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Global Macro: China's Strength Lifts Worldwide Outlook

NEW YORK ( TheStreet) -- Although much of the focus has been on the Western world in recent weeks, developments in the Far East have also had global implications.

Chinese manufacturing data this week showed moderate expansion on all fronts of the Chinese economy. Although the growth is not considered robust, it is a good sign for global growth for the rest of 2013.

The first chart below is of CurrencyShares Australian Dollar Trust (FXA) over CurrencyShares Japanese Yen Trust (FXY). The Aussie dollar shot higher against the yen toward the end of August as stronger commodity prices and Chinese economic health supported dollar bids.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12024890/1/kass-short-term-market-outlook-improves.html"><em>Kass: Short-term Market Outlook Improves</em></a>]

Similarly, the Reserve Bank of Australia shied away from implying imminent rate cuts, as the board stated it needs to see more economic data to make a more informed decision. Selling pressure in the yen as fear over a Syrian strike from Western powers has also buoyed the Aussie/yen currency cross.

If fears subside over the Middle East and economic growth expectations improve, the Aussie dollar could rally into the new year.

The next chart is of iShares China Large-Cap (FXI). Chinese equities have also benefited from stronger Chinese data.

Economic data in both the manufacturing and services industries proved stronger than expected, which pushed the index shown below to the high points of its range.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12025648/1/why-microsoft-grabbed-nokias-devices.html"><em>Why Microsoft Grabbed Nokia's Devices</em></a>]

China is moving toward a more consumer-driven economy while being less investment oriented, and its policymakers are backing that move. If the economic data continue to improve, then Chinese equities can rally to yearly highs over the next few months.

The last chart is of iPath DJ-UBS Copper TR Sub-Idx ETN (JJC). Copper is a barometer of global economic health, as it is in demand during periods of economic expansion because of its industrial uses.

As seen in the chart below, copper has run into strong overhead resistance in recent weeks. The stronger U.S. dollar, the fear of U.S. monetary tightening and the war in Syria have all led to weaker copper prices.
[Read: <a target="blank" data-add-tracking="true" href="http://www.mainstreet.com/article/career/why-precise-and-odd-numbers-work-best-salary-negotiations"><em>Why Precise and Odd Numbers Work Best in Salary Negotiations</em></a>]

If both the Aussie dollar and Chinese equities break higher and show increased strength over the next few weeks, copper should follow suit and move above overhead resistance.

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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FXI $34.28 0.00%
JJC $26.86 0.00%
AAPL $107.72 0.00%

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