China A50 Market

China’s policy pivot is turning heads and bosting markets, with Hang Seng and A50 futures charging ahead. As bulls eye breakouts, will this stimulus spark fizzle out or ignite a rally hotter than a Sichuan hotpot?

China's stock markets were given a nice bump on Monday after the Politburo announced an easing of policy stance. This allowed AUD/JPY and USD/JPY to deliver strong bounce from key support levels, as the yen weakened during a risk-on session for FX and commodities.

The Hang Seng has seen no fewer than six times already this year on the daily charts, and it looks like it wants to tally up a seventh.

A potential bearish reversal pattern suggests a drop to 7900 for the ASX, but only if it clears a support cluster first. China's A50 still looks solid above 13k to my eyes, despite yesterday's selloff.

The bounce for the ASX nay end up being short lived, but price action suggests bulls might sneak in a 'last hurrah' over the near term. Meanwhile the China A50 continues to hold its ground and hint at a bounce of its own.

Wall Street indices may be around their record highs, yet the Dow Jones has been knocked from its perch and considering its next leg lower. Yet I suspect buyers are lurking around the China A50 in anticipation of its next leg higher.

Hang Seng and China A50 futures delivered obvious bullish reversal patterns on Friday, hinting the unwind from the recent highs may have run its course. While some may say the rebound was driven by stronger-than-expected Chinese economic data released during the session, both moves started from known levels, suggesting it may have been technical in nature.

Chinese regulators will slash interest rates, free up cash for banks to lend and implement measures to support the stock market, designed to help address flagging economic activity and inflation. However, none of the moves directly boost demand, raising questions about just how effective they may be in delivering a sustainable improvement in sentiment.

USD/CNH is pushing higher on Monday while China A50 futures are sliding, reversing moves seen on Friday. Now, as was the case then, fundamentals underpinning the moves continue to link back to China’s spluttering property sector.

Chinese industrial profits accelerated on an annualised basis in the first seven months of the year, led by high-end manufacturing firms. However, it’s not been enough to deliver meaningful upside to the China A50 index which continue to struggle amidst poor investor sentiment, weak domestic demand and threat of increased trade barriers abroad.

Chinese markets are performing poorly despite policymakers cutting key policy interest rates last week. It’s been that way since the conclusion of the Third Plenum earlier this month, an event that delivered little in the way of concrete measures to help appease concerns about the trajectory for the economy.

With support in place and momentum trying to turn higher, we’re now looking for additional gains on the China A50 and Hang Seng.

If the Politburo wants to get Chinese markets excited about what may come out of next week’s third plenum, it better get cracking. Because with economic activity coming off the boil and with no sign of major stimulus measures in sight, not only are stock indices rolling over but breaking or threatening to break key levels on the charts.

US yields were a touch lower with Jerome Powell saying that inflation is on the disinflationary path, ahead of key economic data from the US including ISM services, JOLTS and ADP employment reports. The ASX 200 and China look poised to move higher following a strong lead from Wall Street ahead of Independence Day.

China’s major stock market indices have been falling since the middle of May. With little in the way of a decent bounce higher, I continue to suspect one could be due.

China A50 stock futures have been hammered on Thursday, as have most other equity futures across Asia. The US dollar is breaking out as US Treasury yields push higher, seeing traders abandon riskier positions ahead of quarter-end. The baby is being thrown out with the bath water.