In the past 24 hours we have seen an illustration of some of the forces that will shape markets in coming months. Yesterday afternoon, as the Asian and Australian markets tumbled, most commentators were blaming the European contagion, though I started my commentary with Shanghai’s fall.

What is happening in China will have most influence on Australian events, but in fact there are three forces that are coming together. The first is that it is clear that the China slowdown is under way and the Shanghai index, led by its property sector, which is in the front line of the downturn, reflects this. Shanghai fell almost 5% yesterday.

That China downturn is healthy unless it goes too far, but it does mean that demand for commodities will slip back and that fall will be further increased by the looming European recession.

The China downturn/commodity price pressure is going to affect markets, particularly Australia.

But thirdly, we have a separate development. China has restarted buying US debt securities and — not surprisingly — there is a flood of money out of Europe. Accordingly, the American dollar is rising. This is a highly significant development and means that, at least for the moment, America is not going to have to struggle to fund its deficit and be forced to lift its interest rates.

The US dollar safe haven effect is working very well.

And the US safe haven syndrome will be periodically multiplied by European and other fears about sovereign risk and related crises.

Here we have a basic situation where there is downward pressure on commodities and upward pressure on the US dollar. I must emphasise that on any particularly day or week those basic underlying trends will reverse — particularly after a sharp movement.

And if we want to add another basic underlying trend, American companies have responded to the crisis and are performing up to or better than expectations, although the US economy is still being heavily stimulated.

So, in the months ahead we will have some tough markets in Australia and Asia followed by hard times in Europe and then followed by a better market in America as the US benefits from its safe-haven status.

Down the track there are going to be other forces that will affect world markets and I am not sure whether US share markets will always outperform the world. But that’s a risk for another day.

Always remember that there is a lot of spare cash floating around the world and a lot of money on the sidelines. That will tend to push markets up quickly and send them crashing down as the punters’ money is withdrawn.

Share market volumes are dominated by trading rather than long-term position taking, which means that we must get used to a roller-coaster ride.