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Global Macro: Rising U.S. Rates Dent China

NEW YORK ( TheStreet) -- China and other emerging market economies are feeling the wrath of falling U.S. bond prices and spiking interest rates.

Although the Chinese central bank is lightening up on its tight policy controls and the European economy is healing nicely, the threat U.S. monetary policy poses to both commodity-producing countries and U.S. markets is causing selling pressure in Chinese equities.

The chart below is of iShares China Large-Cap (FXI). Chinese equities bottomed in late June and had been on a steady uptrend till mid-August. Positive economic data out of developed nations as well as their domestic numbers provided the catalyst for China's move higher.

Nonetheless, the tone set by the Federal Reserve meeting minutes, released Wednesday, proved that policy makers were reluctant to temper rising interest rates. As of now, market participants believe September is the date of tightening U.S. monetary policy.

Although Chinese equities are approaching strong support levels, future movements will depend heavily on economic data out of the U.S. for guidance on when tightening will actually occur.

The next chart is of the Australian dollar over the U.S. dollar currency pair. Australia has been under extreme pressure to the downside recently as they have both cut short term rates and hinted at further rate cuts due to economic weakness.

An exchange traded fund that closely tracks the price movement of the Aussie dollar is CurrencyShares Australian Dollar Trust (FXA).

Australia produces commodities and exports heavily to China. This makes their economic production strongly tied to global demand and Chines economic health.

The currency pair had fallen since the beginning of May and just recently consolidated at its yearly lows in mid-July.

Although the price action has remained directionless for around a month, the future movements of both Chinese and other emerging market economies should move this pair out of its range.

The last chart is of the copper daily chart. As the dollar weakened and emerging economies broke higher out of consolidation patterns in early August, copper similarly broke higher. Prices quickly reached strong resistance levels and have since corrected lower.

An ETF that closely tracks the movement of copper is iPath DJ-UBS Copper TR Sub-Idx ETN (JJC).

Rising interest rates and weakening emerging markets have suppressed copper's ability to move above resistance. If the Fed chooses to let interest rates rise further, copper and global assets could sell off and move to yearly lows.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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