Hang Seng Helped by Upbeat Chinese Data & Central Bank Activity

HKG33 Analysis

Chinese authorities have been trying to prop the faltering post-pandemic rebound and today, the central bank (PBoC) took further action to boost liquidity and support the financial system . It slashed the required reserve ratio (RRR) by 25 basis points for the second time this year, lowering the amount of cash that banks must keep as reserves ^[1]. Although it kept the one-year medium-term lending facility (MLF) unchanged at 2.5%, it injected 591 billion yuan (around 82 bln USD) into the market, a higher amount compared to recent months. ^[2]

It looks like Beijing's efforts to support the economy may have started to bear fruit. After the constant stream of disappointing data over the past several months, the latest releases offer a glimmer of hope. The inflation report over the weekend showed a moderation in deflationary pressures on the producer side, since PPI came in at -3% y/y in August, in the smallest drop since May. Consumer inflation grew by just 0.1% y/y, but that marked an improvement over last month's contraction. Today's data also pointed to improving consumption, since retail sales rose 4.6% /y/y. Furthermore, industrial production strengthened 4.5% y/y and the highest level since April.

HKG33 reacted positively to the news and pushes for a positive week in a mixed month. It eyes the critical confluence of support provided by EMA200 and the 38.2% Fibonacci of the summer's high/low drop (18,570-18,617). Daily closes above it could halt the downside bias, but we are cautious around the recovery prospects and the upside contains multiple roadblocks.

Despite today's supportive news, the massive and critical property market remains at a perilous state, consumer demand is still weak and the manufacturing sector contracted for fifth straight month in August. Authorities are talking measures to help the economy, but they have adopted a piecemeal approach, reluctant to implement big stimulus, especially on the fiscal front. At the same time, heightened Sino-Western tensions pose headwinds. The West has imposed a series of restrictions on critical advanced technology and now electric vehicles have emerged as the new conflict ground.

As such, HKG33 remains in precarious position and the technicals are unfavorable. It had rejected the aforementioned crucial resistance cluster a few days before and this sustains risk for new 2023 lows (17,503) that would expose it to 16,977.