Rate Cut Odds Rise on Weak Data and Fed Signals
The US economy shrank by 0.5% quarter-on-quarter in Q1, down from an initial estimate of a 0.2% contraction. The Q1 numbers strengthened the case for a more dovish Fed rate path. The Fed’s Mary Daly and Susan Collins signaled support for further monetary easing. According to the CME FedWatch Tool, the probability of a September Fed rate cut rose from 89.4% to 93.2% on June 26.
Easing geopolitical tensions also bolstered demand for risk assets as Iran and Israel held the ceasefire.
Mainland Industrial Profits Underscore the Tariff Effect
On June 27, China’s industrial profit numbers for January to May pressured Mainland China stocks, unexpectedly falling 1.1% year-on-year (YoY). Notably, May profit growth plunged 9.1% YoY after rising 3% in April.
According to CN Wire, China’s mining sector was the key drag, with profit growth tumbling 29% YoY.
May’s data underscored the importance of a US-China trade deal amid speculation that an agreement has already been inked. The Kobeissi Letter reported:
“US Commerce Secretary Lutnick says the US-China trade deal was signed 2 days ago.”
Despite reports suggesting a signed US-China trade deal, the absence of confirmation from Beijing limited the market response.
Technical Setup: 24,500 Resistance or Drop Below 24,000 as Geopolitical Risks Linger
On June 27, the Hang Seng Index traded above its May-June congestion zone, holding around the June high of 24,533. Significantly, the Index continued to trade above the 50-day Exponential Moving Average (EMA), signaling bullish momentum.
Easing Middle East tensions and a balanced US-China trade deal could send the Index above the June high of 24,533. Sustained buying pressure may open the door to retesting the March high of 24,874. Conversely, a break below 24,000 could expose 23,500 and the 50-day EMA.