Market Commentary - For the week ending 31 May 2024

Market Commentary (Hong Kong) for the week ending 31 May 2024

The Dow closed down for the second week while the yield of the US 30-year government bond jumped 1.71% for the week to 4.65%.

●    The IMF upgraded China’s 2024 GDP forecast from 4.6% to 5%.
●    The US stock market shortened its settlement process from T+2 to T+1.
●    Thailand plans to apply for BRICS membership; could be the first member from the ASEAN Bloc.
●    US Q1 GDP was revised from 1.6% to 1.25%, lowest in two years.
●    COMAC’s C919 will make its first flight outside China on Saturday 01 June 2024. There are orders for about 1000 C919s; it is positioned against the 737 Max and A320neo.
●    PwC could face a record fine of at least one billion yuan over it's Evergrande audit. Penalties could also include termination of operations at some of its mainland China offices.
●    China announced export controls on aviation and space components including equipment and software with effect from 01 July 2024.

Hang Seng Index closed this week at 18080, down 529 points or 2.84%. This is the second down week after last week’s bearish engulfing candlestick. The index closed below both its 10 and 20-Day SMAs which suggests that short term upward momentum could be over. The last swing high is between 16700 to 17000 which could be a potential throwback region. The best end-of-week close then was 16726. Last week’s high was a new year-to-date high and a higher swing high compared to a recent top between February and April this year. Such a pattern is associated with further gains. Moving averages performed a series of golden crosses in April and May which is also associated with further gains. The Hang Seng Index could be going through a correction looking for a higher low.

HSI weekly chart from 03 July 2023 to 31 May 2024 (Source: DLC.socgen.com)

Hang Seng Tech closed the week at 3691, down 109 points or 2.86%. HSTech has the same features, namely a higher swing high year to date and a series of golden crosses in the moving averages. Despite last week’s bearish engulfing candle and further losses this week, the higher high and those golden crosses are associated with further gains.

HSTech weekly chart from 03 July 2023 to 31 May 2024 (Source: DLC.socgen.com)

The Nasdaq closed in the red for the first time in six weeks while the Dow closed negative for the second. The Dow closed below its 10, 20 and 50-Day SMAs while its 50-Day SMA has started its decline. The Nasdaq 100 closed as a bearish engulfing candlestick.

The next FOMC meeting is scheduled on 12 June 2024.

Fed funds futures on rate hike probability by next Fed meeting as at this week’s close:

●    4.4% probability of 25 basis points cut |95.6% probability of no change

Fed funds futures on rate hike probability by next Fed meeting at last week’s close:

●    99.1% probability of no change |0.9% probability of 25 basis points hike

Probabilities on the CME Fedwatch Tool shifted back to ‘no hike’ from now till April 2025. A 25-basis points cut could start as early as the coming FOMC meeting in June. There is also a possibility for a cumulative 100 basis points cut between now to December this year.

Both Shanghai and Shenzhen fell for the second week in a row.  Shanghai built a higher swing high and has a series of golden crosses in its moving averages that could be associated with further gains despite the current correction. Shenzhen has a bearish divergent setup compared to Shanghai that is an indication that it is technically weaker.

Other news:

●    AIA, Kuaishou, Tencent and Xiaomi bought back shares.
●    China Mobile, CNOOC, Cosco, Lenovo and PetroChina printed new 52-week highs. Wuxi Biologics printed a new 52-week low.
●    Nikkei Asia, citing unnamed sources, reported that China’s regulators have ordered Tencent to reduce Wechat’s share of the mobile payment market.
●    BYD introduced a hybrid car that could be a jab at traditional car makers. In addition, its distributor in Saudi Arabia opened its flagship store with a showroom, service center and brand experience center this week.
●    Renault and Geely announced a 50-50 JV that will develop combustion and hybrid engines.

Technical observations

Netease 9999.hk made a new year-to-date low.

Note chart features:

1. Netease is confined in a major triangle with resistance on top connecting three recent swing highs and potential support going back to October 2022. This week, it made a new low based on end-of-week close, year-to-date. Volumes this week and last which were falling, were high. This expansion in volume is not encouraging for down weeks.

2. Moving averages printed a series of low highs since topping in November last year. They also printed a series of death crosses since March this year. At the moment, price is trading below its entire array of moving average indicators. This is a setup associated with further losses.

Netease 9999.hk weekly chart from 04 July 2022 to 31 May 2024. (Source: DLC.socgen.com)