Hang Seng Index retreats after testing 24,000 resistance while crude oil and gold surge on escalating Middle East tensions ahead of key central bank meetings.
Summary
- What happened last week: Middle East tensions escalated with Iran's nuclear developments and Israeli strikes, while US-China trade talks progressed in London.
- Markets in focus: Hang Seng Index temporarily breached 24,000 before retreating below this key level, while commodities surged on geopolitical risks.
- The week ahead: Central bank meetings from Japan, US, and UK dominate the calendar amid inflation concerns.
What happened last week
- Escalation of geopolitical tensions in the Middle East: Iran unveiled plans of a new uranium-enrichment facility, prompting Israeli strikes against military targets. West Texas Intermediate (WTI) crude oil surged 10% on supply concerns, while gold advanced above $3,400 as investors sought safe-haven assets. Global equity markets retreated on heightened regional tensions.
- US-China trade negotiations demonstrate progress: Constructive dialogue emerged following London meetings. President Trump indicated China would ease restrictions on magnets and rare earth elements, while the US would facilitate Chinese student access to American education.
- Tariff impact yet to show: US consumer price index (CPI) and producer price index (PPI) both registered 0.1% increases in May, slower than anticipated. It may be too early to conclude on the impact of higher tariffs, as manufacturers accumulated inventory and absorbed initial cost pressures. Meanwhile, consumer sentiment improved for the first time in six months.
- Bond yields declined following robust Treasury auction demand and increased Federal Reserve (Fed) rate cut expectations. Markets anticipate two or more 25-basis point reductions this year given moderate inflation data. 10Y and 30Y Treasury yields declined to 4.42% and 4.91% respectively.
- China's deflationary pressures intensify: CPI declined 0.1% year-on-year, marking the fourth consecutive deflationary month, while PPI contraction deepened to -3.3%. Subdued consumer demand and pricing competition, combined with trade uncertainty, represent primary contributing factors.
Markets in focus
Hang Seng Index retreats after testing key 24,000 resistance
The Hang Seng Index (HSI) delivered another positive weekly performance amid easing US-China trade tensions, though the index relinquished some gains during the latter portion of the week due to profit-taking activities and Middle Eastern geopolitical developments, concluding with 0.4% weekly gains. Healthcare emerged as the strongest-performing sector, with Sino Biopharma advancing 22% and Wuxi Biologics gaining 14% over the week. Zijin Mining appreciated 10% on elevated precious metals pricing. Conversely, automotive stocks declined as government measures address structural industry challenges including unsustainable price competition, supplier exploitation, and inventory irregularities. Geely and Li Auto's share prices contracted 9% and 6% respectively.
The temporary advancement above 24,000 last week confirms this level as substantial resistance level from both technical and psychological perspectives. As global market volatility increases amid Israel-Iran tensions and heightened anticipation surrounding central bank policy meetings, the HSI may revert to its previous narrow trading range between 22,650 and 24,000. Sustained advancement beyond 24,000 requires significant fundamental catalysts, though the 50-day simple moving average should provide robust support at the range's lower boundary. A decisive breakthrough above 24,000 could propel the index toward this year's peak at 24,874. Alternatively, a breach below current parameters may target 21,700.
