Top 4 catalysts that will drive the Hang Seng Index this week

The Hang Seng Index has stalled at a key resistance level as the recent momentum in China's technology sector fades. The index was little changed on Monday, trading at around 24,200, up 7.7% from its lowest level of the year. This article examines the key catalysts expected to drive Hong Kong stocks this week.

Hang Seng Index to react to China macro data

The Hang Seng Index will be in the spotlight this week as the Chinese government publishes crucial macro data, which will shed more light on the state of the economy. 

China will first release its trade numbers on Tuesday. Economists expect this report to show that the country’s exports jumped by 18.2% in June, while its imports soared by 24%. The trade surplus is expected to jump from $105 billion in May to $121.4 billion in June. 

Strong trade numbers will be a sign that the Chinese economy is doing well since trade is one of the most important parts of the economy. 

The other key numbers will come out on Wednesday, when the National Bureau of Statistics (NBS) will publish the latest GDP and other macro numbers. Economists expect the report to show that the economy grew by 0.9% in Q2 after expanding by 1.3% in Q1. This weakness will be because of the impact of the US-Iran war on the economy.

China will also release the latest industrial production, retail sales, and fixed asset investment data on the same day. These numbers will provide more information about the economy. Historically, the Hang Seng Index tends to react modestly to these numbers since most of its constituent companies have a large presence in Mainland China.

US and Iran tensions

The Hang Seng Index is also exposed to developments in the Middle East, where the crisis between the US and Iran is getting worse. President Donald Trump has already declared the ceasefire with Iran to be over, while the IRGC has closed the Strait of Hormuz.

The two sides have also restarted kinetic action, with the US launching a series of attacks against Iran. Iran responded by launching attacks against key US targets, with analysts warning of an escalation. 

If this happens, crude oil prices will continue rising in the coming weeks, which may derail the stock market. Higher energy prices would boost inflation, making it hard for the Federal Reserve to cut interest rates. The Hong Kong Monetary Authority (HKMA) always does what the Fed does because of the HKD peg on the USD.

US earnings season

The other key catalyst for the Hang Seng Index will be the start of the US earnings season, which will start on Tuesday. Five of the biggest US banks, including JPMorgan, Goldman Sachs, and Citigroup will publish their financial results this week.

In addition to this, companies like BlackRock, UnitedHealth, and Netflix will also publish their numbers. Historically, these earnings normally set the tone for the global stock market.

Hang Seng Index technicals

HSI Index chart | Source: TradingView

Technicals will also determine the next action of the Hang Seng Index. For one, the index has stalled at 24,125, which coincides with the lowest swing in March this year. It has found substantial resistance at that point as concerns on whether this is a break-and-retest remain.

The Relative Strength Index (RSI) has stalled at the neutral point of 50, while the two lines of the Percentage Price Oscillator (PPO) have continued rising. Therefore, there is a likelihood that the index will continue rising as bulls target the key resistance at H$25,000.