Aussie GDP prints with a 3 in front of it

The seasonally adjusted number was in line with market expectations at 3.1%. There is little surprise in the set of data outside of the terms of trade which declined by a seasonally adjusted 4% on the prior quarter and 13.7% (a huge reversal) on the prior corresponding period. Australia’s economy is plugging away and the RBA has come to the party as the fiscal situation tightens. One of the main factors overlooked by the market has been the reigning in of government expenditure to pursue a surplus situation in 2012/13 and the impact this has had on overall GDP. Still, the domestic economy has been able to absorb this.

The equities markets were little changed on the news, as was the AUD which slipped slightly but remains firm over the past 24 hours. The big news for the local currency will now be what occurs with its northern neighbors and big picture themes like the IMF’s decision to include the AUD in its FX reserves. It’s a currency that more traders want.

Bottom line: In terms of growth, Australia’s fortunes are very much tied to what happens in China, Japan and South Korea and we finish off 2012 – the year of the Dragon and move into 2013- the year of the snake. Many often perceive snakes as being soft on the outside, but inside they tend to be a lot stronger than expected. Snakes bite when they feel threatened. They can be venomous.

The world is viewing China as an economy that is slowing down but we think there is cause for optimism, sometime after the Chinese New Year in late February, for data to start surprising on the upside. Commodity prices, including Dr Copper, have already moved into a pre-emptive phase in anticipation of better numbers to start flowing next year.

Oil & gas picked up most of the slack from lower base metals and bulk commodities in the September quarter GDP figures but the composition could change next year as key themes reverse. Thermal coal to us looks like it is poised for a major turnaround as global demand improves. Coal was the fastest growing fossil fuel globally as measured by the recent BP Statistical Review for 2012. Iron ore is back to an appropriate US$115-120/t price which looks set to hold and deliver the key miners a very healthy operating margin.