The markets today were crazy as always and brought me even more headaches, but at least significant levels were crossed today. What can I say, the Chinese and Hong Kong indices are like a honeypot of good reference material, and I have a serious sweet tooth. You readers seem like you like it as well, so thanks for making it even easier for me to feed by market data addiction! Besides China, we’re also seeing the USD/JPY going over 120, and large minute-to-minute volatilities after the ECB didn’t do anything and came out with classical European statement clarity (thus no clarity at all) and then the normal US market opening lifts turned it around 30 minutes later. Though China and Hong Kong stands out and have some good charts to go by.
Time for the normal laundry-list of data:
- Hang Seng Index:
- Spot high-low-close-return: 23 844 / 23 457 / 23 833 / +1.72%
- Futures-implied spot HLC: 23 990 / 23 418 / 23 841
- Turnover high again at HK$117.5 billion, but slightly down from yesterday’s HK$123.1 billion.
- Implied volatility from the VHSI down 0.6% to 16.31.
- Single-sided trading for spot simply going higher, then futures spiking after the futures market opened, then falling back to wards the spot close and oscillated around it for much of the evening.
- Hang Seng China Enterprises Index:
- Spot high-low-close-return: 11 494 / 11 094 / 11 481 / +3.80% (!)
- Futures-implied spot HLC: 11 642 / 11 103 / 11 509
- Turnover high again at HK$37.9 billion, up marginally from yesterday.
- Spot trading was very much one sided, which continued into the first hours of the futures trade, moderated and peaking before the ECB news, forcing the market down.
- Shanghai Composite:
- Spot high-low-close-return: 2 900 / 2 772 / 2 899 / +4.31% (!!)
- Shanghai A-Shares Top 50: HLCR: 9 540 / 9 000 / 9 530 / +5.90% (!!!)
- Turnover extremely high at RMB509.22 billion, but slightly down (!!!) from yesterday’s RMB529.78 billion.
- Shanghai – Hong Kong Stock Connect:
- Northbound quota balance use at RMB3.52 billion.
- Southbound quota balance use at RMB414 million.
- Stable through-day trading on both lings.
- Hong Kong Monetary Base:
- All quiet on the monetary base front… nothing of note to really report on here except for the closing aggregate balances going up to HK$239 199 millions (by HK$25 million).
Charts after the jump, and if you like any charts you will probably like these charts!
Hong Kong and Chinese stocks were swinging more than 2% and 1% on the wide indices today, crushing important technical levels like matches under the boot. The Shanghai A50 was even worse, having total intraday swings of 5.6% uuuup…. and then back doooown and then leaving the market (relatively) marginally up by a bit more than 0.6%. (Volumes were massive with RMB530 billion [out the window goes another prediction…] and HK$123 billion in respective separate markets, with higher Shanghai – Hong Kong Stock Connect activity than average since the opening.)
Watching this is interesting for certain, but the problem is that we’ve had a massive break lower, followed by a whiplash upwards, and then snapped right back down today. It feels like trying to read patterns into an explosion – exciting and moving but ultimately very dangerous for ones health in proportion to how closely you wish to look. It feels like there isn’t all that much to state before we get a trend in which volume is taking the Hong Kong markets. I do believe “up” will be the emerging power, mostly on the China draft and connection, making the move down a harder momentum play.
Getting away from headache-inducing impacts, let’s look at something a little bit more smooth and predictable:
Nikkei 225 futures-implied spot price, 4 hour candles, 4 month charts with 48 and 120 hour EMAs. Courtesy of CMC Markets
Smooth as soggy soba! More after the jump!
Who here is placing buy-orders in Chinese and Hong Kong markets based on my posts? You should a) stop, I’m surprised you still have money if you follow the sentiment in my posts, and b) pay me commission for today! Haha, in all seriousness though, it was insane to see the Hong Kong and Shanghai markets rally literally one minute after I posted my bullish signals summary for China. Though I can’t even play with the thought that someone got influenced, since I have received no clicks from there today!
Anyhow, my jaw has been dragging around the floor the whole day thanks to Chinese market action. Let’s look at the reasons you might want to buy tomorrow, in one more of these standard-format Shanghai – Hong Kong Stock Connect updates. I’ll even throw in some technical analysis as well!
Note: Since futures contracts for November expire tomorrow, things are really, really messy on the futures prices. Please look at futures-implied data through a few barrel-sized grains of salt.
- Hang Seng Index:
- Closed at 24 112, up 1.12%, with a high of 24 177.
- Futures-implied spot had a high of 24 206 (during day’s trade) and closed at 24 176.
- Turnover was high at HK$87.6 billion, nearly reaching yesterday’s turnover. There was a significant overweight to the turnover past the 14:35 rally start.
- Hang Seng Volatility increased by 5.2% to 15.15% from 14.4%. It does really seem like we are riding volatility higher!
- Futures-spot spreads also blew out higher! They were trading near 10 basis points for December delivery, which is astonishing given that the time left to trade them is decreasing so significantly every day!
- Hang Seng China Enterprises Index:
- Closed at 11 051, up 2.49% (!), with a high of 11 075.
- Futures-implied spot had a high of 11 092 and closed at 11 082.
- Turnover was high today here as well, at HK$25.8 billion, massively up from yesterday’s value at slightly below HK$20 billion.
- Futures-spot spreads here are high as well, at 24 basis points for December delivery!
- Shanghai Composite (sit down for this!):
- Closed at 2604, essentially at the high, up 1.43%.
- Volume at RMB316.5 billion! That’s more than 95% of Monday’s turnover, when the PBOC had gone out and lowered interest rates and there was somewhere on the order of RMB1 trillion being invested in IPOs!
- Shanghai Composite A-Shares Top 50 closed at 8 085, or up 2.51%!
- The big story here is obviously why the market rallied at 14:35 local time… still no satisfying answers to this actually.
- Shanghai – Hong Kong Stock Connect data:
- Northbound quota use was at RMB3.3 billion and very consistent during the day.
- Southbound quota use was at nearly RMB315 million, and had a reverted spike right before the lunch break, implying someone possibly took a big round-trip trade with the first leg being a buy on some Hong Kong-listed stocks.
- About RMB72 million were used in Southbound quota during the latter half of the afternoon, after the rally started and when essentially only Hong Kong was open.
- Hong Kong monetary base data:
- The overall monetary base fell by nearly HK$800 million, to HK$1.338,842 billion, as per usual mostly due to the change in cash that the HKMA underwrites of issuance through other banks (Certificates of Indebtedness).
- Closing aggregate balances were up HK$21 million, but currently they seem to be fluctuating a few tens of millions every day.
- If you weren’t sitting down before, you really should now. OEFBNs (HKMA-issued liquidity) held by non-bank financial institutions decreased… by nearly HK$2 billion!! Not a typo. This value normally changes by between HK$200-500 million when it changes, so a drop this big is an unequivocal indication that the net long positions in risky assets has increased dramatically. NBFI OEFBNs currently is slightly higher than HK$75 billion (by a HK$50 million margin) which is a much lower value than this stash of cash has been at for the last 3 years, and probably much longer than that!
Now, time for technical analysis!
Whew, we’re finally past all the major market-moving data today! Let’s celebrate with the daily scheduled bit of more Shanghai – Hong Kong Stock Connect roundups! You know the drill by now.
- Hang Seng Index:
- Fell 0.1% to a close at 23 350, with an intraday low at 23 253 and high at 23 461.
- Turnover fell again, to HK$61.1 billion from HK$65 billion yesterday.
- The futures-implied spot closed at 23 246, with a low of 23 207.
- The implied futures-spot spread is now negative, and the index is in contango by 2 basis points! Uh-oh…
- Hang Seng China Enterprises Index:
- Fell 1.1 basis point to a close of 10 379, with an intraday low at 10 331 and high at 10 443.
- Turnover was actually up, to HK$11.45 billion, from HK$10.89 billion yesterday.
- Futures-implied spot was 10 349, and a low of 10 310, with the implied futures-spot spread still positive but much smaller than yesterday at roughly 15 index points.
- Shanghai A-Shares Top 50:
- The SSE composite gained 1.67 points (7 bps) to 2 453 with a low around 2 444 and a high around 2 461.
- The A-Shares Top 50 was up to 7 486, with a low of 7 381 and a high of 7 507.
- Turnover was down on the day, to RMB150.8 billion.
- Shanghai – Hong Kong Stock Connect data:
- Northbound trading was down from yesterday (as per usual) with a final value of RMB2.28 billion traded.
- Southbound trading was smoother, but came in at RMB200 million, which was even smaller than yesterday’s RMB250 million!
- We again had some increases in the Southbound quota balance, indicating more selling than buying across the Southbound link, with the majority of these coming in around 11 am and 3 pm. The morning trade makes it look like unmatched/non-disguised block trading was involved given the sudden jump upwards of the balance.
- On both markets, more quota was traded at the last hour than the average hourly rate for the day, but the quota use was also relatively fast in the morning on the Southbound link, while it accelerated continuously on the Northbound link.
- Hong Kong Monetary Authority data:
- Few changes overall, but a fall in the monetary base of roughly HK$300 million, with the majority of this being contributed by Certificates of Indebtedness.
- A HK$15 million fall in the Closing Aggregate Balances!
- OEFBN’s were similarly drawn down by HK$17 million.
- The OEFBN’s held by Non-Bank Financial Institutions increased by HK$300 million, reaching a still-low level of HK$77.8 billion.
So, what to make of all of this?
There are a lot of news out today, and it’s time to get into some of it.
- Overnight, we got the Federal reserve stating that they’re watching for deflation, which gave markets a shot in the arm.
- The morning opened with Japanese trade data, with October exports increasing by 9.6% YoY, imports by 2.7% YoY (against expectations of 4.5% and 3.4% respectively) leaving a trade deficit of 710 billion yen, on expectations of a 1.05 trillion yen deficit.
- HSBC’s China flash PMI came in at 50 exactly (exp.: 50.3) and has soured the Chinese trading a bit.
- The People’s Bank of China decided to start adding more liquidity to the markets by doing RMB10 billion of repo operations.
Markets, on a spot latest-to-close basis, are taking this rather well even though the Japanese futures markets were clearly indicating bigger hopes from overseas investors overnight.
Also, how do you make money off the yen? It’s a rather complicated, multi-step process:
- Find a news announcement time.
It doesn’t really seem to matter just what news are out, or what they say – the yen gets sold. 118.7 to 1 US dollar at the time of writing, and 148.9 to the euro. It spent all of three hours testing resistances in the 118.1 – 118.3 area. That leaves us far above the 50% long-term Fibonacci level, that looks to herald a quick jump to 121 to the dollar before the move is slowing down. I never expected to be here in mid-November, so pardon my tardiness on forecasts.
There will be more later today, potentially on Japanese indices depending on if there is significant new technical data to cover, and definitely on Hong Kong and China indices after my technical analysis and stupid predictions came in so well.
Until then, KMP! (Keep Making Profit)
The futures market for Hong Hong is closed at the moment, and that gives me some time to look into how the market has viewed trading beyond the first day of the Shanghai – Hong Kong Stock Connect being open in a wider perspective. This isn’t rosy reading, so bunker up with something sweet to snack on to take the edge off the data.
Before I dig into the indices themselves, I’ll provide a rundown of the day’s most important data.
- Volume was down on the Hang Seng Index and and Hang Seng China Enterprises Index alike, but the effect was stronger on the HSI which posted a HK$74 billion turnover, versus yesterday’s HK$83 billion. For the HSCEI the effect was miniscule and stayed a rounding error from HK$13.6 billion both days.
- The Shanghai – Hong Kong Stock Connect volume was relatively paltry. Northbound trading added up to RMB4.85 billion, while Southbound trading only managed a meager RMB800 million. Most of the open-market trade was also conducted during the afternoon, after the HSI started trading a little bit more two-directionally.
- It does seem like mainland investors are a supporting force, but so far it looks like the massive over-weight is with Hong Kong investors looking to trade out of Hong Kong-listed Chinese stocks (arguably heavily reliant on finance and infrastructure, which the HSI has a lot of itself) into a wider variety of Chinese shares. The diversification benefits are obvious (in hindsight) and the performance of Hong Kong equities is yet to be attractive for mainland Chinese buyers, it seems.
- The Hong Kong monetary base was down by almost HK$1.4 billion, which could have contributed to falls. Liquidity isn’t draining from the HKMA channel, but it isn’t expanding due to foreign purchases of Hong Kong dollars either, which would suggest that as soon as there is a bigger, more sustained market rally that eases into stable trading, the closing aggregate balances might start being converted to OEFBN’s. Still too early to tell, and there is still the possibility for a CAB run-up given the HK$ trading at 7.755 to the US dollar.
- NBFIs, however, have increased their position in OEFBNs, which isn’t a particularly good sign. We’re still at very low levels of NBFI-held OEFBNs at below HK$80 billion, but it is not a good sign that these are ticking up, yesterday by about HK$600 million.
Indices covered in this post are the Hang Seng Index- and HS China Enterprises Index futures-implied spot, and the China A50 spot. All charts are due CMC markets, daily candles for the last 9 months, and uses the same underlying chart studies. Again, please see the Watched Charts page for more, and specific data on spot closes as well as volumes. Any line that starts at the very leftmost of any chart is from my most recent long-term technical analysis, and any dashed line is a Fibonacci level off of the same analysis.
Hang Seng Index:
Apologies for the very busy chart of the Hang Seng Index, but on wider views it helps a little bit to get a variety of trade-points, especially for evaluating later which ones hold sway. Right click for full-screen.
It’s been longer than I expected, but it’s been a while since I had a relaxing weekend, and that ended up taking priority. Also, charting can be a handful at times so that was largely what yesterday was reserved for.
I’ve split this up into Hong Kong/China charts, currencies, and precious metals, being presented in that order. Japan has gotten its dues and is not a particularly interesting long-term case since once we crack Nikkei 225’s 17 500 points and the TOPIX 1407 points, we have large upsides before material resistances start showing up. Loose discussions on Japanese equity will be held during the yen-focused currency outlook, but that’s pretty much it. Let’s dig into the charts we have!
Hong Kong / China:
Here is the Hang Seng Index, spot implied from futures prices as per usual on CMC Market’s charts.
Hang Seng Index, weekly candles with 8 years of data.