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Economic Insights

Top global miner BHP Billiton might hold back 3 giant projects due to weaker commodity demand

BHP is possible to put its 3 mega projects – Outer Harbour, Olympic Dam and Jansen potash on hold due to the likelihood of lower earnings report later and weak global commodity demand.

From the chart below, you can see the high sensitivity of price movements among these three.Source: BloombergClick the image to enlarge

The earlier slippage was mainly due to the slower demand from the biggest buyer causing the price of iron ore, copper, coal, etc. to fall drastically. China’s Iron Ore Output declined 10% y/y on July. However, there are rumours that China is preparing to absorb more lower-grade iron ore at the current lowest price in the past 3 years given the ship cost dropped drastically as well. The Baltic Dry Index has plunged more than 60% YTD (Year to Date).

The Shanghai Composite Index is reaching a 4-year low because of the reluctance for further reserve requirement ratio (RRR) cut from the China’s officials, and the opening of new accounts have also declined nearly 6 times compared with 4 years ago.Source: BloombergClick the image to enlarge

EURUSD still holds firm on central bank’s bailout hope

The common currencies still hold well although the European Central Bank (ECB) has denied the rumours that it will set a floating cap for Spanish and Italian bond yields since the maximum spread to Bund will be set.

Spain’s sovereign’s yield has fallen significantly on the hope of ECB’s action, and investors strongly believe that the ECB is planning the details, which might be announced in the coming ECB press conference. Meanwhile, German Chancellor Angela Merkel’s government has been showing more willingness to share the burden to make the currency bloc integrated.Source: BloombergClick the image to enlarge

At the same time, German officials seem to be backing up Greece as long as the basic elements of “austerity to bailout” are there. The Greek officials are going to meet the leaders from the region this week.