Market Outlook - BNP PARIBAS - Investment Services India

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This section is classified as non-objective researchin the likes of copper. However, fears of a slowdown inChina coupled with new sources of iron-ore supplycoming on tap raises concerns that iron-ore prices mayplay catch up to price declines in some othercommodities. However with significant new productionsources slow to come on stream and any interveningfall in prices likely to take out some marginal high-costproducers, we do not expect any significant near-termfall in prices. This view is contingent on there being nosharp decline in Chinese growth.We expect China’s growth to remain above 8% in2012, marking a slowdown but not a hard landing. Theslowdown in money supply growth raises concernabout the strength of investment, currently the keyengine of growth in China. We expect investmentgrowth to moderate somewhat in 2012. But if, as wealso expect, Chinese inflation continues to ease, theauthorities will likely become more aggressive in someof the selective easing measures already taking place.These will be directed primarily at improving financingconditions for firms, keeping investment elevated andwith that commodity demand.A simple model of the AUD using China’s overallimports as the dependent variable does a good job ofexplaining moves in the AUD ToT and with thatAUDUSD (see Chart 4). If Chinese imports hold firm in2012, as we expect, then AUDUSD should remain at orabove parity. QE3 from the Fed could then get uscomfortably above 1.10.A key risk to our medium-term outlook is if China wereto halt USDCNY depreciation in an effort to mitigatethe impact of a slowdown in exports to Europe, China’s1.21.00.80.60.4Chart 4 : AUDUSD actual vs. fittedActualFittedJun-99 Jun-02 Jun-05 Jun-08 Jun-11Source: Reuters EcoWin Pro, BNP Paribaslargest trading partner, which looks to be re-enteringrecession. In July 2008, when the global financial crisiswas worsening, China repegged the CNY to the USDin the context of a falling EURCNY exchange rate.From the time of the repeg in mid-July to just beforethe Lehman debacle, AUDUSD collapsed by nearly18% (Chart 3). The CNY re-peg was not the only factorpressuring AUD, but it was symptomatic of thebroader global conditions under which AUD suffered.Providing a eurozone calamity is avoided, we expectUSDCNY depreciation to continue in the context ofChina pursuing a broadly stable (trade weighted) FXpolicy. Should this view prove wrong, all bets onAUDUSD making new highs in 2012 are off.Mary Nicola 20 October 2011Market Mover52www.GlobalMarkets.bnpparibas.com
Economic Calendar: 21 - 28 OctoberGMT Local Previous Forecast ConsensusFri 21/10 06:45 08:45 France Industry Survey : Oct 99 97 9806:45 08:45 Services Survey : Oct 95 95 n/a08:00 10:00 Germany IFO Business Climate : Oct 107.5 106.0 106.208:00 10:00 IFO Current Conditions : Oct 117.9 116.9 116.508:00 10:00 IFO Expectations : Oct 98.0 96.0 97.008:30 09:30 UK PSNB : Sep GBP13.2bn08:30 09:30 PSNB Ex-Interventions : Sep GBP15.9bn GBP14.0bn GBP15.0bnEurozone ECB’s Trichet, Praet & Stark Speak in Warsaw10:30 12:30 ECB’s Costa Speaks at Conference in Lisbon11:00 07:00 Canada CPI m/m : Sep 0.3% 0.2% 0.2%11:00 07:00 CPI y/y : Sep 3.1% 3.2% 3.1%17:00 13:00 US Fed’s Kocherlakota Speaks in Minneapolis17:20 13:20 Fed’s Fisher Speaks on the Economy in Dallas19:00 15:00 Fed’s Yellen Speaks on US Economic Outlook & Policy in DenverSat 22/10 08:00 10:00 EU Finance Ministers Meet on Debt Crisis14:00 10:00 US Fed’s Duke Speaks on Financial Planning in VirginiaSun 23/10 EU Leaders Hold Summit in BrusselsMon 24/10 23:50 08:50 Japan Trade Balance (nsa) : Sep JPY-777.2bn JPY145.9bn JPY200.4bn(23/10)00:30 11:30 Australia PPI q/q : Q3 0.8% 0.6% n/a00:30 11:30 PPI y/y : Q3 3.4% 2.7% n/a07:30 09:30 Neths Producer Confidence : Oct -0.5 -3.0 n/a08:00 10:00 Eurozone PMI Manufacturing (Flash) : Oct 48.5 48.0 48.208:00 10:00 PMI Services (Flash) : Oct 48.8 48.5 48.508:00 10:00 PMI Composite (Flash) : Oct 49.1 48.8 n/a09:00 11:00 Industrial Orders m/m : Aug -2.0% 0.6% -0.1%12:45 08:45 US Fed’s Dudley Speaks on the Economy in the Bronx17:00 13:00 Fed’s Dudley Speaks to the Bronx Chamber of CommerceTue 25/10 06:00 08:00 Germany GfK Consumer Confidence : Nov 5.2 5.1 5.106:45 08:45 France Consumer Confidence : Oct 80 80 n/a06:45 08:45 Housing Starts (3-mths) y/y : Sep 7.4% 9.0% n/a07:00 09:00 Spain PPI m/m : Sep -0.3% 0.1% n/a07:00 09:00 PPI y/y : Sep 7.1% 7.2% n/a07:30 09:30 Sweden PPI m/m : Sep 0.3% 0.5% n/a07:30 09:30 PPI y/y : Sep 0.9% 1.0% n/a08:00 10:00 Italy Retail Sales m/m : Aug -0.1%08:00 10:00 Retail Sales y/y : Aug -2.4%09:00 11:00 ISAE Consumer Confidence : Oct 98.5 n/a13:00 15:00 Belgium Business Confidence : Oct -9.4 -10.0 -9.513:00 09:00 Canada BoC Rate Announcement13:00 09:00 US S&P/Case-Shiller Home Price Index : Aug 142.7714:00 10:00 Consumer Confidence : Oct 45.4 46.0 46.514:00 10:00 FHFA HPI : Aug 0.8%Market Economics 20 October 2011Market Mover53www.GlobalMarkets.bnpparibas.com
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