Numbers released Tuesday show that Chinese industrial production came in below expectations. Slowing fixed-asset investment could lead to potential headwinds in economic growth in coming months. This is concerning due to China's wide reach of influence in the global economy.
The Chinese economy is important due to both its import and export functions. It imports raw materials from surrounding emerging markets, especially commodities from Australia. When demand for its export market decreases, revenue and cash flow to raw material producers fall. This can have negative ramifications for emerging market growth projections.
China's export market is similarly important to the global economy. It exports many low cost products to developed countries and adjusts business spending and investment based on expected output. Weaker output signals developed countries may have slowing consumer demand, which can weigh on profit margins and lead to equity market declines.
Investor sentiment surrounding China is usually driven by the country's domestic growth projections. Financial markets reacted to the release on Tuesday by selling copper and bidding the yen higher. Copper is an industrial metal that is closely tied to Chinese business investment. For this reason many investors use copper's price as a reliable measure of economic health.
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The metal sold off rapidly following the release, but it soon stabilized. The long term trend is upward, but uncertainty surrounding future policy in both the United States and China could lead to copper prices consolidating for a few months.
Similarly, the yen was bid higher on the industrial data release. The Japanese currency generally strengthens during times of market weakness as investors prefer its safe-haven status. Weakness in the Chinese data prompted a selloff in global equities, and hinted at weaker future growth out of the region.
The dollar/yen currency cross looks to have formed a double top pattern on the daily chart, predicting future strength in in the yen. The culmination of both a weaker China and appreciating yen could be a negative catalyst for global equity markets going forward.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.