HG MARKETS:

The People’s Bank of China (PBOC) recently decided to keep its Loan Prime Rates (LPRs) unchanged at 3.10% for the one-year rate and 3.60% for the five-year rate, despite mounting deflationary pressures in the economy. This decision reflects the PBOC’s intent to maintain financial stability, even as falling yields, shrinking net interest margins, and a weakening yuan limit the scope for further monetary easing. The central bank’s move, following its last rate cut in October aimed at boosting economic activity, signals a cautious approach to managing economic headwinds.

China’s economy faces significant challenges, as demonstrated by disappointing retail sales data, which grew only 3.0% year-on-year, falling short of the previous 5.0% and below the forecasted 4.8%. This slowdown in consumer spending reflects weakening domestic demand and reduced consumer confidence. Furthermore, inflation continues to slow, with the year-on-year figure at just 0.2%, indicating rising deflationary risks. These economic indicators suggest that corporate earnings and overall growth could be negatively impacted, which may weigh on sectors sensitive to domestic consumption, such as retail and services, ultimately affecting the Hang Seng Index’s performance. The index remains in a consolidation phase, hovering within a tight range, as investors await clearer direction amid these economic uncertainties.

In contrast, the Nasdaq Index, heavily reliant on the tech sector, benefits from the strong 3.1% GDP growth in the U.S., which supports a positive market outlook. However, the looming government shutdown adds a layer of uncertainty, alongside a sharp decline in the Philadelphia Fed Manufacturing Survey, which dropped to -16.4, highlighting weaknesses in certain sectors of the economy. Despite these challenges, the Nasdaq has shown resilience, with over a 90% chance of a stable policy rate at the next Federal Reserve meeting easing fears of further rate hikes. The index remains within an ascending channel, a bullish price pattern that has been supported by key moving averages since the 50-day SMA crossed above the 200-day SMA in March 2023. Recent corrections from the resistance area around 22,000 were triggered after the Fed’s rate cuts, with immediate support levels seen at 20,800 and further support at 20,000. A sustained break below these levels could challenge the index’s ability to maintain its upward trajectory.

Similarly, Japan’s Nikkei Index has remained stable following the Bank of Japan’s decision to keep interest rates unchanged, benefiting export-oriented companies due to the weaker yen. The Nikkei has been trading within an ascending channel, consolidating for the past few months after a sharp drop in August 2024. Although global pressures, particularly from the cautious stance of the U.S. Federal Reserve, could limit gains, the index remains in a bullish price pattern. A break above the key resistance level of 40,200 could trigger a move higher toward the 42,300 zone, where the channel’s resistance from the July 2024 high is located.

As global markets navigate various economic uncertainties, from China’s deflationary risks to U.S. government shutdown fears and Japan’s monetary policy stance, the outlook for major indices like the Hang Seng, Nasdaq, and Nikkei will continue to be shaped by a mix of domestic and external factors. Investors will need to remain vigilant as these markets balance growth potential against economic headwinds.