Market Commentary - For the week ending 1 September 2023

Market Commentary (Hong Kong)

For the week ending 01 September 2023

DXY closed the week at 104.26. This is at the May swing high which could be a resistance. Both Brent and WTI made year-to-date new highs; in the meantime Russia announced that OPEC+ has agreed to a new supply cut deal which will be revealed new week.

●    China halves stamp duty on stock trades to boost trading.
●    Current unrealized losses in the US banking system is$1.8 trillion out of $2.2 trillion capital.
●    German manufacturing PMI for August 2023 is 39.1; this is now approaching COVID low of May 2020.
●    China approved 11 AI models for release to the general public. This includes Baidu’s Ernie Bot.
●    According to Caixin PMI, China’s factory activity in August rebounded to 51 from 49.2 in July. 
●    PBOC said it will cut forex RRR by 200 basis points from September 15; regulators also instructed interest rates on existing home mortgages to be lowered by 20 and 30 percent for first time and second time home buyers respectively.

Hang Seng Index closed this week at 18382, up 426 points or 2.37%. This higher close compared to last week placed the index back above 18000. This signaled the level’s role as a potential support. The index’s rise also placed it above its 10-day SMA which could be a prelude to a change in direction. Except for the 10-Day SMA, HSI is still trading below the rest of its moving average indicators. This is a setup that is still associated with further losses. A change in direction could happen one moving average at a time or all of a sudden but investors have to be very cautious should the HSI fall back below 18000 or back below its 10-Day SMA.

HSI weekly chart from 03 January 2022 to 31 August 2023 (Source: DLC.socgen.com)

Hang Seng Tech closed the week at 4179, up 121 points or 2.97%. Based on moving average indicators, HSTech could be firmer than the HSI. There are two features to look at. First, over the past three weeks HSTech did not fall below its support at 4000 which was observed since March this year. Second, HSTech is now sitting on all of its moving average indicators except for the 10-day. With the current lay of the moving averages, HSTech’s setup is more likely to be associated with winners than losers.

HSTech weekly chart from 03 January 2022 to 31 August 2023 (Source: DLC.socgen.com)

Dow Jones Industrial Average closed at 34838, up 491 points or 1.43%. Nasdaq closed at 15491, up 549 points or 3.67%. On the weekly chart, both indices closed the week with a 3-candle bullish reversal setup. In fact Nasdaq is back to above its entire basket of moving averages. This is a setup associated with further gains. The Dow closed below its 10-Day SMA.

The next FOMC meeting is scheduled on 20 September 2023.

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

●    94.0% probability of no change |6.0% probability of 25 basis points hike

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

●    80.5% probability of no change |19.5% probability of 25 basis points hike

Data indicates a potential peak rate of 6.00% until December 2024. A rate cut could appear as early as this December.

Shanghai Composite closed at 3133, up 69 points or 2.26% Shenzhen closed at 10464, up 333 points or 3.29%. Both indices recovered above their 10-day SMAs. This could be a prelude to a change in direction; however the way their moving averages are set up are still more likely associated with further losses.

Economic data in coming week:

1.    Thursday 07 September 2023 US reports Unemployment Claims.
2.    Saturday 09 September 2023 China reports CPI data.

Other news:

●    AIA, Kuaishou and Tencent bought back shares.
●    BYD Electronic and CNOOC printed new 52-week highs; Ganfeng Lithium printed new a 52-week low.
●    BYD now placed among global top 10 automotive makers; vehicle sales for first six months of this year exceed Mercedes-Benz and BMW.
●    CNOOC and Brazil’s Petrobras signed a strategic deal to cooperate in multiple fields.
●    PetroChina expected China’s demand for refined fuel to increase by 10% yoy in H2 this year.

Technical observations

Baidu 9888.hk printed a three-candle bullish reversal, resisted by 50-Day SMA.

Note chart features:

1. Baidu printed a three-candle bullish candlestick combo that could signal further gains. This combo is supported by a potential support around $128. This $128 level is drawn from August ‘22 swing low, as well as March and August swing lows this year. A trendline connected October 2022 low and April-May 2023 low could also be potential support. If this trendline is valid, then Baidu’s price action last week and the week before is highly suggestive of seller’s remorse.

2. Price is now supported by the entire basket of moving average indicators except the 50-Day. This could be a bullish setup.

Baidu 9888.hk weekly chart from 05 July 2021 to 31 August 2023 (Source: DLC.socgen.com)