In the wake of the BHP Billiton warning
about slowing steel demand growth in China, global equity markets deflated overnight. This incident illustrates the point I made earlier in the week about how the health of this equity rally depends on the American consumer
Another market analyst made the point to me succintly about the lagging performance of commodities and commodity related stocks. The Aussie Dollar is underperforming the Canadian Dollar. Australia is more levered to China (and more weighted to base metals) while Canada is more exposed to the United States. If CADUSD is outperforming AUDUSD, then it's a sign that the market believes that there is more near term economic upside in the US compared to China.Bullish tripwires
I have made the point that depending on the American consumer to fuel this equity rally is a risky bet. If this rally is have any real legs, then we need to see a broader based rally around the world. Right now, the weak link is the Chinese outlook. As a pre-condition, commodity prices ideally should start to recover more and begin to take a leadership position in the next few months in order for this bull to get a second wind.
Here are what I am watching for. First, commodity sensitive currencies like the Aussie Dollar need to, not only hold support, but to show some strength and rally through resistance at 108.60.
Similarly, the Canadian Dollar, which has held up better than the AUDUSD exchange rate, needs to rally through resistance at 101.60.
Finally, I am watching the Hang Seng Index, which rallied up to 21,800 but couldn't overcome the overhead resistance at that level.