Asia Day Ahead: China’s PMI failed to reassure, HS Tech index on watch

Asia Open

The Asian session looks set for a mixed start, with Nikkei +0.61%, ASX -0.54% and KOSPI -0.21%.

Market moves this morning may offer a first-hand reaction to China’s official Purchasing Managers' Index (PMI) data released over the weekend. While the manufacturing read came in line with expectations at 49.5, its second straight month of contraction just seem to cast more doubts than relief over the country’s recovery path. New orders remain weak, production slowed while employment contracted for the 16th straight month.

Non-manufacturing activities (50.5 versus 51.0 expected) offered little to cheer as well, with its lowest read in four months pointing to fading growth momentum. Overall, the data reinforces that the March bounce in economic activities from the festive season is more likely to be a blip.

Ahead, the mixed run in economic data lately is likely to complicate matters for the upcoming third plenary session from 15 to 18 July. Weaker economic data may raise market expectations for a more supportive stimulus path to be announced at the upcoming meeting, but the risks of disappointment remain high. Authorities may likely retain its gradual and targeted policy approach, which offered little surprise as their hands are very much tied with a weakening yuan and worsening capital outflows over the past months.

Look-ahead: China’s Caixin Manufacturing PMI

More clues on China’s manufacturing sector will be presented with the Caixin manufacturing PMI release today, which typically surveys small and medium-sized enterprises and offers a broader view of the country’s manufacturing activities.

The data may not necessarily trend hand-in-hand with the official PMI read and having surprised on the upside for the past four months, market watchers will be keeping a lookout for whether the outperformance can continue. Current expectations are for the Caixin manufacturing PMI to ease to 51.2, down than the previous 51.7.

Can Hang Seng Tech Index defend its trendline support ahead?

The Hang Seng (HS) Tech Index has retraced close to 16% from its May 2024 high, which is likely to be a reaction to economic risks in China and some near-term unwinding in the global tech sector. Its daily relative strength index (RSI) has attempted to cross above the key mid-line on two occasions over the past month but has thus far failed to do so.

That said, a key level to watch ahead may be the 3,480 level, where an upward trendline support stands. Defending the trendline will be crucial for buyers to keep the formation of higher-lows intact since February this year, which may raise the odds for a near-term bounce. Should the trendline support failed to hold, the 3,280 level may be on watch next.