ASX wagon follows China engine

The ASX wagon is clearly hitched to the Chinese growth engine. When China slows and commodity prices fall, the ASX is sure to follow.

The Shanghai Composite Index is simply a barometer of the main show, which is Chinese real estate and infrastructure investment. Chinese stocks are again falling, with the index headed for a test of primary support at 3000. Rate rises in the US are likely to increase capital outflows from China. The PBOC’s massive foreign currency reserves act as a buffer but have already been depleted by half a trillion Dollars. Loosening the peg against the Dollar may soften the immediate impact on reserves. But a falling Yuan is likely to further encourage capital outflows.

Shanghai Composite Index

The ASX 200 broke primary support at 5000. Reversal of 6-month Twiggs Momentum below zero signals a primary down-trend. Follow through below 4900 would confirm the decline, with long-term support at 4000*.

ASX 200

* Target calculation: 5000 – ( 6000 – 5000 ) = 4000

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