Nasdaq, Hang Seng, and Nikkei: Key Market News and Technical Analysis

PBOC Holds Rates While Balancing Stability and Deflationary Risks

The decision by the People’s Bank of China (PBOC) to keep its Loan Prime Rates (LPRs) unchanged at 3.10% for the one-year rate and 3.60% for the five-year rate comes despite deflationary pressures. This decision may have a mixed impact on the Hang Seng Index. Falling yields, shrinking net interest margins, and a weakening yuan limit the scope for monetary easing. Lending benchmarks were last cut in October to boost economic activity, as shown in the chart below.

China’s retail sales grew only 3.0% year-on-year, significantly lower than the previous figure of 5.0%. This also fell short of the forecasted 4.8%, indicating a slowdown in consumer spending. This suggests weaker domestic demand and reflects reduced consumer confidence. The data is further supported by weak inflation, which slowed to 0.2% year-on-year. These figures highlight deflationary pressures in the Chinese economy, which could dampen corporate earnings and overall economic growth.

The decision to keep rates unchanged may reflect a focus on stability, as the PBOC appears to prioritize financial and currency stability over economic stimulus. Further rate cuts could risk weakening the yuan and increasing pressure on capital outflows.

This deflationary pressure and weak retail sales growth might weigh on sectors sensitive to domestic demand and economic activity, potentially capping upside momentum in the Hang Seng Index. The index remains in a consolidation phase within tight ranges, awaiting its next short-term direction.

Uncertainty and Growth Factors Shape Nasdaq and Nikkei Outlook

The looming government shutdown in the US adds uncertainty to the market. However, the drop in weekly jobless claims to 220,000 reflects positive data. GDP growth of 3.1% also supports bullish sentiment. Strong GDP growth signals a robust economy. This is typically favorable for the Nasdaq Index due to its heavy reliance on the tech sector.

The sharp decline in the Philadelphia Fed Manufacturing Survey to -16.4 highlights weaknesses in certain sectors, signaling potential headwinds for broader market growth.

Despite a recent correction from the resistance area, the Nasdaq may continue to brush off the Fed’s hawkish stance. With over a 90% chance of a stable policy rate at the next Fed meeting, rate hike fears are easing. However, the Nasdaq could still face pressure from weaker manufacturing activity and external risks, such as a government shutdown and declining European equities.

On the other hand, the Bank of Japan’s decision to keep interest rates unchanged will likely support the Nikkei Index in the short term. The weaker yen boosts export-oriented companies, which dominate the index. However, global stock market pressure from the US Federal Reserve’s cautious easing path could limit gains.

Nasdaq Index Analysis – Ascending Channel

The NASDAQ index has been trading within an ascending channel for the past two years, forming a bullish price action. This ascending channel began when the 50-day SMA crossed above the 200-day SMA in March 2023. These SMAs consistently support the price after this crossover. The emergence of a double bottom in August and September propelled the index toward the resistance of the ascending channel at 22,000. However, after the Federal Reserve’s interest rate cuts, the index corrected this resistance.

The immediate support level is around the 50-day SMA at 20,800, with the next significant support at the neckline of the double bottom at 20,000. The next support after this lies in the ascending channel’s support at 18,400. These levels will be critical in determining the index’s ability to sustain its bullish trajectory.

Hang Seng Index Analysis– Price Rebound from Support

The daily chart for the Hang Seng Index shows a bullish price structure. It is defined by an inverted head and shoulders pattern formed in Q1 2024. This pattern was broken in April 2024 at 17,200. The index then reached resistance at 23,000 before returning to the breakout zone. After retesting the breakout level, a strong rebound initiated positive developments, suggesting that the index may continue its upward momentum.

A significant rebound from the 19,000 to 20,000 price zone has resulted in fluctuations within a range, indicating the buildup of positive energy for the next strong move. A break above 21,250 will likely trigger the next bullish rally.

Nikkei Analysis – Range-Bound within Ascending Channel

Nikkei Index trades within an ascending channel after the August 2024 drop. The index has consolidated within a range-bound market within this channel for the past three months. This consolidation has developed bullish price action. A break above 40,200 could initiate the next move higher toward the 42,300 zone. This level represents the ascending channel’s resistance from the July 2024 high.