Shanghai Index And Why Is China Pulling Out Of Treasuries?

With so much discussion about China vs. US markets, I thought I would throw the $SSEC vs. the SPX on a chart and see what pops. What I got was sort of interesting. See notes in chart. $SSEC does not look healthy at all on a weekly chart. Just getting pummelled. As with the SPX, I would like to see divergences in the indexes before the big fall. This is a healthy impulsive start to a larger downturn for sure.

On a more sour note for the US debt funding machine the BBC reports that China reduces holdings in US debt. "China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury."

What makes sense is their argument for why. "In recent months the US government's budget deficit has widened thanks in part to the Obama administration's costly stimulus plan. Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar. This would then erode the value of the debt China holds in the US currency. In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%." This goes against all thoughts of the dollar bottoming out.

Maybe they just want cash for stimulus. Maybe since they are in a position to directly effect our monetary value, they are in play trying to control the value of the dollar thru treasury withdrawals. Bottom line is they are going in reverse and this will significantly effect the reflation theme that Big Ben and Timmay are pushing. China's withdrawal from treasuries was always near the top of my list of P3 catalysts.

H/T to Barracuda and Master33 from Kenny's commentary for the ideas.

Your thoughts and comments are welcomed.

GL trading.