Hang Seng Tech Trades Higher, Iron Ore Rallies on Stimulus Optimism

• China’s weak CPI and easing PPI raise chances of further stimulus
• Optimism for Fed rate cuts lifts risk appetite
• Hang Seng Tech, and iron ore rebound on Wednesday

Summary

China’s latest inflation figures increase the likelihood of further consumer-targeted stimulus, with weak demand still evident beneath the headline numbers. Combined with hopes for additional Fed rate cuts, the data helped Chinese markets rebound on Wednesday.

Mixed Messages from China’s Inflation Update

China’s deflationary pressures deepened in August with consumer prices falling at their fastest pace in six months. Headline CPI dropped 0.4% on year, sharper than the 0.2% decline economists expected, and down from flat in July. The drag came from food, where prices slumped 4.3%, while non-food prices rose a modest 0.5%. Core CPI edged up 1.2% from a year earlier, supported by government incentives such as the consumer goods trade-in scheme, though the improvement looks policy-driven rather than demand-led.

Producer prices also remained in negative territory, with PPI down 2.9% on year. That was an improvement from July’s 3.6% fall, reflecting Beijing’s efforts to restrict supply and curb excess capacity in sectors like coal and lithium. Even so, with PPI deflation now stretching towards three years, the narrowing pace owes more to supply management than stronger demand. As demonstrated by lithium markets which plunged on Wednesday on reports CATL plans to restart production at a giant mothballed mine, without a sustained pickup in domestic spending, neither consumer nor producer prices are likely to mount a lasting recovery.

Stimulus Hopes Boost Chinese Markets

The prospect of additional support measures helped lift Chinese assets, with the Hang Seng and Hang Seng Tech indices both rebounding sharply on Wednesday. Iron ore futures also firmed, supported by hopes that further stimulus could bolster demand in China’s struggling property sector.

Hang Seng Tech Trades at Fresh Highs

Source: TradingView

The Hang Seng Tech Index has rediscovered its mojo after bouncing strongly from a support zone consisting of the 50DMA and uptrend support last week, taking out minor resistance at 5730 before clearing the August high of 5856.

Those considering buying the break could look to enter above the August highs with a stop beneath for protection, targeting the intersection of horizontal and channel resistance at 6150.

Momentum indicators have turned bullish with RSI (14) breaking its downtrend before moving back above 50 while MACD has crossed the signal line from below in positive territory, bolstering the signal. That favours long setups over short in the near-term.

Iron Ore Breaks Out

Source: TradingView

It’s not just tech stocks in China that are breaking higher with iron ore also up and about following a definitive move through resistance above ¥795. Given the shooting star candle that printed a day earlier, the preference would be to wait for a potential pullback towards ¥795 before considering long positions, allowing for time to assess whether it truly was a topping signal.

If the price retreats back towards the level but holds above, longs could be established with a stop below for protection, targeting the swing highs of ¥819.50 or ¥833.50 initially.

With RSI (14) and MACD providing strong bullish signals, buying dips and breakouts is favoured over selling rips.