Stocks may have overacted to the downside on G20 news flow

Yesterday, 25 Jun “sell-off” seen in U.S. stocks have saw losses within the range of -1.00% to -1.5% among the key U.S. benchmark stock indices, the 3^rd day of consecutive decline with the higher beta tech heavy Nasdaq 100 being hit the hardest.

Primary triggers have been negative news flow from “Fed Speak” and G20 as reported yesterday;

Fed official Bullard was quoted in a media report that he favoured a 25 bps cut on the Fed funds rate to act as “an insurance” to buffer slower economic growth rather than a 50 bps reduction. This news flow triggered a negative feedback loop into the markets as the Fed funds futures have priced in a 42% probability of a 50 bps cut a day ago on 24 Jun based on CME Fed Watch tool.
U.S. administration has stated that plans have been made to suspend the next round of tariffs on an additional US$300 billion of China imports ahead of G20 summit. Also, U.S. will not accept any further conditions on tariffs as part of reopening trade negations with China and no detailed trade deal is expected from the Trump-Xi G20 meeting as quoted by media from a senior U.S. administration official.

Media reports have attributed the sell-off seen in U.S stocks from the probable “less rosy” outcome from Trump-Xi G20 meeting where a trade deal will not be struck between U.S. and China. Interestingly, a week ago where media had interviewed the investing and political analysts’ community and most of them have a bias that a trade deal will not materialise after the G20 summit.

Thus, yesterday’s G20 related news have already been priced into the markets. In fact, the U.S. administration’s latest plan to delay additional tariffs on China imports has shown a “toned down hawkish stance” and the willingness to restart trade negotiation talks with China is rather a positive catalyst. Click here for a recap on our G20 preview.

Therefore, the 3-days of consecutive decline seen in stocks may have been overdone and since now the media has spin “a less rosy” outcome from Trump-Xi meeting and if any encouraging trade related remarks from U.S. administration after the meeting can easily trigger a positive feedback loop back into stocks and risk assets.

Now, lets us review the technical structure on the Hang Seng Index, a key China related play that can be impacted from G20 news flows.

Short-term technical outlook on Hang Seng Index/Hong Kong 50 (Wed 26 Jun)

click to enlarge charts

Key technical elements

Since its high of 28756 printed on 20 Jun 2019, the Hong Kong 50 Index (proxy for Hang Seng Index futures) has declined by -2.7% to print a current intraday low of 27982 as at today, 26 Jun Asian session.
Interestingly, the decline has led to a test on the predefined key medium-term pivotal at 28000 (click here for a recap on our weekly technical outlook report) with positive elements.
The daily RSI oscillator is now resting on a significant corresponding support at the 50 level with a bullish divergence signal seen in the shorter-term hourly Stochastic oscillator at its extreme oversold level. These observations suggest that the recent downside momentum has started to ease.
The 28000 key medium-term pivotal support also now confluences with the lower boundary of the minor ascending channel in place since 13 Jun 2019 low.

Key Levels (1 to 3 days)

Pivot (key support): 28000 (medium-term pivot)

Resistances: 28670 & 29000

Next support: 26800/650

Conclusion

If the 28000 key medium-term pivotal support holds, the Index is likely to see a potential recovery to retest the recent 20 Jun minor swing high area of 28670 before targeting the next resistance at 29000.

On the other hand, a daily close below 28000 invalidates the recovery scenario for a further decline towards the next support at 26800/650 (the aftermath of the recent local HK street protests over the China extradition bill).

Charts are from City Index Advantage TraderPro

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.