China Saving the World?
In response to US allegations, China published a 71 page document outlining their stance on the strained trade relations between the two countries. The document states that China considers itself a victim of the United States’ aggressive protectionist trade policy. The Chinese government believes what they call Trump’s ‘trade bullyism’ to be the greatest risk to global trade and emphasized the importance of their role in standing up to it. The document goes on to say the China would prefer to resolve the issue through negotiation, however, they also claim no trade talks can happen with the US holding ‘a knife to their throat.’ It’s clear that China sees itself as taking the moral high ground on the matter and their publication is meant to emphasize that position. In addition to trade, there is now also an emerging ideological front that may in the future become vital for both sides in securing allies.
Slump
Chinese markets reopened today, giving investors the opportunity to sell off their stocks. Market sentiment is once again gravitating towards low-risk, especially on the Hong Kong exchange. The Hang Seng and Shanghai Composite fell by 1.62% and 0.58% respectively. These declines are especially notable considering the Chinese government is following up on their earlier statements about liberalizing their financial sector, which was a hit with the market back in the summer. Chinese officials attending the World Economic Forum were hopeful about foreign financial institutions potentially appearing en masse in China with full ownership of their own subsidiaries. China has become noticeably more active in their policy of encouraging foreign investors. Meanwhile oil prices continue to soar. North Sea Brent Crude is now above $81.5 and the price of WTI exceeds $72, bringing oil prices close to their 4 year high.
Nasdaq
Despite minor setbacks, the Nasdaq continues to vigorously reach for new heights. This index comprised primarily of tech sector company stocks appears completely unaffected by any signs of the global pessimism in the markets.
The index set a new record in September at 7698, followed by a brief price correction, however, the trend itself remained unbroken. The correction in question was stopped by the 7423 level, which can now be considered a powerful line of support. Price met this line before on September 18, when it halted a sharp decline, then caused price to reverse and shoot upwards with equal intensity. The chart suggests resistance lines are more flexible and easier to breach than support lines, indicating that investor trust in tech sector stocks remains unshaken.
AUDJPY
As unusual as it may be, the likely cause for the Australian dollar strengthening against the Japanese yen could be the strengthening of the US dollar. This correlation has two main components. One of them is the weakening USD pushing commodity prices upwards and having a positive effect on the natural resource driven Australian economy. The other is the heavy correlation the Japanese yen has been showing with the US dollar for the past few months. Specifically, how the yen weakened in every major currency pair whenever the USD declined.
Due to the reasons outlined above, the AUD sharply increased against the yen, even breaking through the trend channel active since July. The initial attempt to break the channel’s upper limit failed and was followed by a second, successful one. There were two major waves of upwards movement in September. When connected at their lows, they combine into a sharp upwards trend peaking at 82.36, a one and a half month high. Since price is now back above 80.85, said line has now become the primary line of support. The reason being its role of supporting the pair’s price earlier this year in March. Before it was broken in August, this line used to be considered the AUDJPY’s lower limit. Looking at long term trends, the time price spent below this line may end up being nothing more than a brief downwards spike. The support line’s relative strength makes it suitable for potentially opening new positions if price is nearby.
Sincerely,
Laszlo | Market Analyst
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