Hang Seng jumped as China's inflation cooled and lockdown alarm off

China’s January CPI and PPI

China reported today (January 16) that its January consumer price index (CPI), which measures the price of consumer goods and services, rose 0.9% year-on-year. The reading was lower than expected as the prediction for CPI is to up 1.0% from the previous year, and significantly down from 1.5% in December. China’s factory-gate prices also slowed down its growth pace, with the producer price index (PPI) rising 9.1% in January year-on-year, compared with a 10.3% in December.

The fresh print is in line with the broad view that inflation continued to cool in China and cements the prospect for the People’s Bank of China (PBOC) to reduce borrowing costs further. Although this week the PBOC announced it would leave the rate unchanged, the central bank has already injected a net 100 billion yuan ($15.7 billion) into the banking system to pump up the liquidity in the economy for a second straight month.

Moving in the opposite direction to the counties like US and UK, China is not concerned about inflation. Instead, monetary stimulus is more expected to be the centric policy to stabilise its slowing economy. As a result, the equity market in mainland China and Hong Kong is expected to be sheltered from the volatility across developed countries triggered by the tightening monetary policy move.

Hang Seng Technical Analysis

Apart from the boost from China, the removal of the “lockdown alarm” is another reason to see the Hong Kong HS50 jumping up. On Tuesday, Hong Kong’s leader Carrie Lam confirmed that “a complete, wholesale lockdown” is off the table, a scenario where residents are forced to mostly stay in their homes for weeks until case numbers reduce or clear.

Although the Hang Seng has moved sideways from the upward trajectory that brings the index up 7% during the first two weeks of February, the price stayed firmly above all the key moving averages. The conjunction of 20 and 50 day moving averages should provide a strong support for the Hang Seng in near-term. Critical pressure will be coming from the lower boundary of that moving tunnel at around 25049 after Hang Seng breaks through the closest pressure level at 24865.

From a near-term perspective, the 4-hours chart shows that the price has managed to stand on the 20-hours moving average line while 50-hours will be the next challenge to conquer. The short-term momentum is on the rises as the RSI reading moves towards the 50-above zone.

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