The Hang Seng index is down by more than 1.50% as traders react to the rising tensions between the United States and China. The index is also waiting for the corporate earnings season that will start today in the United States. Most Hang Seng constituents are in the red today but casinos have done well after Macau eased social distancing requirements.
The Hang Seng index is reacting to the current conflict between the US and China. Yesterday, China imposed sanctions on several high-level Republican senators, including Marco Rubio and Ted Cruz. These sanctions came a few days after the US imposed sanctions against key Chinese officials because of the re-education measures that are happening in Xinjian.
In response to the new sanctions against Americans, the Trump administration hardened its stance against China on the disputed South China Sea. In a statement, Mike Pompeo said that the US was making clear Beijing’s claims to offshore resources across the sea as unlawful. This was in line with a 2016 ruling by a tribunal about the issue. In a statement, China asked the US to stop meddling on these issues.
Rising tensions between the two sides is a bad thing for the Hang Seng because it could disrupt the amount of business that constituents do. Remember the 2018 and 2019 trade war and its impacts?
The Hang Seng, and other Chinese bourses are falling ahead of the US corporate earnings season. Today, banks like Wells Fargo, JP Morgan, and Citigroup will release their earnings. According to Factset, most analysts expect that American firms will have their worst quarter in decades. That is because the economy was in a lockdown for most part of the second quarter.
Earnings by US firms could have impact on the Hang Seng because of how interconnected the global economy is.
The Hang Seng index also fell because of the rising number of coronavirus cases in Hong Kong. As a result, companies like Disney have been forced to close their businesses. And Hong Kong has introduced strict social distancing measures.
Casino stocks like Galaxy Entertainment and Sands China are the best-performing stocks in the Hang Seng today. They are both up by more than 4% after Macau relaxed some of its social distancing requirements. Other top movers are CK Hutchison, Hengan International Group, and China Unicom.
On the other hand, the worst-performers in the index are Geely Automobile, AAC Technologies, Tencent, and Sunny Optical that are down by more than 3%.
The Hang Seng index is trading at $25,400, which is significantly below last week’s high of $26,766. The index has been falling for the past four consecutive days. It is above the 50-day and 100-day exponential moving averages and is also slightly above the 50% Fibonacci retracement level. Still, the price is slightly above the ascending trend line that is shown in purple.
Therefore, the upward trend is likely to remain so long as the price is above this trend line. However, a break below the line will invalidate the upward trend since it will mean that bears have prevailed.