Market awaits for more catalyst

CMC Markets

US equity indices hovered at record highs on Wednesday, as market bulls chose to take a break after a decent rally seen last week following the signing of the US-China phase-one trade deal and the UK elections.

On the macro side, the global economic outlook seems to have improved in November and is going to extend a positive trajectory into early 2020. The global manufacturing PMI composite swung to the expansion territory and reached a 7-month high in November, showing tentative signs of recovery. Latest China industrial output and retail sales were also upbeat and the outlook is set to improve due to the temporary ceasefire and partial tariffs rollback with the US.

Last night, US Housing Starts and Industrial Production figures both beat market expectation, leading to a rebound in the US dollar index. US Housing Starts increased by an annualised rate of 1.36 million last month, hitting a multi-year high. It measures the strength of the US construction sector and housing market and thus is also a good indicator for the US economy as a whole.

US Industrial production expanded 1.1% year-on-year, faster than consensus forecast of 0.8%. Industrial production measures the inflation-adjusted value of the output produced by mines, utilities and manufactures and thus is a leading indicator of economic health.

Positive economic data could pave way for more upside in risk assets, particularly emerging market assets.

Hong Kong (HK) equity market is the best-performing in Asia and perhaps also across the globe. The Hang Seng Index registered an astonishing gain of 5.32% over the last 5 trading days, surging to 27,800 points. Technically, the Hang Seng Index is challenging a key resistance level at around 28,000, which it almost reached in early November. Breaking out above 28,000 will open room for more upsides towards 28,600 points (100% Fibonacci Extension).

USD/HKD currency pair have declined substantially, in relative terms, over the past five days too. This signals that capital is coming back for ‘bargain hunting’ in HK dollar denominated assets. HKD is pegged with the USD within a tight range of 7.750 – 7.850, and it is a relatively good indicator of capital flow into and out from HK, Asia’s most dynamic financial hub.