Chart of the day - HK.cash (30.05.2024)

The global reaction to the US 10-year note breaking out above the 4.6% barrier has not gone unnoticed by Asia-Pacific equity markets. The Hang Seng Index is losing 1.36% in the cash market today, while HK.cash futures are off 0.98%. Thus, the benchmark is breaking below the 23.6% Fibo elimination of the massive downtrend channel that was initiated during the internal Covid turmoil in China (February 2021). 

The jump in US yields is primarily the result of the hawkish stance of the US Federal Reserve, which is pushing back the market's valuation of interest rate cuts this year. In this aspect, reactions to today's GDP data from the US and tomorrow's PCE report also from the country may prove key. If there is a slight slowdown in the measure of inflationary pressures on Friday, this could encourage the market to re-evaluate the possibility of an interest rate cut in September. This is currently estimated at a 42% chance. 

The unfavourable environment from overseas means that the elements that previously supported the Chinese market are now receding into the background. These included internal regulations supporting the local stock market and incoming better data from specific sectors of the economy. 

A look at the chart

Looking at the chart of HK.cash on the W1 (weekly) interval, we can see that the ongoing wave of declines is reminiscent of the behaviour of the index in early 2023, when the index attempted a sustained breakout above the 100-week exponential moving average (purple curve). Eventually, however, the index quickly reverted to a downtrend, slipping below this structure. The situation also seems to be similar now, nevertheless at this point it is hard to say whether this is just a correction or whether the market supply side will actually try to return to the long-term downtrend. In this aspect, the key may turn out to be the reaction to the 50-week EMA (blue curve), which may now prove to be the most important support barrier to watch. 

Source: xStation