Chart of the day - HK.cash (05.07.2024)

Contracts for the Hang Seng index of Chinese companies listed on the Hong Kong Stock Exchange (HK.cash) are trading down nearly 1.4% today. Recent weeks have not been successful for China's benchmarks, which are clearly struggling to catch up not only with the gains of benchmarks in the US or Europe, but also with a number of local Asian indices like the Nikkei, KOSPI and India's Sensex. The Hang Seng has lost nearly 10% since local peaks in May, and foreign investors remain cautious about buying Chinese stocks as the country's economy continues to send 'mixed' signals, when investors would like to gain conviction about an expected resurgence in Chinese demand.

• China's manufacturing PMI, published this week, indicated 49.5 versus 50.8 in March and suggests that the situation in the sector, remains tight. Interestingly, the China Automobile Dealers Association reported that the dealer inventory alert rate reached 62.3% at the end of June. Market risk in the sector is rising and the index has remained above 50% since January, suggesting continued recessionary levels;
• At the same time, the People's Bank of China (PBoC) is preparing for a 'hawkish' move, i.e. selling hundreds of billions of yuan worth of medium- and long-term bonds, in an effort to stem the ongoing bull market in Chinese debt and raise yields. 
• The bank will make sales depending on market conditions. The intention raised some concerns about market liquidity and risks in the financial sector due to lower liquidity. However, the move was expected by some analysts including Chinese-Oversesa Bank Corp. 
• European Union tariffs on imports of Chinese electric vehicles also took effect today; they will be as high as 38% for some Chinese companies. Representatives from neither China nor the EU have managed to reach any agreement on reducing or delaying the tariffs, which also underscores that the diplomatic situation between the two 'blocs' remains quite tense. Beijing has also signalled a response to the sanctions. There were also reports of Chinese military aircraft again seen over the Taiwan Strait, and Chinese troops intercepted a Taiwanese fishing boat operating near the Chinese coast. 

HK.Cash chart (D1 interval)

The key support zone for the index remains around 17,000 points, where we see previous significant price reactions and the 200-session simple moving average SMA200 (red line). A drop below 18,000 points could create some pressure on the strength of the ongoing upward trend. We can look for the main resistance level at 18,600 points (38.2 Fibo), where we see previous price reactions and the 23.6 Fibonacci retracement of the upward wave from January 2024.

Source: xStation5