Enis’s Macro Wrap – China vs. the World

by Enis August 27, 2012 7:19 am • Commentary

There is a growing dichotomy building in financial markets worldwide, one that we’ve touched on extensively over the past month.  China is sending multiple signals of distress, both economic and market-based signals, while most other markets are sending signals of calm.  The Shanghai Composite index made new lows overnight, down another 2% and fast approaching the 2,000 level.  U.S. Stocks with heavy Chinese exposure like CAT or YUM are acting as sick laggards in the midst of a strong market.  Large global commodity producers like BHP or VALE are trading near 2 or 3 year lows.  And certain industrial commodity prices, like steel or iron ore, are also at or near 3 year lows.  

Is it a sign of strength or complacency that other equity markets globally are shrugging off the Chinese weakness?  While all eyes are focused on central banks over the next 3 weeks, the potential global impact of Chinese weakness will be a key question over the next 6-12 months.

  • Overnight price action, with the exception of the drop in the Shanghai, was subdued
  • Asian equities closed mostly in the red, but not by much, and European equities opened lower but are now trading up 0.25%.  SPX futures have traded in a tight 5 point range overnight, up 0.25% right now
  • Treasury bonds and the dollar have been close to unchanged all night
  • Oil has been the one mover overnight, as it broke above the 200 day moving average on some buy stops, and is trading up 1%.  Copper and gold are close to unchanged
  • Dallas Fed Manufacturing activity the only main economic data point, at 10:30 am EDT.  The focus this week will of course be Bernanke at Jackson Hole on Friday.