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Hang Seng boosted by equity fund inflows from the Chinese mainland


We closed out what was a strong week for equity indices, and for the first time in three weeks we went into the weekend not overly concerned about geopolitical headlines raising the prospect of gapping risk.

The equity index that stands out above all others is the Hang Seng 50, which gained 8.8% last week, its best week since November 2011, with the Hong Kong cash market closing higher for five straight days. The fact we’ve seen 20 straight days of inflows into Hong Kong equity funds from the China mainland is clearly helping.

Nasdaq up 4.2% last week

Following some way behind, the Nasdaq 100 gained an impressive 4.2%, and I expect further attention on this index with Apple NASDAQ:AAPL and Amazon NASDAQ:AMZN due out with numbers this week. I’d be paying close attention to Amazon given the options market implies a 7% move on the day of earnings, and this is a core holding in almost every investment manager’s portfolio. Another case study where the numbers and guidance needs to deliver and deliver in spades, or we could see disappointment.

We’ve heard from nearly half of the S&P 500 companies this earnings season and so far, 80% have beaten EPS expectations by an average of 9%, while 56% have beaten on sales. You can say that has been supportive of risk and this week we get a further 27% of the S&P 500 market cap reporting.

JPY still the focus for FX traders

In FX circles, the JPY continues to get the lion’s share of attention with the currency undergoing a blanket fire sale on the week. Japanese authorities may say they don’t target levels per se, but they do pay close attention to the trend and the rate of change and at current levels suggest they have to act soon or risk facing a credibility crisis. The FX market is almost taking them on like the bond vigilantes of old, with many looking to hedge out short JPY positions through USDJPY puts. We’ll see, but while USDJPY gets a close inspection, moves in AUDJPY were particularly impressive, with the pair having its best weekly gain since June 2020.

Being short JPY here comes with inherent risk, but for those with no position, I can imagine hedge funds setting algo’s with limit orders 400-500 pips under spot to capture an intervention move. Naturally, in the belief that any sharp dip will come back quickly.

Fed meeting takes centre stage

On the data front, the Fed meeting takes centre stage on Wednesday, with Jay Powell likely to be pressed hard on the possibility of hiking. We also get the US ECI report, and nonfarm payrolls, where the prospect of further evidence of a hot labour market should be on display.

EU CPI may get some attention and should reinforce the policy divergence trade that is playing out between the European Central Bank (ECB) and Fed interest rate pricing. Staying on the subject of interest rates, locally the debate on the Reserve Bank of Australia’s next move heats up with Aussie interest rate futures seeing the next move skewed towards a hike. With 3 of the 4 ASX 200 big banks reporting over the next two weeks, commentary from the respective CEOs on lending trends and volumes could move the dial. It certainly suggests staying long AUDNZD.

Good luck to all.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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