The Hang Seng and Shanghai Composite indices have retreated this month as traders focus on the falling Chinese bond yields. The Shanghai Composite Total Return Index retreated to CNY 3,570, its lowest level since October 18 and 12.6% below its highest level in 2023. 

Similarly, the Hang Seng fell to H$19,160, its lowest point since November last year and 17.5% below the 2024 high. So, how will the two indices trade as China bond yields fall?

China bond yields are crashing

The continued plunge of Chinese bond yields has been one of the most popular themes in social media over the past few months. 

According to TradingView, the yield of the 30-year government bonds has dropped from 4.026 in 2020 to 1.80%. Similarly, the 10-year yield fell from 3.41% to 1.60%, while the five-year dropped to 1.4% from 3.3%.

These numbers continued falling after China published its inflation numbers on Wednesday. According to the statistics agency, the headline Consumer Price Index (CPI) rose slightly from minus 0.6% to 0.0%, but fell from 0.2% to 0.1% on a YoY basis. The producer price index dropped by 2.3% in December.

Low inflation is usually a good thing to most people. However, it is usually a sign that demand is fading, forcing companies to slash their products. 

These numbers also explain why the Chinese yuan has plunged and is nearing its lowest level in months.

In theory, low bond yields should boost stock prices as many investors rotate from bonds to equities. They also signal that the central bank is prepared to deliver more cuts.

Most analysts expect the PBoC to start cutting interest rates this year. Officials also confirmed that to the FT, saying their response will involve at least two cuts and other non-interest rate policies. In a note, a Goldman Sachs analyst said:

“For the long-term [bonds], yields have been trending down and I think that’s more about longer-term growth expectations and inflation expectations becoming more pessimistic. And I think that trend is likely to continue,”

The Hang Seng and Shanghai Composite Indices also falling as traders anticipate more trade tensions between the US and China. Citi analysts expect that the US’s huge tariffs may affect about 6% of Chinese exports.  

Hang Seng index analysis

The daily chart shows that the Hang Seng index has been in a steady downtrend in the past few months. After peaking at H$23,210 on October 7, it has dropped to H$19,150, its lowest point since November 26. It has dropped to the 50% Fibonacci Retracement point at $18,990. 

The Hang Seng index has formed a small head and shoulders pattern, while the MACD and the Relative Strength Index (RSI) have all pointed downwards. Therefore, it will likely continue falling as sellers target the next point at $18,000. 

Shanghai Composite Index analysis

The hourly chart shows that the Shanghai Composite index has also been in a strong downtrend in the past few days. It dropped from CNY 3,888 on December 10. It has moved slightly below the 50-hourly moving average. The index has formed a bearish flag pattern, pointing to more downside to the support at CNY 3,400.

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The Plug Power stock price has crawled back after plunging to a low of $1.61 in September last year. It bounced back to a high of $3.30 this week, its highest level since July 26 of last year. Then, on Wednesday, it retreated to $2.67, a trend that may continue soon after big news from Toyota Motor. So, while the company faces risks, a 650% short squeeze cannot be ruled out.

Toyota gives up on hydrogen vehicles

Toyota is one of the top automakers, investing heavily in hydrogen vehicles in the past decade. It has launched several cars, as it predicted that hydrogen energy would be the future of clean energy. 

However, a decade later, the company has struggled to make its hydrogen vehicles mainstream, mostly for obvious reasons. Hydrogen infrastructure is still unavailable in the US and other countries, and when available, it is more expensive than other energy sources. 

Now, after selling just 27,000 cars in a decade, the company has decided to give up its bet on hydrogen vehicles for passengers. Instead, it has pivoted to hydrogen trucks that it believes will be a bigger industry. In a note to the FT, an analyst said:

“On all levels, hydrogen has been a failure for passenger cars. We still haven’t got an answer yet on commercial vehicle or stationary energy storage demand.”

Toyota is not the only company whose hydrogen bets have largely failed. For example, it is estimated that Hyundai lost about $22k for every unit of Nexo SUV made even after the government subsidised its vehicles heavily.

Meanwhile, in the United States, Shell has announced that it was shutting all its hydrogen fueling stations in California.

Implications for Plug Power

These developments will hurt Plug Power, a loss-making company that has invested heavily on hydrogen power in the United States. 

Plug Power is involved in the end-to-end hydrogen energy ecosystem, which involves hydrogen production, storage, and delivery. It sells its hydrogen to companies across various industries like material handling, stationary power generators, and mobility.

Plug Power would have been the biggest beneficiary if hydrogen vehicles went more mainstream in the United States. As such, these new developments from Toyota and Hyundai means that hydrogen vehicles may not go mainstream in the next decade. 

This development is happening at a time when the company’s business is not doing well. The most recent financial results showed that Plug Power’s net revenue fell from $198.7 million in Q3’23 to $173.7 million in Q3’24. Equipment sales fell to $107.1 million from $145 million, offset by an increase in other divisions.

Plug Power’s nine-month revenue retreated to $437 million from $669 million. On the positive side, the company narrowed its net loss from $283 million to $211 million. That is likely because the company slashed costs through layoffs last year.

Wall Street analysts expect the company’s revenue for the year will be $714 million, down by 19.8% from 2023. They then hope that its revenue will jump to $968 million in 2025, which would be a 35% from this year. Plug Power’s loss per share is expected to improve from $1.16 in 2024 to 60 cents in 2025. 

Plug Power stock analysis

Plug Power shares have plunged from $75.37 in January 2021 to $2.67 today as it has increased the number of outstanding shares from 332 million to 880.45 million. These dilutions could be nearing the end as the Department of Energy provides it with a $1.6 billion conditional loan and its losses narrow.

The weekly chart shows that the PLUG stock price has moved sideways in the past few months, remaining between $1.61 and $3.31. This could be a sign that the stock is entering the accumulation phase. 

In the Wyckoff Method, accumulation is usually followed by the markup phase, which is usually highly bullish for a company. This is notable because Plug Power has a short interest of 23.34%, which could see it have a short squeeze. 

Therefore, while Plug Power faces substantial risks, the stock is likely to rebound later this year. If this happens, it will likely rebound to the key resistance point at $5. In the long term, it may rebound to the 23.6% retracement point at $20, up by 650% from the current level.

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The USD/CAD exchange rate held steady and hovered near iits highest level this year as US bond yields continued rising ahead of the upcoming nonfarm payrolls (NFP) data. It was trading at 1.4400 also ahead of the Canadian jobs numbers. It has also formed a hanging man on the weekly chart, pointing to a potential retreat.

US nonfarm payroll data

The USD/CAD pair’s rally continued as the Bureau of Labor Statistics (BLS) as traders waited fo the upcoming NFP numbers, which will shed light on the health of the American economy. 

NFP numbers are highly important because they form part of the Federal Reserve’s dual mandate, which also includes inflation. 

Economists polled by Reuters expect the data to show that the economy added 164k jobs in December, up from 194k a month earlier. The private payrolls are expected to be 135k, down from 194k in the previous month.

The unemployment rate is expected to remain at 4.2%, up from last year’s low of 3.5%. A higher jobless rate is a sign that the proportion of American people of working age not in the labor market has continued rising.

The USD will react to the wage growth numbers as the average hourly earnings are expected to come in at 0.3%, lower than the previous 0.4%. On a YoY basis, the figure is expected to be 4.0%. 

Wage growth is an important number because higher salaries lead to more consumer spending, which, in theory, may lead to higher inflation.

These numbers will come a few days ahead of the upcoming US consumer inflation data. Economists expect these numbers to reveal that the headline CPI remained at 2.7%, while the core CPI was at 3.3%.

The CPI numbers will be more important than the jobs data because the Fed is putting more emphasis on inflation than the labor market. Officials are concerned that Donald Trump’s policies like tariffs and tax cuts will lead to higher inflation.

Fed Minutes released this week showed that officials remained highly concerned about inflation that they reduced their odds of rate cuts to four to 2. In a statement on Thursday, Jeff Schmid, the head of the Kansas Fed said that the bank was close to achieving its inflation and employment mandate. He also noted that the Fed was about to achieve its neutral rate. 

Read more: USD/CAD forecast: here’s why the Canadian dollar has crashed

Canada jobs data

The USD/CAD pair will also be in the spotlight as Canada publishes its economic numbers. Economists see the economy creating 24.9k jobs, lower than the 50.5k. They also see the unemployment rate rising from 6.8% to 6.9%. 

These numbers comes a few days after Justin Trudeau announced that he was resigning from being party leader and the prime minister. His official resignation will happen after the liberal party selects its leader, an exercise that may take months.

Canada’s election is expected to occur in October, but the odds are that it will happen before that. Therefore, the loonie may experience some volatility or weakness ahead of that election.

USD/CAD technical analysis

USD/CAD chart by TradingView

The weekly chart shows that the USD/CAD pair has been in a strong uptrend as it soared for 6 weeks. 

It recently jumped above 1.3970, the upper side of the ascending triangle pattern. Also, it remains above all moving averages. 

On the other hand, the pair has formed a hanging man, a candlestick pattern consisting of a small body and a long lower shadow. If it ends the week at the current level, the pair will likely continue falling as traders target the key support at 1.4300.

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The USD/NOK exchange rate continued its strong uptrend, reaching its highest swing since March 2020. It has risen in the past four consecutive weeks, reaching a high of 11.41, up by over 10% from its lowest level in October last year. So, what next for the Norwegian krone as the country’s inflation heads south?

Norway’s inflation points to rate cuts

The USD/NOK pair continued its uptrend after the latest Norwegian consumer inflation data. According to the country’s statistics agency, the headline consumer price index (CPI) dropped from 0.3% in November to minus 0.1% in December, a bigger decline than the expected 0.1%.

Norway’s annual inflation dropped from 2.4% to 2.2%, also lower than the expected 2.5%. Meanwhile, core inflation, which excludes the volatile food and energy prices, dropped from 0.1% to minus 0.1% and from 3.0% to 2.7%. These numbers were lower than the expected 0.0% and 2.8%.

Therefore, with the country’s inflation falling, the country’s central bank will likely start cutting interest rates later this year. Unlike most central banks in the developed world, Norges Bank has maintained interest rates steady at 4.5% in the last nine meetings.

The bank has signaled that it will start lowering rates this year and cutting at least three times, which would take them to 3.75%. 

Those rate cuts will help to supercharge an economy that is showing signs of slowing down. The most recent data showed that the headline Consumer Price Index (CPI) contracted by 1.8% in the third quarter after growing by 1.4% a quarter earlier. 

One reason for this slowdown is that the European Union, its biggest trading partner, is going through a major slowdown. On the positive side, Norway is benefiting as crude oil prices bounce back. 

Brent, the global benchmark, has rebounded to $77.6, while the West Texas Intermediate (WTI) has moved to $75. Natural gas prices have also bounced back as European demand continues rising. These are notable developments since Norway is a leading seller of crude oil and natural gas. 

US dollar index strength

Therefore, the USD/NOK pair has soared as signs that the Federal Reserve and the Norges Bank will diverge this year.

The Federal Reserve has maintained its hawkish view and hinted that it will deliver just two cuts this year. In contrast, Norges Bank expects to cut rates at least four times. 

The USD/NOK has also surged because of the ongoing US dollar index rally. Data shows that the DXY index has jumped to $109 this year, up from $100 last year as the currency gained steam across most currencies.

This rally is because of the hawkish Federal Reserve and the fear of the incoming Donald Trump administration. The Fed believes that his policies will be inflationary, reducing the need for more cuts.

The most important economic data to watch in the near term will be the US nonfarm payrolls (NFP) and the US consumer price index (CPI).

USD/NOK technical analysis

The weekly chart shows that the USD/NOK exchange rate has been in a strong uptrend in the past few months. It recently crossed the important resistance point at 11.27, its highest level on October 23rd.

The pair has also remained above the 50-week moving average. It is also slowly forming a bullish pennant chart pattern comprising a vertical line and a triangle pattern. Therefore, as the triangle pattern nears its confluence, there are signs that it will stage a strong comeback in the coming weeks. Such a move will see it soar to the psychological point at 12.

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Accenture’s stock price has moved sideways in the past few months, but a recent positive report from Tata Consultancy Services (TCS), a leading Indian competitor, could be a catalyst. This week, it was trading at $350, down 5.18% from its highest level in November last year.

IT spending to increase

Accenture is one of the biggest IT contracting companies in the world, helping thousands of companies and governments implement their strategies. It operates in a highly competitive industry, battling with companies like Tata Consultancy Services (TCS), Cognizant Technologies, and Infosys for contracts.

The past few years have been good for IT contractors as companies have continued to invest in technologies like cloud computing, cybersecurity, and, most recently, artificial intelligence. A report by Gartner estimated that IT spending would grow by 9.3% in 2025 to over $5.7 trillion.

The report identified several sectors where Accenture is strong as areas for strong growth. Data center spending is expected to grow by 15.5% this year to over $367 billion, while software and IT services will jump by 14% and 9.4%, respectively. 

Results by Tata Consultancy Services showed that the sector was doing well as its net income jumped by 12% to 123.8 billion rupees, higher than the expected 125.3 billion rupees. Sales jumped by 5.6%, beating analysts estimates. Therefore, these are signs that other IT providers are doing well, which could boost its stock price.

Accenture’s growth has stalled

Signs that the industry is doing well will boost Accenture, whose business has slowed in recent quarters. 

Its new bookings for FY’25 were $18.7 billion, a 1% increase from the same period a year earlier. Revenues rose by 9% to $17.7 billion, and its operating margin increased to 16.7%.

Accenture’s business grew modestly across all segments, including consulting and managed services. This growth is due to the technology industry’s generative AI theme.

Accenture expects its second-quarter revenue to be between $16.2 billion and $16.8 billion, a 5% to 9% YoY growth. The firm sees its revenue growing by between 4% and 7% for the year.

Wall Street analysts expect its revenue for the year will be $68.78 billion, a 5.98% increase, followed by $73.40 billion in 2026.

Accenture’s earnings growth is also continuing, with the estimated annual EPS being $12.82, followed by $13.96.

The company has also continued to slash its outstanding share count through robust repurchases. It has reduced its outstanding shares from 635 million in 2021 to 625 million. It spend $898 million in share repurchasing in the last quarter and has $5.9 billion more to buy.

Therefore, a combination of growing EPS, strong dividend performance, growing IT spending, and share repurchases make Accenture a potential good buy this year. 

Accenture stock price analysis

The weekly chart shows that the ACN share price has stalled in the past few weeks. However, it has remained above the 50-week moving average and the rising trendline connecting the lowest swings since March 2023. 

Most importantly, the stock has formed a bullish pennant chart pattern comprising a vertical line and a triangle. It has also formed a cup and handle pattern. Therefore, this blue-chip stock may soon have a strong bullish breakout, with the initial target being at $380, followed by $390, its 2021 highs. 

Such a move will lead to more gains to the next psychological point at $400. Conversely, a drop below the support at $345 will invalidate the bullish view.

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