Market Commentary - For the week ending 12 April 2024

Market Commentary (Hong Kong)

For the week ending 12 April 2024

Dollar Index DXY powered to new year-to-date high after a hot March CPI print of 3.5%. It closed at 106.01 for the week. Yields of US10Y and US30Y government bonds also power to new highs. USDJPY traded in excess of 153.

●    Engine cover of Boeing 737-800 belonging to Southwest Airlines ripped off mid-flight in another blow to the plane manufacturer.
●    Yellen threatened China’s banks with sanctions for supporting Russia during her visit to China.
●    Stock price of property developer Shimao Group fell sharply after China Construction Bank filed a winding up petition with a Hong Kong court.
●    The US reported a red hot CPI print of 3.5% for March; forecast was 3.4% while the previous month was 3.2%.
●    The EU launched a probe into Chinese wind turbines, accusing China of providing state subsidies.
●    Stock prices of insurers fell after HK’s Insurance Authority and ICAC conducted raids at offices suspected of selling unlicensed insurance policies to mainland customers.
●    China sanctioned US defense companies General Atomics and General Dynamics. Assets within China are frozen and management is barred from entering the country.
 

Hang Seng Index closed this week nearly unchanged at 16722, down 2 points or 0.01%. This week’s price action with its long upper tail again suggests that the HSI could be observing the overhead 17000 and/or the 150-Day SMA (yellow). It is also likely that the index is trapped in a horizontal consolidation that now finished its eighth week. During this consolidation, the moving averages are converging and flattening. This is a sign that the trend is moving from downwards to sideways and could be precursor to a reversal.

HSI weekly chart from 03 July 2023 to 12 March 2024 (Source: DLC.socgen.com)

Hang Seng Tech closed the week at 3474, up 24 points or 0.68%. There are several elements that can be observed in HSTech’s chart. 1. It is in a consolidation pattern that has now finished its sixth week. 2. It could be printing a swing high that could be resisted by the 100-day SMA (red) overhead. 3. There are two downward trend lines that can be observed, one connecting end-of-week closes over previous swing highs and the other connecting extreme highs. HSTech could be complying to these trendlines as well. 4. The 10- and 20-Day SMAs printed a dead cross.

Based on the observations above, HSTech could be capped by resistance overhead although the longer it stays in the current consolidation, the more likely it could be changing hands to new entrants who are willing to contest that resistance. However its shorter consolidation and that the short term averages made a dead cross indicates that HSTech could be more bearish than the HSI.

HSTech weekly chart from 03 July 2023 to 12 April 2024 (Source: DLC.socgen.com)

The Dow is down for its second week but has already wiped out February and March’s gains. It closed down 2.37% for the week and is down 4.58% for the month. Nasdaq closed down 0.58% for the week and is down 1.38% for the month.

The next FOMC meeting is scheduled on 01 May 2024.

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

●    94.1% probability of no change |5.9% probability of 25 basis points cut

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

●    95.2% probability of no change |4.8% probability of 25 basis points cut

Probabilities on the CME Fedwatch Tool indicate no more rate hikes for this year but also indicate possibility for rates to stay at current level until April next year. Probabilities predict up to 125 basis points cut for the whole of 2024 and up to 175 basis points between now till April 2025.

Shanghai closed this week at 3019, down 50 points or 1.62%. Shenzhen closed at 9228, down 317 points or 3.32%. Both indices closed down sharply in solid bearish candles into their seven-week lows. Both also closed below their 10- and 20-Day SMAs. Dead crosses between these indicators were printed for both indices. It is possible that short term momentum has swung to negative and that we are seeing swing highs being formed for both indices.

Other news:

●    AIA, Kuaishou, Meituan, Sunny Optical, Tencent, Wuxi Biologics and Xiaomi bought back shares.
●    CNOOC and PetroChina printed new 52-week highs. Sunny Optical and XPeng printed new 52-week lows.
●    Volkswagen AG announced plans to invest 2.5 billion Euros in China to expand its production and innovation hub in Hefei City. The company also planned to start production of two Volkswagen models developed with Xpeng in 2026.
●    Alibaba Cloud slashed prices up to 59% for international customers. 
●    Xpeng cut the price of its G6 EV after Xiaomi launched its first model.
●    A unit of Ping An Insurance missed an overdue payment that is linked to a piece of real estate.

Technical observations

Xiaomi 1810.hk made a new end-of-week high, closed at the higher bound of a parallel channel.

Note chart features:

1. Xiaomi closed this week at $16.50. This is the highest end-of-week close in more than two years. Concurrently it closed above its entire basket of moving averages. This is a setup associated with further gains.

2. Observation of its price action indicates that it made a higher swing high and a higher swing low (compare Dec ‘23 high and Feb ‘24 low to Jan ‘23 high to Jun ‘23 low). A sequence of higher highs and higher lows is also an indication of an uptrending setup.

3. There is a prominent parallel channel that is upward rising. Xiaomi is now trading near the top. This top could act as a potential profit taking zone but price could equally rise to a steeper channel.

4. Volume is rising in conjunction with price gains so far.

Xiaomi 1810.hk weekly chart from 03 January 2022 to 12 April 2024. (Source: DLC.socgen.com)