (1230)
CA Leading Indicators (1230)
US Existing Home Sales (1400)
Andrew Robinson,
SAXO BANK