Chart of the day - (18.09.2023)

11:18 AM 18 September 2023

Today we are seeing strong declines in Chinese indices, with already discounted by nearly 1%. Macro data proved weaker than forecast. Exports of goods, excluding oil, from the world's largest seaport in Singapore fell 3.8% m/m, compared to 4.2% growth expected and 3.2% previous decline. Thus, it can be seen that the period of weakness in some measures is lengthening, and the Middle Kingdom - which relies heavily on demand from Western countries primarily the US - may eventually lose heavily if domestic demand from developed economies falls, for example, as a result of a recession. The fact that far fewer commodities have left China month after month may signal some sort of broader weakness. The impact of a falling Chinese market on the portfolios of global fund managers remains an important question because the weakness in China's economy is taking place in some isolation from the rest of the 'emerging markets'. 

An additional risk factor at the opening of the Chinese session was the nearly 20% drop in Evergrande shares, which admittedly recovered losses but raised broader concerns around China's real estate sector. Also, financially troubled Country Garden was subjected to two important tests, including the preliminary deadline for interest payments on more than $50 million worth of dollar bonds and the completion of a creditor vote on a proposal to extend repayment of yuan-denominated debt. Although China's property sales in August rose m/m other key indicators, such as new housing starts, total area under construction and fixed asset investment in real estate, continued to decline. Data for the 70 largest cities show that property prices fell in the vast majority of cities.

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Looking at the chart, we can see that supply is holding the broader downward trend line and became active again last time at 7000 points. The rebound has lost momentum at 6700 and now sellers are back in the voice again, who may want to once again test the 61.8 Fibonacci retracement of the upward wave from the fall of 2022, at 6000 points. Alternatively, a break of this support downwards could lead to a test of 6750 points, which are located near 5750 points - 61.6 Fibo retracement. To talk about breaking the current trend, the bulls would have to take the index above the SMA200, which is now located at 6672 points.

Source: xStation5

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