The Hang Seng index held steady after another weak Chinese economic report. The index, which tracks the biggest companies in Hong Kong, was trading at H$19,755, up 3.5% from its lowest level this month.

China deflation continues

The Hang Seng index remained on edge after data by China’s statistics agency showed that the country remained in a deflation phase in November.

The headline Consumer Price Index (CPI) retreated from 0.3% in October to 0.2% in November, missing the average estimate of 0.5%. It retreated by 0.6% month-on-month, also missing the estimated drop of 0.4%. 

These numbers mean that the Chinese economy is still in a period of deflation, where prices are constantly falling. While customers favor lower prices, deflation is usually a sign that an economy is not doing well.

The other notable sign that the Chinese economy is not thriving is that the local currency has crashed hard in the past few weeks. Data shows that the USD/CNY exchange rate rose to 7.30, its highest level since November last year. It has risen by 4% from its lowest level in November this year.

This price action is because of the potential trade war between the United States and China. Trump has threatened a 25% tariff on Chinese imports to the United States. He has also appointed China hawks like Peter Navarro, Marco Rubio, and Mike Waltz to be senior officials in his administration. 

These actions could have a major implication on the trade flows between two of the most important trade partners. According to the Brookings Institute, the last trade war between the two countries had more pain than gain for both sides.

Top Hang Seng index movers

A closer look at the Hang Seng companies, we see that financial services and real estate companies were among the top laggards on Monday. 

Longfor Properties stock dropped by over 3% on Monday, continuing its downtrend that has seen it lose about 75% of its value since 2021. 

Wharf Real Estate also retreated by 1.4% and by over 50% from its highest level this year. Other real estate stocks like China Resources Land and Henderson Land also continued their strong downtrend.

Financial services like HSBC, Hang Seng Bank, Ping An Insurance, and AIA Group also dropped by over 1% on Monday. 

On the other hand, some of the top-performing Hang Seng index companies were firms like Orient Overseas, ENN Energy, BYD Electronic, and WuXi AppTech. BYD stock surged by over 8% after the company announced that it had exceeded its sales goal for the year. It will sell more vehicles than Ford and Honda this year. 

Hang Seng index analysis

HSI chart by TradingView

The daily chart shows that the Hang Seng index has pulled back sharply in the past few weeks. It has dropped from the year-to-date high of H$23,250 to about H$19,710. 

The index has moved below the important support at H$20,000, the 38.2% Fibonacci Retracement level. 

On the positive side, the index has remained above the 200-day Exponential Moving Average (EMA). Also, it has formed a falling wedge pattern, which is made up of two falling and converging trendlines. 

The falling wedge pattern is now nearing its confluence level, meaning that a strong rebound cannot be ruled out. If this happens, the index will likely rise to the next point at H$20,500. A move above that level will see it rebound to H$21,000. 

The risk, however, is that the Hang Seng index has formed a small rising wedge pattern, which may result into a strong bearish breakout. A drop below the support at H$19,000 will invalidate the bullish sign.

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BlackRock’s head of thematic and active ETFs, Jay Jacobs, expects artificial intelligence to unlock significant upside in infrastructure and cybersecurity stocks in 2025.

“It’s still very early in the AI adoption cycle,” he said in a recent interview with CNBC.

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iDEGEN could benefit from rapid growth in AI

Experts remain bullish on AI plays even though such tailwinds have catalysed a massive rally in the benchmark S&P 500 index to the 6,000 level in 2024.

Gene Munster of Deepwater Asset Management dubs artificial intelligence as big of a paradigm shift as electricity or the internet.

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The Euro Stoxx 50 index has staged a strong comeback in the past few days. The index, which tracks the biggest European companies, has risen in the past six consecutive days, reaching a high of €4,977, its highest point since October 29. It has jumped by about 6% from its lowest level in November.

European Central Bank decision

The Euro Stoxx 50 index has recovered modestly and is on a path toward its all-time high as traders wait for the upcoming European Central Bank decision.

Economists expect the bank to cut interest rates for the fourth consecutive time since the European economy is not doing well.

Data released last week by S&P Global showed that the bloc’s manufacturing and services PMIs remained under pressure in November. 

Another report showed that the German industrial production continued falling in October as companies like BASF and Volkswagen slows. 

European inflation has also moved near the 2% target level of the central bank, while the labor market is softening in some countries. 

Therefore, analysts believe that the ECB will cut interest rates by 0.25% in this meeting, a move that will boost the Euro Stoxx 50 index. Historically, stocks do well when central banks are cuttng rates. 

The Federal Reserve is also expected to continue with its easing cycle this month. It has already slashed interest rates two times this year, and analysts see it slashing by another 0.25% in its final meeting of the year.

Fed actions have an impact on European stocks because of the vast number of companies that do business in the US. The US is one of the biggest markets for companies like Volkswagen and SAP. 

Still, a key concern among investors is that Donald Trump may start to implement tariffs on European goods because of the large trade deficit between the two regions. Tariffs tend to have a negative impact on trade flows between countries. 

These tariffs would come at a difficult time for European companies, which are now struggling to compete with their Asian companies. For example, the automobile sector is being disrupted by a company like BYD that is now selling millions of vehicles annually.

Top Euro Stoxx 50 movers

SAP, the giant software company, is the best-performing company in the Euro Stoxx 50 index this year as it jumped by 74%. It has done well because of its strong recurring revenue growth and its investments in artificial intelligence. 

Prosus, a global investment company that was previously owned by Naspers, is another top performer as its stock rose by almost 50% this year. The company has done well as technology companies have bounced back. Analysts expect that it will now take some of its portfolio companies public or sell them. 

Ferrari stock price has surged by 40% this year as demand for luxury vehicles continued rising. It is one of the best-performing automobile stocks this year. 

The other top performers in the Euro Stoxx 50 index are Flutter Entertainment, Inditex, Schneider Electric, and Allianz.

On the other hand, some of the top laggards are firms like Stellantis, Deutsche Post, L’Oreal, Pernod Ricard, BMW, Kering, and Volkswagen. All these companies have a large exposure to China, a country that is not doing well.

Euro Stoxx 50 index analysis

The daily chart shows that the Euro Stoxx 50 index has bounced back in the past few weeks. It has rallied and crossed the 200-day and 50-day Exponential Moving Averages (EMA). The two averages are about to form a bullish crossover known as a golden cross. 

The index has also formed an inverse head and shoulders pattern, a popular bullish reversal pattern. Also, the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards.

Therefore, the index will likely have a strong bullish breakout as bulls target the next key resistance level at €5,000. A move above that level will point to more gains in the near term. 

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Rolls-Royce share price resumed its strong rally and jumped to its all-time high of 598p on Friday. It has jumped by over 1,500% from its 2020 lows, making it the best-performing company in the FTSE 100 index. This rally has brought its market cap to over £50 billion, making it the 15th biggest company in the UK.

Strong demand across the board

Rolls-Royce stock price has jumped as investors focus on the strength of its business across all segments. 

The civil aviation sector is doing well as the number of flying hours continue rising. Indeed, many aviation stocks like United Airlines, Delta, and IAG are some of the best-performing companies this year. 

Rolls-Royce is also seeing robust order intake from some of its top companies as demand for wide-body engines rises. 

The defense segment is also firing on all cylinders as the rising geopolitical tensions rise. Most countries, led by the United States are boosting the amount of money they spend in procurement. This trend will continue in the coming years as these geopolitical tensions rise, which will help its transport, combat, and submarines business. 

The company’s power business is also thriving, helped by the ongoing demand from data center companies and utilities. Rolls-Royce will be one of the top beneficiaries as companies and governments embrace nuclear energy. It is working on small modular reactors in the UK.

Therefore, this rising demand, coupled with the ongoing cost management strategies, have helped the company do well in the past few quarters

Turnaround is going on well

The company hopes to become a more profitable firm in the next few years. Its mid-term target calls for its operating profit to move to between £2.5 billion and £2.8 billion by 2027, a big increase from the £1.6 billion it made in 2023.

Rolls-Royce also hopes that its operating margin will increase to between 13% and 15%, while its free cash flow will be between £2.8 billion and £3.1 billion.

There are signs that the management will achieve these goals ahead of schedule. Its civil aviation operating margin rose from 2.5% in 2022 to 11.6% in 2023. It hopes that the margin will get to 15.17% by 2027. 

The defense segment’s margin is expected to move from 13.8% to between 14% and 16% by 2027. Also, the power systems division is making progress to achieve its 12-14% margin target.

Rolls-Royce share price has also done well as the company slashes costs and expands to other areas. It has already shed thousands of jobs in the past few years and sold some of its less profitable divisions. The company is also slowly moving to the more lucrative narrow-body aircraft engines.

Still, there are some concerns about the company. There are still supply chain challenges in the defense business. Also, there are concerns about its pricey valuation since the company trades at a high premium. 

Its current market cap of £50 billion implies a 17.8x forward 2027 operating profit, which is relatively higher than its historical levels. 

Rolls-Royce share price analysis

The weekly chart shows that the Rolls-Royce stock price has been in a strong uptrend in the past few years. It crossed the important resistance level at 443p, its 2023 highs and its previous all-time high. The stock has jumped above all moving averages, a sign that it has momentum. 

By measuring the depth of the cup pattern, and extending it from its upper side at 443p, we estimate that the bull run could see it jump to 847p, which is 44% from the current level. 

The key risk is that the stock has formed a rising wedge pattern, a popular reversal sign. Also, there are signs that the MACD and the Relative Strength Index (RSI) have formed a bearish divergence pattern.

Therefore, the most optimistic view is where the stock rises to 847p in 2025, while the pessimistic view is where the divergence patterns pushes it to 443p.

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Asian shares faced a turbulent start to the week as South Korea’s ongoing political upheaval and weaker-than-expected demand recovery in China weighed on investor sentiment.

A regional equities gauge fell 0.3%, with South Korea’s Kospi index plunging as much as 2.3%.

The smaller Kosdaq index tumbled over 4% to its lowest point since April 2020.

South Korea remains under scrutiny after lawmakers pushed for President Yoon Suk Yeol’s resignation, citing last week’s brief martial law imposition.

Officials vowed to closely monitor the economy, while the won weakened 1% against the dollar, underscoring concerns over political instability.

China stocks slide on inflation data, Japan higher

In China, data revealed a further easing of consumer inflation, suggesting that measures to boost demand have fallen short.

The lackluster figures are expected to amplify calls for stronger fiscal support at the Central Economic Work Conference set to begin on Wednesday.

Mainland Chinese and Hong Kong stocks slid on the news, reflecting investor anxiety over the world’s second-largest economy.

The CSI 300 was down by 0.51% at 11:30 am, GMT+8.

Meanwhile, Japan offered a brighter spot in the region, with revised data showing stronger-than-expected economic growth.

Japanese benchmarks ticked higher, and the yen held steady, signalling resilience ahead of the Bank of Japan’s upcoming policy decision.

Middle East turmoil lifts oil prices

Oil prices climbed after Syria’s government collapsed, adding geopolitical uncertainty to the energy markets.

President Bashar al-Assad and his family reportedly fled to Moscow, where they were granted asylum by Russia.

Traders are also digesting Saudi Arabia’s larger-than-expected crude price cuts for Asia, which come amid a broader effort to stabilize oil markets following consecutive weekly losses.

Gold prices also saw gains as China’s central bank resumed gold purchases in November after a six-month hiatus, reflecting potential demand for safe-haven assets amid regional instability.

Markets brace for pivotal global events

The week ahead is loaded with significant developments across major economies.

Central bank decisions from the European Central Bank, Bank of Canada, and Swiss National Bank are anticipated to favor easing, while Brazil’s central bank may tighten policy to combat inflation.

Australia’s central bank is expected to hold rates steady, citing softening economic conditions.

In the US, inflation data will take center stage as markets assess the Federal Reserve’s next move.

President-elect Donald Trump reiterated support for current Fed Chair Jerome Powell, signalling continuity in leadership.

With an 80% chance of a rate cut priced in for December, traders are keenly watching whether a hotter-than-expected Consumer Price Index (CPI) reading could alter the Fed’s future trajectory.

Investor caution defines the outlook

Chris Weston, head of research at Pepperstone Group told Bloomberg, “This is a lively week ahead with event risk all over the shop.

A hot US CPI print may not necessarily derail a cut at next week’s FOMC meeting but could shape the outlook for further easing.”

As global events unfold, markets remain on edge, reflecting a cautious yet watchful stance in the face of political turmoil, central bank policy shifts, and economic uncertainty.

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