The Hang Seng index futures (HKEX: HSI) saw a 2.5% pullback in the Wednesday session, as the downgrade of the US credit rating from AAA to AA+ dented sentiment and brought back fear of a US economic slump due to the high-interest rate environment. Later on in the day, the US ADP Employment Change stole the show, with a rapid rise in employment adding to the caution, as it could signal further interest rate hikes if the NFP report on Friday shows a tight labour market. 

The Hang Seng futures followed major US indices into the red, and the slight rise in Chinese services activity could not prevent the downside momentum. On Thursday, the Caixin Services PMI rose slightly from 53.9 to 54.1, exceeding the 52.5 consensus. However, the Composite PMI retreated from 52.5 to 51.9, as manufacturing activity remains weak. As a result, the services activity was not enough to prevent the downside caused by the credit rating downgrade in the US, as well as the ADP Employment Change, which showed that 324K new jobs were added, almost double the 189K consensus, although lower than the prior 455K. The NFP report on Friday could be critical in determining the market’s sentiment as we advance. 

Technical 

On the 1D chart, a descending channel has formed, where a recent breakout is retesting the sustainability of the upward momentum at the dynamic resistance of the channel. The price action trades below the daily pivot resistance of 19,701, but the 50-day moving average provides support at 19,153. 

If the support at 19,440 prevents a sustainable move back within the channel, a trend reversal is possible, with the pivot at 19,701 acting as the first resistance level. A break above could signal the uptrend, with resistance established at 20,277 and 20,834. 

However, a break below the 50-day moving average at 19,153 could confirm the bearish trend, where the Fibonacci midpoint is established at 18,695 from the late January peak. The dynamic channel support at 18,120 could be the last line of defence for a bearish move toward the Fibonacci golden ratio at 17,737.  

Summary 

Sentiment in the US market took a hit on Wednesday, spurred by the surprising credit downgrade and a strong ADP jobs report. This sentiment trickled down to the Hang Seng futures, with Chinese manufacturing activity weighing on the economy’s expansion. If the NFP data confirms the weakening sentiment, the futures could edge lower toward 19,153 and 18,695. Alternatively, a dovish surprise could trigger an upside move toward 20,277 to form a new uptrend.  

Sources: Koyfin, Tradingview, Reuters