China’s lacklustre core consumer inflation growth for July indicates that the current pace of piecemeal stimulus measures is not enough to eliminate deflationary pressures. The “non-abating” deflationary risk scenario has pushed the 10-year China sovereign bond yield to a record low of 2.12% on Monday, 05 August. This suggests that more substantial measures may be needed to combat the ongoing deflationary environment.
The Hang Seng Index has experienced price actions that have traded below its 50-day and 200-day moving averages. The index has seen a decline of 8.7% in the past four weeks, reaching an intraday low of 16,441 on Monday, 5 August. Despite a prior bullish phase from April to May, where it rallied by 23%, recent lacklustre macro data from China and a lack of concrete stimulus measures from policymakers have hindered its performance.
China’s Inflation Data
While China’s headline consumer inflation for July rose to 0.5% year-on-year, driven by seasonal food inflation, the core consumer inflation rate, which excludes food and energy-related products, decreased to 0.4% year-on-year. This marks the fifth consecutive month of lacklustre inflationary growth since February. Severe weather conditions in recent months have impacted the prices of fresh vegetables and eggs, with fluctuations in prices reflecting challenges in the food supply chain.
From a technical analysis perspective, the medium-term uptrend of the Hang Seng Index has been compromised. The index broke below the ascending channel support and its 200-day moving average on 2 August, indicating a shift in the medium-term trend towards bearish territory. To reverse this bearish tone, the index would need to surpass the 18,000 pivotal resistance level, with potential further resistance at 18,530 and 19,710.
China’s core consumer inflation growth and the performance of the Hang Seng Index both reflect the challenges of the current economic environment. With deflationary pressures persisting and stimulus measures proving insufficient, it will be crucial for policymakers to reassess their strategies to support sustainable economic growth. Additionally, monitoring the technical indicators of the Hang Seng Index can provide insights into the market sentiment and potential future trends.