A rapidly falling Chinese Yuan highlights the threat of trade tariffs to the Chinese economy.
Expect another sell-off of foreign reserves by China, as in 2015 to 2016, in attempt to stabilize the Yuan and head-off a major capital exodus. The sell-off would weaken the Dollar and Chinese exports.
Significant monetary easing by the PBOC is also likely, to stimulate domestic demand. Driving the Debt-to-GDP ratio into the stratosphere.
The Aussie Dollar would act as a shock-absorber, following the path of the Yuan.
Cushioning the blow to Australian exporters.
So far, Resources stocks are unfazed. The ASX 300 Metals & Mining index is consolidating below 4000.
The ASX 300 Banks index ran into stiff resistance at 8000. Expect another test of primary support at 7300 but this is not related to trade tariffs.
The ASX 200 appears unperturbed by the international turmoil, retracing calmly to test its new support level at 6150. Respect would signal another primary advance, with a target of the October 2007 high at 6750.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.