Market navigator: week of 19 May 2025
US and China's 90-day tariff reduction sparks market recovery, while investors await RBA rate decision and key Asian economic indicators.
Written by
Fabien Yip
Market Analyst
Summary
- What happened last week: US and China reached a temporary agreement to reduce bilateral tariffs, Trump secured Middle Eastern investment deals, US inflation moderated, and CATL's Hong Kong IPO was heavily oversubscribed.
- Markets in focus: US indices recovered on improved trade relations, while the Hang Seng showed cautious optimism amid mixed corporate earnings. USD/JPY consolidated amid dollar weakness.
- The week ahead: Key Asian economic data releases and RBA's interest rate decision. PDD, Baidu report earnings.
What happened last week
- US-China trade agreement: During talks in Geneva, the world's two largest economies established a 90-day tariff reduction framework while maintaining open dialogue channels. US tariffs decreased from 145% to 30%, while China's retaliatory duties reduced from 125% to 10%. China also temporarily suspended various counter-measures, including the ban on Boeing deliveries and export restrictions targeting specific US enterprises.
- Strategic Middle Eastern partnerships: President Trump finalised substantial investment agreements with several Middle Eastern nations during his regional diplomatic tour. These included a $14.5 billion commitment from the UAE for Boeing aircraft, an agreement with Saudi Arabia's AI corporation Humain for the acquisition of advanced semiconductor units from Nvidia and AMD, and defence-related collaborations with Qatar.
- US economic indicators: Core consumer price index increased by 0.2% month-on-month, below estimates, indicating retailers haven't fully transferred tariff costs to consumers. Retail sales growth decelerated from 1.7% to 0.1% as stockpiling subsided and discretionary spending contracted. Consumer sentiment fell to 50.8, lowest since June 2022 as temporary tariff pauses failed to comfort consumers.
- Hong Kong IPO market revival: Electric vehicle battery manufacturer CATL saw subscription levels exceeding 100 times during its book-building phase. The company is projected to raise between $4 billion and $5.3 billion through its 20 May Hong Kong listing, quadrupling the main board's fundraising activity compared to the same period last year.
Markets in focus
US-China trade agreement catalyses market resurgence
US major indices staged a robust recovery as Washington and Beijing implemented a bilateral tariff reduction agreement, with the S&P 500 and Nasdaq 100 eliminating all year-to-date losses. Major financial institutions have substantially revised their economic forecasts upward, with JPMorgan reducing its recession probability assessment from 60% to below 50%, while Goldman Sachs adjusted its projection downward from 45% to 35% following the tariff moratorium.
Further upside momentum appears probable, as positioning data indicates institutional and hedge fund investors maintain significant exposure to US equities despite the recent market appreciation. Reinforcing this optimistic outlook, Goldman Sachs strategists revised their 12-month S&P 500 target upward from 5900 to 6100, specifically citing 'lower tariff rates, better economic growth, and less recession risk' following the trade agreement.
Technical analysis reveals the US Tech 100 Index has decisively surpassed the 200-day simple moving average (SMA) at 20,486, following earlier breakthroughs of both the 20-day and 50-day SMAs. This technical progression indicates the correction phase has concluded, positioning the index to potentially challenge its February peak at 22,223. The 19,900 level should provide key support if the market pulls back.
Figure 1: US Tech 100 index (daily) price chart
Hang Seng Index exhibits cautious optimism
The Hang Seng Index (HSI) concluded the previous trading week with 2.1% gains. Despite positive developments regarding US-China trade tensions, investors in Chinese and Hong Kong equities demonstrated greater caution than their US counterparts. Mixed corporate earnings reports have also weighed on index performance.
JD.com reported impressive revenue growth of 16% to 301.1 billion yuan, with sales of premium products driving net income 53% higher. However, investor sentiment remains cautious regarding JD's strategic investments in the intensely competitive food delivery sector and potential adverse implications for future profitability. Tencent registered robust revenue expansion of 13% to 180 billion yuan, primarily driven by gaming and advertising businesses. Conversely, Alibaba underperformed both revenue and earnings expectations, intensifying investor concerns regarding weakness in Chinese consumer expenditure and heightened competition within the AI cloud infrastructure segment.
Technical analysis continues to indicate a medium-term bullish trajectory for the HSI. However, momentum has failed to accelerate following the breach of the 50-day SMA, despite significant developments in US-China trade negotiations. The index is currently undergoing a consolidation phase, awaiting additional catalysts to propel it toward the psychologically significant 24,000 threshold. The absence of further positive catalysts may result in the index conforming to a Wave C trajectory within the Elliott Wave Theory framework, potentially directing it toward the 19,000 level.
Figure 2: Hang Seng index (daily) price chart
USD/JPY consolidates
The benign inflation data, significant decline in producer prices, and decelerating retail sales growth contributed to broad-based US Dollar weakness last week. Market participants continue to speculate that US negotiators may advocate for dollar depreciation during ongoing trade discussions. Asian currencies, including the Korean won, Japanese yen, and Taiwanese dollar, all appreciated against the US dollar.
Recent gross domestic product (GDP) data revealed that Japan's economy contracted in the first quarter at an annualised rate of 0.7%. The larger-than-anticipated contraction was primarily attributable to stagnant private consumption and declining exports, underscoring Japan's vulnerability to global trade policy fluctuations. This GDP contraction may complicate the Bank of Japan (BOJ) monetary policy deliberations, as the central bank simultaneously confronts mounting pressure from an exceptionally tight labour market. Interest rate futures currently indicate a 50% probability of unchanged rates through the end of 2025. Any additional hawkish signals from the BOJ could provide further support for the yen.
Technical analysis indicates the predominance of a bearish trend in USD/JPY, as the currency pair continues to trade within a downward channel below the 200-day SMA. Should the exchange rate decline beyond the 20-day SMA at 144.7, USD/JPY may test April's low of 139.9. Conversely, a breakthrough above the resistance zone at 148-148.3 could propel the pair toward the 150-151 range.
Figure 3: USD/JPY (daily) price chart
The week ahead
The upcoming week features pivotal Asian economic indicators, with China's industrial production data poised to provide crucial insights into the manufacturing powerhouse's economic momentum amid ongoing trade uncertainties. Additionally, the Reserve Bank of Australia (RBA) interest rate decision and Japan's inflation release will command significant market attention. On the corporate reporting calendar, Chinese technology conglomerates including PDD Holdings and Baidu are scheduled to announce financial results, potentially offering valuable perspectives on China's e-commerce landscape and AI development progress. Chinese battery manufacturer CATL will commence trading on the Hong Kong exchange on Tuesday.
The RBA convenes on Tuesday to reassess monetary policy settings. Market consensus strongly anticipates a 25 basis point (bp) reduction in the official cash rate, as inflation has remained within the central bank's target range of 2%-3% for three consecutive quarters. Lower borrowing costs would provide a countercyclical buffer for the Australian economy, which has strong trade ties to China amidst ongoing global trade policy uncertainties. Market participants will scrutinise the RBA's policy statement for indications regarding the future interest rate trajectory. Implied rates on December bond futures have appreciated from 2.8% in mid-April to 3.3%, suggesting a moderation in dovish expectations to approximately three 25bp rate cuts between now and year-end. A hawkish policy communication from the RBA would likely provide support for the Australian dollar.
Figure 4: Inflation rate stabilised within RBA's target range provides room for rate cuts
Key macro events this week
Monday 19 May 2025
- 10.00am (HK time) -- China Industrial Production YoY (April): previous 7.7%, consensus 5.5%
- 10.00am (HK time) -- China Retail Sales YoY (April): previous 5.9%, consensus 5.5%
Tuesday 20 May 2025
- 12.30pm (HK time) -- Australia RBA Interest Rate Decision: previous 4.1%, consensus 3.85%
Wednesday 21 May 2025
- 7.50am (HK time) -- Japan Balance of Trade (April): previous ¥544.1B, consensus ¥227.1B
- 2.00pm (HK time) -- UK Inflation Rate YoY (April): previous 2.6%, consensus 3.3%
Thursday 22 May 2025
- 4.30pm (HK time) -- UK S&P Global Manufacturing Purchasing Managers' Index (PMI) Flash (May): previous 45.4, consensus 45.8
- 4.30pm (HK time) -- UK S&P Global Services PMI Flash (May): previous 49, consensus 49.5
- 9.45pm (HK time) -- US S&P Global Composite PMI Flash (May): previous 50.6
- 10.00pm (HK time) -- US Existing Home Sales (April): previous 4.02M, consensus 4.1M
Friday 23 May 2025
- 7.30am (HK time) -- Japan Inflation Rate YoY (April): previous 3.6%
- 2.00pm (HK time) -- UK Retail Sales MoM (April): previous 0.4%, consensus 0.4%
Key corporate earnings
Tuesday 20 May 2025
Wednesday 21 May 2025
Thursday 22 May 2025
Source: Trading Economics, AASTOCKS, Reuters (as of 17 May 2025)
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