A50

US yields were a touch lower with Jerome Powell saying that inflation is on the disinflationary path, ahead of key economic data from the US including ISM services, JOLTS and ADP employment reports. The ASX 200 and China look poised to move higher following a strong lead from Wall Street ahead of Independence Day.

China’s major stock market indices have been falling since the middle of May. With little in the way of a decent bounce higher, I continue to suspect one could be due.

China A50 stock futures have been hammered on Thursday, as have most other equity futures across Asia. The US dollar is breaking out as US Treasury yields push higher, seeing traders abandon riskier positions ahead of quarter-end. The baby is being thrown out with the bath water.

The Hang Seng enjoyed its best day in three months. And with key support levels for the China A50 and ASX 200 holding, perhaps they can try to close the gap this week.

China’s services sector strengthened in May, boosting Chinese equity markets and providing some respite for commodities such as copper and WTI crude oil.

Chinese stock futures have surged on the resumption of trade on Monday, finding buying support after hitting multi-week lows on Friday. If the gains stick, it points to a potential trend change in both the Hang Seng and China A50. The gains track similar moves across the Asian region and follow a late surge on Wall Street to end May.

China’s ‘National Team’ – a collection of state or quasi state-backed entities tasked by the government to smooth out financial market ructions when the prevailing price action is deemed desirable – looks like it may have been mobilised with China’s A50 ripping higher late Thursday and going on with the move today.

In contrast to price action on the S&P 500 which is within touching distance of record highs, China’s A50 languishes at multi-year lows, hit by a sluggish domestic economy, fears about negative spillover effects from distressed property developers, along with geopolitical and regulatory risks.

China’s consumer and producer prices softened in August, yet signs of disinflation are also becoming apparent across other parts of China.

We revisit the China A50 to outline why we think it has seen a significant low, and could be set to return to a longer-term bullish trend.

Whilst China’s inflation beat analyst’s estimates, weak producer prices leaves the prospects of further stimulus on the table.

Fundamentals point to further weakness for the Chinese economy, and that has been another headwind for the China A50 index. It also builds a case for a weaker yuan.

Whilst China’s equity markets initially tumbled yesterday, rumours of the National Team supporting markets saw earlier losses quickly evaporate.

It is a big week for inflation enthusiasts, with CPI data for December released from China and the US.

Retail sales and investment were lower in November for the world’s second largest economy which points to further headwinds for growth this quarter.

Company profits are set to be squeezed further as China’s producer prices rose to a near 3-decade high of 13.5%. The China A50 index was quick to break lower.

As economies develop and investors needs change over time, so can the makeup of an equity index. Just as the DAX 30 became the DAX recently, the China A50 may also receive an upgrade.