Hang Seng futures (CHNComp) traded lower today following the release of weakish Chinese PMIs for May. Manufacturing PMI dropped from 49.2 to 48.8 while market expectations pointed to an increase to 49.4. Meanwhile, services PMI dropped from 56.4 to 54.5 while the market expected a drop to just 55.1. This was the third drop in manufacturing PMI in a row, the second consecutive month of the index staying below the 50 threshold, signaling a contraction, as well as the lowest reading since December 2022. In the case of services PMI, this was the second drop in a row and the lowest reading since January 2023.
While worse-than-expected PMI readings have contributed to the weaker performance of the Chinese equities today, it should be said that indices in whole Asia-Pacific region traded lower. This overall deterioration in market sentiment is reasoned with a number of Republicans refusing to support a debt ceiling agreement reached by US House Speaker McCarthy. Nevertheless, the deal will likely land in US Congress today and Republican negotiator McHenry said that they have enough votes to pass it today.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appInitial improvement in mood in the Chinese manufacturing sector has been neutralized, as was consistently shown by the weakness of the stock market. If the yuan continues to weaken against the dollar, it is possible that the CHNComp may drop below 6000 points. Therefore, it is crucial to sign the debt ceiling suspension bill, as it will most likely cause the dollar to depreciate across the broader market. Source: Bloomberg
CHNComp strongly correlates with USDCNH, so the behavior of the dollar will be crucial for this index. CHNComp has broken out of a triangle pattern and is currently testing a significant support level, marked the 61.8% Fibonacci retracement of the entire upward impulse. On the other hand, if the US removes the debt limit and liquidity in the US financial sector begins to decrease, it cannot be ruled out that the divergence between CHNComp and US500 will narrow. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.