The Hang Seng rises on soft inflation data from China

China’s inflation data for March

CPI fell to an 18-month low of 0.7% y/y (below 1% prior, 1% forecast)
Consumer prices contracted for a second consecutive month at -0.3% m/m (-0.5% prior, 0% forecast)
Producer prices fell -2.5% y/y, its fastest rate of deflation since June 2020
Food prices fell -1.4% m/m (2.5% y/y)
Non-food items rose 0.3% y/y

China’s inflation data is an encouraging sign for deflation in general, because if prices are lower in key export countries like China then it places less upwards pressure on global prices. CPI contracted for a second consecutive month by 0.3% m/m, and headline CPI is at an 18-month low.

Hang Seng daily chart:

We’re getting a few mixed signals on the Hang Seng, although near-term risks appear skewed to the upside. The daily chart shows a bullish trend is developing, although daily volumes have been trending lower and below the 20-day average, which suggests weakness to this leg of the trend. We’ll need to wait for the daily close to confirm what we see on the OBV indicator (on balance volume), which is yet to break above its prior cycle high despite today’s rally on price action.

However, the pullback from last week’s highs found support at the moving average cluster it recently broke above, and a swing low appears to have formed on Thursday wit a Rikshaw man Doji. Therefore, we prefer to buy dips above 20,000 to see if it can move to 21,000 / February’s VPOC (volume point of control). And if a move higher is accompanied with an increase in daily trading volume and the OBV confirms the price action, we’ll have more confidence it can head for the January high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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