Hang Seng Tries to Find Support from Strong Xiaomi Results

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Summary:

Xiaomi's electric vehicles have successfully entered the market and achieved considerable profits, which has also provided strong support for the Hang Seng Index.

HKG33 Analysis

As rival Apple abandoned it plans to launch an electric vehicle, China's Xiaomi made a successful entry to the market with the SU7 smart sedan. Yesterday's results showed that the firm had delivered more than 27,000 units by the end of the second quarter and reaffirmed its goal to sell 120,000 EVs by the end of the year, which is definitely an impressive figure. Furthermore, the segment was responsible for nearly 10% of Xiaomi's Q2 revenue which came in at RMB 88.9 billion (around 12.5 billion USD). This was up 32% y/y, marking the fastest growth in three years.

The EV entry has helped the company's stock to a profitable year and Wednesday strong quarterly report was cheered by markets, as XIAO.hk jumps around 8% today. Xiaomi is not only a Top-3 smartphone maker globally, but one of the biggest constituents of the Hong Kong benchmark stock Index, so its rise provides support and an opportunity to look past Walmart's sale of its stake in ecommerce and tech giant JD.

HKG33 comes from two profitable weeks, helped by the higher than expected inflation data and Beijing's bolder stimulus, now more focused to revitalizing domestic demand and consumer spending. It reclaims the EMA200 (black line) and tries to surpass the 38.2% of the last leg down. Successful effort would pause the downside bias and bring 18,736 in the spotlight.However, we are cautious around the ascending prospects.

From a technical standpoint, the upside is unfriendly. The falling daily Ichimoku cloud can contain stronger recovery efforts and HKG33 already faces pushback at the pivotal 38.2% Fibonacci. Below it, bearish bias is intact and there is scope for lower lows towards the 16K mark. Hang Seng Tries to Find Support from Strong Xiaomi Results_1

Hang Seng Tries to Find Support from Strong Xiaomi Results_1

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Nikkei 225 stays side-lined

The Nikkei 225 has been sideways trading around the 200-day simple moving average (SMA) at 38,284 but below the 55-day SMA at 38,577 for the past week or so. Were the index to rise above both of the moving averages, the late July high at 39,281 would be next in line.

A slip through Monday’s 37,163 low would open the way for the 36,000 region to be revisited.

As long as Monday's 37,163 low holds, the near-term bullish outlook remains intact. Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum_1

Dow Jones Industrial Average rally runs out of steam

The Dow Jones rally is running out of puff with low volatility and volume trading being prevalent as investors await Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday for more clues about the depth and speed of Fed interest rate cuts later this year.

Nonetheless the late July peak at 41,207 may still be reached. Just above it sits the all-time record high of 41,382. The uptrend should stay firm while 40,606, Monday's low, contains downside. Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum_2

Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum_2

NASDAQ 100 rally is slowing down

The NASDAQ 100's rise above the 55-day moving average at 19,528 and the 19,577 late July high has put the 20,006 June high in its path.

Previous resistance around 19,577-to-19,501 should now flip to support as per the inverse polarity principle where previous resistance tends to act as support and vice versa. Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum_3

Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum_3

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Warren Takunda

Economic

Stocks

Japan's benchmark Nikkei Stock Average on Thursday erased losses from its large fall in early August as concerns over the U.S. economic outlook receded.

The Nikkei average closed at 38,211.01, up 259.21 points, or 0.68%, from Wednesday and above the Aug. 1 closing of 38,126.33. The average recorded the then-second-largest fall (now third) of 2,216.63 points on Aug. 2, and the largest-ever fall of 4,451.28 on the next business day, Aug. 5.

As of Thursday's closing, the average was up 6,752.59 points, or 21.5% since Aug. 5.

"The market is calmer with the realization that the U.S. and Japanese economies aren't that bad," said Yugo Tsuboi, chief strategist for U.S. and Japan equities at Daiwa Securities. "Yesterday, U.S. employment figures were revised so there was still a sense of caution in the market, but it didn't end in a [market] storm. There is also more expectation for the U.S. to cut rates in September," he added.

The yen was hovering in the 145 range on Thursday. The currency shot up to a four-month high on July 31, when the Bank of Japan raised interest rates to 0.25% and said it was open to further hikes. It further surged to 141.66 against the greenback, a seven-month high, on Aug. 5.

"It will become harder for hedge funds and institutional investors to conduct yen carry trades" -- borrowing in currencies with low rates and investing in those with higher ones -- "at their previous levels with the Bank of Japan's eagerness for further hikes and an expected rate cut in the U.S. ... Stock prices are now up to the growth of Japanese companies," said Tsuboi.

For the April-June period, 431 companies posted record net profit, amounting to 1 in 5, Nikkei reported, with semiconductor manufacturing equipment and automobile sectors especially strong. Chip equipment makers Tokyo Electron, Screen Holdings and Disco posted record profits, as well as Toyota Motor, Honda Motor and Mazda Motor. Railroad companies that operate hotels were also boosted by the weak yen and strong inbound demand.

Last week and the week before, "corporate earnings results got sucked into the market turmoil," said Tomochika Kitaoka, chief equity strategist at Nomura Securities. "[Investors] may be reassessing companies [now]."

On Aug. 5, Japan's benchmark stock index marked its worst daily sell-off on panic-selling over a possible U.S. recession, triggered by employment figures that came in worse than expected. The average closed down 4,451.28 points, or 12.4%, from the previous day's closing to 31,458.42. Exporters were hit by the stronger yen. Megabanks were hammered on expectations that the BOJ can no longer lift rates.

Stocks in the Asia-Pacific region, including Taiwan and South Korea, were also hit.

The Nikkei index's massive fall was driven by a dissolution in yen carry trades all at once, said Tsuboi. Concerns about the U.S. economy, the Bank of Japan and the Middle East had caused "a simultaneous position adjustment in the market."

The following day, the index recorded its highest daily surge. A similar phenomenon occurred following the Black Monday crash of October 1987, when the index surged the day after.

"It's like I'm watching the history of Black Monday all over again," Hideyuki Suzuki, general manager of the Investment Market Research Department at SBI Securities, wrote in an email response to Nikkei Asia on Aug.6.

"At the moment, fundamentals have not changed," said Yutaka Miura, a senior technical analyst at Mizuho Securities. Long-term uncertainties about the U.S. economy and presidential election, monetary policy and the Middle East persist, he added. "Prices are moving based on short-term materials."

Daiwa's Tsuboi does not expect stocks to fall significantly from late September to early November, when both Japan and the U.S. will have major political milestones.

In September, when the Fed is expected to cut rates, Japan will welcome a new leader of the Liberal Democratic Party. The U.S. will hold the presidential election in early November.

Source: NikkeiAsia

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Devin

Economic

French services expanded at the fastest pace in more than two years, driving Europe's second-biggest economy as visitors from around the world flocked to Paris for the Olympic Games.

S&P Global's Purchasing Managers' Index for the sector surged to 55 in August from 50.1 in July, far above the 50 threshold that divides growth from contraction and the median estimate of 50.3 in a Bloomberg survey.

A gauge for the private sector as a whole increased sharply as a result, though France's manufacturing slump continued to worsen, with the PMI undershooting even the most pessimistic estimate in a separate poll.

Much suggests that the Olympic spirit won't linger in France. While the third quarter may see an acceleration in economic expansion to 0.5%, according to Hamburg Commercial Bank, a broader slowdown across Europe is likely to catch up with firms.

Business expectations and employment growth in services are easing, while backlogs of work have been shrinking for most of the last year. Across the private sector orders are declining, and what's worse, output prices rose at the fastest pace since the start of 2024.

“August is likely an outlier due to the Olympic Games,” said Norman Liebke, an economist at Hamburg Commercial Bank. “The manufacturing sector continues to struggle, with production declining even more sharply than in July.”

In Germany, Europe's largest economy, the outlook is distinctly gloomier. At 48.5, a composite PMI remained below economists' median estimate and signalled contraction for a second month.

The report adds to evidence that the country's recovery has fizzled out. Gross domestic product unexpectedly contracted by 0.1% in the second quarter, and analysts polled by Bloomberg predict barely any expansion at all over the whole of 2024. French Economy Gets Olympic Boost as Germany's Malaise Deepens_1

French Economy Gets Olympic Boost as Germany's Malaise Deepens_1

Industry remained the main drag in August: S&P's manufacturing PMI has been below 50 since July 2022 and the Bundesbank said in its latest monthly report that factory and construction weakness is likely to persist.

In contrast, services have been benefiting from significant increases in wages that are helping consumption. Their growth is fading, though. August saw a third monthly slowdown in S&P's gauge for that sector.

Germany's manufacturing struggles are starting to spill over into services, according to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“It appears that uncertainty around economic policy has put a damper on consumer spending, while the global manufacturing upswing turned sour before German companies could feel the boost,” he said. “The odds of a second straight quarter of negative growth have gone up, meaning we might be back to talking about a recession in Germany soon.”

PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

Source: Bloomberg

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Warren Takunda

Economic

The US job market appears weaker than first thought, according to official figures released on Wednesday.

The US created 818,000 fewer jobs than first calculated in the 12 months to the end of March, a 0.5% decrease, according to the Bureau of Labor Statistics’ quarterly census of employment and wages.

The revision was in line with economists’ predictions but it still suggests that hiring has not been as robust as the official figures first showed. The figures indicate that employers have been adding about 174,000 jobs per month, a solid pace but 28% lower than the previously reported rate of about 242,000 jobs.

The news comes as the Federal Reserve weighs a cut in its benchmark interest rate, the first since March 2020. The chair of the Fed, Jerome Powell, has signaled that the central bank is leaning towards cutting rates after raising them to tamp down inflation.

Minutes from the Fed’s meeting in July were released on Wednesday. “The vast majority” of participants “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”, the summary stated.

Powell will give an update on his views this Friday at the central bank’s annual meeting in Jackson Hole, Wyoming.

The news also comes in an election season when the economy is the top priority for voters. The outgoing president, Joe Biden, has received low marks from voters for his handling of the economy despite a remarkable recovery from the coronavirus pandemic. While inflation is fading, voters remain unhappy about prices.

About 16m jobs have been created since Biden took office and average unemployment has remained lower than during any administration in 50 years. But Republicans were quick to seize on the announcement.

“This is the largest downward revision to employment in 15 years,” @RNCResearch said on X (formerly Twitter). The 0.5% revision is the largest since 2009.

The largest downward revision was in professional and business services, which added 358,000 fewer jobs than first thought. In other areas, leisure and hospitality was revised down by 150,000 jobs, manufacturing had 115,000 fewer jobs, and the trade, transportation and utilities category was revised downward by 104,000 jobs.

“Non-farm payroll growth from April 2023 to March 2024 looks to be softer than first thought, but not worryingly so. That supports our view that when the Fed cuts interest rates it will do so in 25bp [basis points] steps, rather than a larger 50bp cut,” Olivia Cross, North America economist at Capital Economics, wrote in a note to investors.

Source: TheGuardian

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S&P Global Inc.

Economic

Data Interpretation

On 22 August, S&P Global released its latest PMI report for Japan:

The Flash Manufacturing Purchasing Managers' Index (PMI) rose to 49.5 in August from 49.1 in July.

The Flash Services Business Activity Index posted 54.0 in August, up from a final reading of 53.7 in July.

The Flash Composite Output Index was 53.0 in August, up from a final reading of 52.5 in July.

August flash PMI data signalled that the solid expansion of business activity at Japanese private sector firms was sustained midway through the third quarter of 2024. Growth was supported by an acceleration of services activity expansion, while manufacturing output returned to growth after declining briefly in July. That said, demand trends diverged as a solid rise in services new business contrasted with subdued demand conditions in the goods producing sector which will be worth monitoring.

Manufacturing business conditions deteriorated for a second successive month, albeit only marginally. Incoming new orders remained in contraction but at a shallower pace compared to July. Meanwhile, output rose modestly as higher workforce capacity supported the clearance of backlogged orders. Overall sentiment also improved slightly among manufacturers. That said, manufacturers were broadly hesitant to raise selling prices, which resulted in output price inflation lowering in August.

Services activity expanded at a solid pace for a second month in a row. Supporting the latest uptick in activity was rising new business inflows, including export business which returned to growth in August. The level of optimism was above-average but eased in August amid concerns over labour constraints and the impact of rising costs. Service providers opted to raise selling prices at the softest pace in nine months, even as input cost inflation rose.

In general, signs of margin pressures were present not only among manufacturers but also in the service sector where new orders growth remained solid, thereby highlighting that private sector firms are partially absorbing price increases in order to remain competitive and to support sales.

Japan August PMI

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Swissquote

Economic

The minutes from the latest FOMC meeting showed yesterday that ‘several’ Federal Reserve (Fed) officials were ready to cut rates at the June meeting, while ‘vast majority’ of them were convinced that September would be a good time to start cutting. Some officials were concerned that cutting the rates prematurely could risk reversing the progress made on taming inflation, but others saw a rising risk for the tightening jobs market to transition ‘to a more serious deterioration’. And the latter worries could be funded as the BLS made a whopping 818’000 downside revision to the annual payrolls figures, giving reason to Goldman Sachs where economists were expecting between 600’000 to a million downside revision.

The FX and commodity side of the story

The combination of dovish Fed minutes and the big downside revision to the annual payrolls number sent the US yields lower and the dollar lower yesterday. The dollar is oversold at the current levels but the news supportive of the dollar bears keep coming in in a way to keep the bears in charge of the market despite the stretched positioning. As such, the EURUSD extended gains to 1.1174 yesterday, Cable advanced to 1.3120, the USDCAD slipped below the 200-DMA – and that despite a further fall in crude oil prices which could’ve prevented the bulls from rushing in, but did not, and the USDJPY consolidated near the 145 level. All of these currencies have one thing in common: their RSI indicators – the relative strength indicator – are flashing overbought conditions against the greenback and continue to suggest that a correction would be healthy at the current levels.

In commodities, gold consolidated near the $2500 per ounce as the risk on environment directed capital toward the stocks rather than the safe haven gold, while crude oil extended losses to the lowest levels since August despite a 4.6-mio barrel decline in US oil inventories last week. The ugly payrolls revision didn’t do much good to sentiment in oil, apparently. The black gold is preparing to test the $72pb support to the downside, and the bearish momentum has enough strength to carry the move toward the $70pb psychological mark.

The stock side of the story

About three weeks ago, when the US had released weak jobs data, the US dollar had fallen on the rising recession odds for the US and the stocks had fallen as well. The latter had even triggered a massive global risk selloff along with a broad unwind of the yen carry positions. Interestingly, yesterday, the market’s reaction to the BLS revision wasn’t quite similar. The S&P500 and Nasdaq both gained on expectation that the Fed will start cutting the rates, the Russell 2000 outperformed, and no one seemed to care that a bad jobs market was a sign of recession that could hurt company profits – the only place we saw that worry was at crude oil, and even the SPDR’s energy sector eked out a small gain yesterday.

Something must give

The Jackson Hole meeting starts today, Fed President Powell will speak on Friday, and many other central bankers will have the opportunity to give hints about their monetary policy plans, as well. Walking into the meeting, the swap markets are back to pricing in a 100bp cut from the Fed before the end of this year.

The latter implies a jumbo rate cut at one of the last three FOMC meetings of the year. And because a jumbo rate cut wouldn’t arrive unless there is a deeper economic and financial trouble, the market pricing of the moment is unsustainable for either the US dollar – which has gone too low with the expectation of a 100bp cut, or the stock markets – which have gone too high with the same expectation disregarding the fact that economic trouble is never good for profitability. In summary, I think that something must give: either the US dollar will rebound, or equities will fall. But a weaker dollar and higher equities don’t make sense together.

Elsewhere

Data-wise, the flash PMI numbers and the European Central Bank (ECB) minutes will be on the menu du jour. The figures in Japan showed a slower-than-expected rebound in the manufacturing activity but the services PMI printed a 7th month expansion and the fastest expansion since April. The figures in Europe will likely be mixed, and the figures from the US are expected to point at weaker numbers compared to last month – that could back the dovishness Fed expectations.

In Europe, investors will also be looking for hints of a September rate cut. Many think that the Eurozone’s economic weakness suggests one more cut before the year ends – on top of the September cut. That’s one less cut compared to the Fed, and a possibly 50bp cut less compared to the Fed if the Fed goes ahead with a 50bp in one of its remaining three meetings. And looking how poorly the Eurozone economies performs compared to the US’, it seems that there is a mispricing here, as well.

To stay updated on all economic events of today, please check out our Economic calendar

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Hang Seng Tries to Find Support from Strong Xiaomi Results

HKG33 Analysis

Nikkei 225, Dow Jones And NASDAQ 100 Lose Upside Momentum

Nikkei 225 stays side-lined

Dow Jones Industrial Average rally runs out of steam

NASDAQ 100 rally is slowing down