Financial markets were pressured by demand concerns in China with BHP Billiton mentioning that iron ore demand in China has flattened and China Association of Automobile Manufacturers official suggesting that the country may miss vehicle sales forecasts this year. Wall Street slipped. Despite a late recovery after firm US housing permit data, the DJIA and the S&P lost -0.52% and -0.30% respectively. In the commodity sector, the front-month contract for WTI crude oil, plunging for the first time in 3 days, lost -1.87% to settle at 106.07, while the equivalent Brent crude contract dropped -1.26%.

There were more signs showing that China's economy is slowing down. Miner BHP Billiton stated that that 'the big infrastructure build' in China 'clearly will come to some end' and 'steel growth rates will flatten, and they have flattened, and we still see positive growth out to the middle of the next decade'. Rio Tinto Group also stated that 'the rate of GDP growth in China is more immediately slowing'. Yet, the management remains 'confident on the basis of the figures we have seen, of a soft landing, with solid growth for this year'.

Separately, the China Association of Automobile Manufacturers cautioned that China's car sales may miss their 8% growth forecast this year as 'the slowing economy and rising fuel costs curb buying'. Weaker macroeconomic outlook may make the growth rate to fall below 5%. According to Gu Xianghua, deputy secretary general of the Association, 'the slowing macro-economy will make it difficult to secure loans for commercial vehicles, restrictions on car ownership such as in Beijing, and car ownership costs such as fuel and parking fees are increasing'.

On the dataflow, US housing starts slipped -1K to 698K in February, compared with market anticipation of a modest rise to 700K from the prior month. Building permits, however, soared +41K to 717K in February, much stronger consensus of a rise to 685K. Ahead of the official oil inventory report from the DOE/EIA, the industry-sponsored API estimated the crude inventory fell -1.4 mmb to 347.87 mmb in the week ended March 16. For fuel stocks, gasoline fell -1.4 mmb to 224.94 mmb while distillate added +0.60 mmb to 138.06 mmb.

Weekly change in inventory as of 16/03/11
Change
Consensus
Previous

Crude oil
 
+2.10 mmb
+1.75 mmb

Gasoline
 
-1.80 mmb
-1.41 mmb

Distillate
 
-1.60 mmb
-4.68 mmb

Comparison between API and EIA reports:

API (Mar 16)

EIA (Mar 16)

Actual
Inventory
Previous

Forecast (using API's inventory level)
Inventory

Crude oil
-1.40 mmb
347.87mmb
+2.78 mmb

+0.42 mmb
348 mmb

Gasoline
-1.40 mmb
224.94 mmb
-2.14 mmb

-3.18 mmb

225 mmb

Distillate
+0.60 mmb
138.06 mmb
-3.55 mmb

+3.24 mmb
138 mmb