Hang Seng index may fall after US CPI beat raises odds for more aggressive Fed

Hang Seng Index, Hong Kong Equity, US CPI, Fed, Technical Analysis – Market Alert

• Hang Seng Index futures bearish after US CPI data unexpectedly beat estimates
• It raised the stakes of a more aggressive Federal Reserve at its September meeting
• Further, Hong Kong stocks may be at risk for Wednesday’s trading session

Hang Seng index futures fell after unexpectedly strong US inflation data

Hang Seng index futures slipped after stronger-than-expected US inflation data crossed the strings. The headline US Consumer Price Index (CPI) rose 8.3% y/y in August from 8.1% expected, but down from 8.6% in July. Meanwhile, the core CPI, which excludes food and energy prices, is expected 6.3% y/y versus 6.1%, rising from 5.9% in July.

The latter meant that the index remained at nearly 40-year highs, indicating that underlying price pressure is continuing, even as gasoline prices declined sharply. Inflation data bet that the Federal Reserve will continue to aggressively tighten monetary policy. Markets are now pricing in a roughly 66% chance of a 0.75 percent increase at next week’s meeting, with a 33% chance of a full percentage point increase.

Wednesday’s Asia Pacific Business Session

A slide in US equities could weigh on Hong Kong stocks, which are battling Chinese ADRs and extending the Covid-induced lockdown in China. While Chinese officials have signaled a renewed sense of urgency to shore up the ailing economy, regional benchmarks have yet to see a meaningful rebound.

Beijing’s recent announcement of measures to boost investment, consumption and employment has so far reversed the poor performance of Chinese and Hong Kong stock markets. Meanwhile, Chinese growth projections continue to decline amid sluggish domestic demand and record-high youth unemployment. In this regard, now the main focus is on Chinese data due on September 16 – house prices, retail sales, industrial production, real estate investment and unemployment.

Hang Seng Futures Index Technical Analysis

The failure to break the key resistance at the April high of 22535 in June and the subsequent sequence of lower lows and lower highs confirmed that the broader trend remains to the downside. The possibility of a retest of May’s low of 24,685 may increase in the coming days. A break below 24,685 could expose downside risks towards March lows of 23,425.

Hang Seng Futures Index Daily Chart

Chart created in Trading View

— written by Manish Jaradi, strategist For DailyFX.com

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