China’s recent consumer inflation data has been lacklustre, indicating that the current stimulus measures might not be enough to combat deflationary pressures. The Hang Seng Index has also been affected by weak Chinese data and global economic factors. This article will provide a detailed analysis of the situation and its implications.
The latest consumer inflation for July in China showed a slight increase to 0.5% year-on-year. However, this uptick is likely driven by seasonal food inflation rather than a genuine improvement in internal demand. Severe weather conditions have impacted the supply of fresh vegetables and eggs, leading to price fluctuations. The core consumer inflation rate, which excludes food and energy-related products, decreased to 0.4% year-on-year in July. This marks the fifth consecutive month of lacklustre inflation growth, highlighting the ongoing deflationary risk in the market.
The financial markets reacted to the persistent deflationary risk by pushing the 10-year China sovereign bond yield to a record low of 2.15% in July. The bond yield further declined to 2.12% in August before bouncing back to 2.20%. This volatility can be attributed to interventions by the China central bank, PBoC, as rural banks suspended trading in China sovereign bonds. The situation reflects the uncertainty and fragility of the current market conditions.
The Hang Seng Index has experienced a downward trend in recent weeks, shedding 8.7% in the past month alone. The index’s performance has been impacted by weak Chinese data and the revival of global economic concerns, such as Trumponomics. The medium-term bullish momentum seen earlier this year has not been sustained, with the index struggling to maintain its upward trajectory. Technical analysis suggests that the index’s medium-term trend has turned bearish, with key support levels being breached. It will be crucial for the index to surpass the 18,000 resistance level to negate the bearish tone and establish a new upward trend.
China’s inflation data and the performance of the Hang Seng Index reflect the challenging economic environment characterized by deflationary pressures and global uncertainties. Policymakers need to reassess their stimulus measures to address the underlying issues affecting consumer demand and market sentiment. Investors should exercise caution and monitor the developments closely to make informed decisions in the volatile market conditions.
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