Mixed front in China’s economic data: HSI edging lower

China’s economic data once again turned in a mixed bag

The set of economic data releases from China this morning has not been promising ahead of their upcoming Big Plenum, with the data once again pointing to a mixed bag for the world’s second largest economy. Retail sales may be the biggest disappointment, with its significant underperformance reinforcing the weak state of consumer spending, in line with recent subdued price data and imports figure.

China’s retail sales for June came in at its slowest expansion at 2% since December 2023, a far cry from the market consensus of 3.3%. Industrial production and fixed asset investment were more stable, but still showed some fizzling in recovery momentum from the months before. Growth dependence on external demand with the current resilience in manufacturing may also breed concerns of any escalating trade tensions, at a time where polls have been leaning towards a likely Donald Trump’s presidency for now.

The 2Q gross domestic product (GDP) growth rate slowed more than expected, dipping below the 5% mark at 4.7% year-on-year, which seems to put the country’s 2024 growth target at risk. Month-on-month, the GDP data grew 0.7%, below the market consensus of 1.1%. The data may raise the pressures for China authorities to offer stronger support for the country’s economy but the risks of disappointment may remain, with authorities downplaying too strong of a policy response amid worsening capital outflows and stance for Yuan stability.

Further easing through lowering the one-year loan prime rate and the banks’ reserve requirement ratio (RRR) seems to be the consensus approach for now, but given the limited pass-through seen thus far from previous similar moves, reservations may still very much linger.

Hang Seng Index (HSI) headed lower in today’s session

The HSI is down more than 1% in today’s session, with sentiments reeling in from the weaker-than-expected data, which failed to offer much reassurances around China’s recovery trajectory. On the technical front, the index has managed to break above a near-term channel pattern last week, with the upper trendline potentially serving as support to hold for now at the 17,926 level. This level also coincides with the lower edge of its daily Ichimoku Cloud.

A look at the daily relative strength index (RSI) showed a move above the key 50 level last week. With selling pressures kicking in today, buyers will face a key test of having to defend the mid-line ahead as well.