On Wednesday, we looked at diesel engines for clues regarding the global economy. Today, we look at the world's manufacturing engine: China.
Since freeing up its economy in the early 1980s, China has become world's workshop. Last year, it surpassed Germany as the world's top exporter of goods. This manufacturing growth has vaulted China into the No. 2 spot in crude oil consumption and the No. 1 spot in copper and iron ore consumption.
All of these "world's top" titles make it a critical market to monitor. As we detailed last month, worries about China's overheated economy and real estate malinvestment sent the "Dow Industrials of China," the Shanghai Composite index, below its September 2009 low and into bear market territory.
Since that horrible stretch, the Shanghai index has held steady in the 2,600 range. The bullish crowd needs this small "toehold" level to hold up under the selling pressure. A break below 2,600 and into the low 2,000s will be an awful signal of what's to come for the world's workshop.
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