Stocks in China Drop as US Trade Deal Signing Nears. Why?

US-CHINA TRADE DEAL, STOCKS, SHANGHAI COMPOSITE, HANG SENG INDEX – Talking Points:

  • Stocks in Shanghai, Hong Kong tumble forward of US-China trade understanding signing
  • Slim “phase 1” understanding competence be labelled in already, hopes for “phase 2” modest
  • Technical positioning warns that Chinese batch indexes competence be topping

The markets’ courtesy has been irritated as a US and China ready to pointer a ‘phase one’ trade understanding after 18 months of warlike tongue and tit-for-tat tariff hikes. The settle envisions reversing some new increases in duties on Chinese imports and cancelling skeleton for others in sell for incomparable purchases of US rural exports, such as soybeans.

One competence consider that thawing family between Washington and Beijing ought to be good news for Chinese bonds deliberation a repairs that a trade fight has finished to a East Asian giant’s economy. And yet, benchmarks for on- and offshore equities – a Shanghai Composite and a Hong Kong’s Hang Seng Index – are descending as a agreement’s fulfilment draws closer.

Chart of China bonds - Shanghai Composite and Hang Seng Index - 15min

Shanghai Composite, Hang Seng Index 15min chart combined with TradingView

Both indexes have trended broadly reduce given a commencement of 2018 as a US-China trade fight escalated and dutifully rallied in a fourth entertain of 2019 as an initial trade understanding – however singular – began to seem likely. Put another way, clearly counter-intuitive cost movement remarkable over a past 48 hours is a depart from a approach that Chinese shares have generally responded to a trade dispute narrative.

Why a change? A “buy a rumor, sell a fact” reason seems compelling. The slight range of a ‘phase one’ agreement has been labelled in already, given a issues nonetheless to be staid – skill rights enforcement, record transfer, industrial policy, marketplace entrance – are apart thornier. This, along with a conflict of a US presidential election, competence make any swell on ‘phase two’ a apart proposition.

Equities Forecast
Equities Forecast

TECHNICAL ANALYSIS OF CHINESE STOCKS – HANG SENG INDEX, SHANGHAI COMPOSITE

Technical positioning seems to carefully strengthen this narrative. A daily draft of a Hang Seng Index is display disastrous RSI dissimilarity as prices exam insurgency during a tip of a rising channel running them aloft given mid-August. This warns of vanishing upside momentum, that competence convey a annulment lower. A mangle next support in a 27949-28091 area would offer as confirmation.

Hang Seng Index cost draft - daily

Hang Seng Index daily draft combined with TradingView

A identical design has emerged for a Shanghai Composite. Here too, disastrous RSI dissimilarity speaks to vanishing ceiling self-assurance as prices snippet a outlines of a bearish Rising Wedge draft pattern. Confirmation of annulment on a daily tighten next resistance-turned-support during 3048.48 competence pave a approach to exam support set from Jan 2019.

Shanghai Composite cost draft - daily

Shanghai Composite daily draft combined with TradingView

SHANGHAI COMPOSITE, HANG SENG INDEX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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