News and Market Analysis

Tesla crashes. Aussie/China tension.

Not one to deter from the topic at hand, however today I can’t continue without first talking about Tesla. Seeing its biggest intraday drop since it went public, dropping a solid 21.06% bringing the total loss to 34% for September. This is a head on collision for the electric car and battery manufacturer. Just so you can understand the pain they must be feeling, Tesla was just about to play with the big boys in the in the S&P 500 club after last week getting a stock offering and seeing a record close.

The sell off start last week after a major shareholder reduced its stakes. But it was the S&P Dow Jones Indices snub by not adding Tesla stock to it’s benchmark index S&P 500 that had investors concerned Elon’s battery is running rather flat.

Moving on to some neighboring tension between Australia and China. Trade allies for many decades now has seen Australia and China both benefit greatly from the partnership. Australia rich in resources, cattle and wheat, etc. and China in high demand for it all would see a tense but strong friendship develop. This has also had a great influence on how traders trade the Aussie. You see, with around 30% of Australia’s economy stemming from Chinese trade, we could safely say that if China is doing well then Australia is doing well also.


However, what happens when their is tension between the two? In recent months we have seen Australia stuck in the middle shaking its head vividly not know where to go as they are being forced to make a choice it seems between the long term allies America and China. Whilst China thinks they can pressure this young country and bully them into siding with them, the Prime Minister Scott Morrison is having non of it. Firstly calling for an independent inquiry for the origins of the coronavirus. Secondly he has pulled all foreign correspondents from China. This is seen as a big up yours to China and they are not happy.


Ok but what does it all mean. Yes 30% of the economy comes from Chinese trade that’s ok we can handle a blow in those numbers. But the reality is that the effect of this tension is much greater. We would be looking closer to a 50%+ hit to the economy in my opinion. For example, a drop in Chinese tourism, student and residents. This is already affecting industries outside the general spectrum of China/Australia economic relations. Firstly the property market will take a hit. If the property market is taking a hit then the banks are also going to take a tumble.  less tourist means less flights, meaning less tourism dollars. Lets face it, they are big spenders the Chinese and a few bucks in the casino is not uncommon. So there is another industry which are in the ASX200 that will suffer from the tension. I could go on and on but I think you get the message.


I think it’s important to take a look at this as they play such a crucial role in economic development. The AUD is consolidating at the moments and there is a lot of downward pressure for the short term. However Economist at Westpac are sticking to there guns as they believe that the fair value is at 0.78 and anticipate that it will hold around that level over the remainder of the year.


As we head into the European session, we are expecting today to mark the 7 day fall. With nothing to help it prior to the ECB event on Thursday, there is nothing fundamental there to support the pair.


We are looking towards a bearish outlook targeting 1.1754 as the first support level followed by 2.2709. Should the less likely outcome occur, we will target resistance at 1.2032 and 1.2413.