Earlier today in the Asian session, traders came face to face with the latest PMI data updates from the Red Dragon and conflicting results hinted that authorities may need to do more stimulus work to keep the economy going.
Even though services activity continued to expand and at a faster pace than economists projected, the manufacturing sector continues to underperform. More specifically, the manufacturing PMI edged up to 49.7 in June, from the 49.5 level of the prior month, yet it stayed in contraction for the third consecutive month. Economists assign blame to the fact that consumer demand remains suppressed and that firms across mainland China are facing a deepening price war, striving to remain competitive both domestically but also internationally.
The contraction is another sign that manufacturers remain worried about the state of the US-China truce and the impact from tariffs imposed from the world’s largest economies on each other and how that will shape global trade trends in the foreseeable future.
Nevertheless, the three-month long manufacturing hiatus may from a macro point of view, be just a small hiccup since the contractions are, relatively speaking, mild. The fact that US-Chinese delegations recently announced improvements in trading conditions and a somewhat cooperative approach going forward, could leave the flared-up trade tensions incidents of April, in the rear view mirror.
Lastly, Chinese equities began the week in the reds after multiple weeks of rallying, yet the overall sentiment tends to favour higher valuations, thus a possible extension towards the upside seems more likely than a steep contraction.
Technical Analysis
HSI Chart – The Hang Seng Index steadily rises towards March highs as investors see opportunities in China
Resistance: 24875 (R1), 26300 (R2), 27700 (R3)
Support: 23200 (S1), 22000 (S2), 20900 (S3)
