China continues to face challenges with its consumer inflation growth, highlighting the struggles in the economy. Despite implementing various stimulus measures, the pace at which they are being carried out is not enough to combat deflationary pressures. This is evident in the record low of 2.12% that the 10-year China sovereign bond yield reached on 5 August.
The Hang Seng Index has also been affected by these economic challenges, with its price actions trading below both the 50-day and 200-day moving averages. In the past four weeks alone, the Index has dropped by 8.7%, showcasing a bearish trend that is a result of the lacklustre macro data coming out of China.
The latest consumer inflation data for China shows a slight increase, with the headline consumer inflation for July climbing to 0.5% y/y. However, this uptick is primarily driven by seasonal food inflation rather than an actual improvement in internal demand. The core consumer inflation rate, which excludes food and energy-related products, actually decreased to 0.4% y/y in July. This marks the fifth consecutive month of poor inflationary growth, indicating a larger systemic issue within the economy.
From a technical analysis standpoint, the medium-term uptrend phase of the Hang Seng Index has been compromised. The breakdown below the ascending channel support and the 200-day moving average on 2 August signal a shift towards a bearish trend. Only a significant clearance above the medium-term pivotal resistance at 18,000 would negate this bearish tone, with further resistances at 18,530 and 19,710.
China’s struggle with inflation and the looming threat of deflationary pressures continue to be major obstacles for the economy. Despite efforts to implement stimulus measures, the lacklustre growth in consumer inflation creates uncertainty and volatility in the market. The technical analysis of the Hang Seng Index further reinforces the bearish sentiment, signaling a challenging road ahead for both China’s economy and the financial markets.