The X factor is hitherto unknown - that is what makes it the X factor. It is like a blind left hook - we don't see it coming.
Europe is the biggest single market bloc in the world and while it is still alive culturally, it is dead economically. While the demise of demand from Europe is a concern for China, I don't think it will keep Chinese leaders awake at night. China just has to ramp up domestic demand, or so the theory goes. But China is a bubble in the making and bursting bubbles are an X factor. They often come like a tsunami in the night and rarely on the day they are expected. Bubbles burst - that is their nature - as opposed to balloons that deflate slowly.
So should Canada, USA, Australia and China’s other trading partners be worried?
There is no need to be worried sick but a Chinese economic contraction will cause some pain. China takes 50-70% of various minerals from the worlds' miners and a slowdown will have an impact on our mining industry too.
It is little known that China produces a high proportion of foodstuffs and medicines in addition to the better-known manufacture of textiles, toys and machinery etc. A stronger Yuan is inevitable as it cannot be held artificially low forever and this will lead to higher prices and inflation.
A stronger Yuan would be welcomed by the USA but the markets dislike uncertainty and they will get jittery in the lead-up to any significant foreign currency gyration.
Because China touches so much of our lives, anything to do with China will create a ripple effect - possibly minor, possibly major, possibly tsunami.
Recent news in the markets has been relatively benign and this ‘calm’ has seen the markets rally. The gravity and effect of ‘today’s news’ is relative to what has preceded it and the last few weeks have caused many wakeful hours around the globe, around the clock. Good news can be interpreted as bad news and vice versa - it depends on what preceded it. And if this rally continues, the traders will find reasons to take their money off the table.
Volatile markets and range trading can be self-fulfilling realities. From a trading perspective this means that even the big players (Institutional Investors) resort to short-term plays and this in turn makes markets ‘whippy’. This then becomes self-fulfilling as this action makes it tougher for a new trend to develop.
So if short-term trading is good enough for the Instos, perhaps it is also a good option for retail investors. Just make sure you have your disciplines in place. And be prepared for the X factor.
Enjoy the ride