Key Takeaways
- US-China trade truce sparks rally; Trump slashed tariffs on Chinese goods to 30% for 90 days, triggering a 27% rally in the Hong Kong 33 CFD Index since April.
- “TACO” trade theme gains traction; markets anticipate Trump’s pattern of tariff threats followed by retreats, fuelling risk-on sentiment.
- Weak US dollar supports Asia equities; a -9.5% YTD drop in the US Dollar Index and rising US Treasury yields have made US assets less attractive, boosting Hong Kong stocks.
- Technical & credit indicators turn bullish; a rebound in China’s Credit Impulse and bullish signals from RSI and moving averages suggest a medium-term uptrend in the Hong Kong 33 CFD Index.
Since our last publication, the has declined by 18% and hit 19,700 medium-term support as expected (printed an intraday low of 19,260 on 9 April), reinforced by the uncertainties of the US White House Administration’s ratcheting reciprocal tariffs on Chinese imports.
Thereafter, US President Trump has watered down his hard-line approach towards US-China trade relations by slashing US duties on Chinese imports to 30% from 145% for 90 days after the conclusion of the first round of US-China trade negotiation talks held in Switzerland over the weekend of 10 May.
The financial markets have coined the latest theme, the “TACO” trade, in the short form for “Trump Always Chickens Out”. It means that Trump has the usual repeating habit of announcing bold tariffs, then retreating after a significant “risk-off” backlash ignited by the markets.
Overall, the Hong Kong 33 CFD Index (a proxy of the ) has gained by 27% from its 9 April low of 19,070 to today’s 9 June intraday level of 24,175 at this time of the writing.
Part of this two-month rally was a swift 7% up move from last Monday, 2 June, to today, where the Hong Kong 33 has had four consecutive days of higher closing levels supported by US President Trump one to one phone call with China President Xi on last Thursday, 5 June that led to the second round of US-China trade negotiation talks to conducted in London today, 9 June.
Other than the “TACO” theme play, there are macro and momentum factors that are supporting the start of a new medium-term uptrend phase for the Hong Kong 33 CFD Index.
The US Dollar Remains Weak
Fig 1: YTD performance of major cross asset classes as of 9 June 2025 (Source: TradingView)
The general weakness seen in the against the major currencies since the start of 2025 is due to the potential widening of the US budget deficit over the US White House Administration’s big tax cut bill, and erratic implementation of its global trade tariffs has increased the likelihood of a stagflation environment in the US.
Hence, the bond vigilantes have reacted by pushing up the yield of the US Treasury bonds to over 5% in May, as it printed an intraday high of 5.15% on 22 May, an elevated level last seen in 2007.
In turn, a higher term premium is now required to own US Treasury bonds as credit risk has increased on the US government, which led to a negative feedback loop back into the US dollar (weakening) as US assets are deemed “less attractive” versus the rest of the world.
Since the start of the year till 9 June, the has declined by -9.50% while the Hong Kong 33 CFD Index rocketed to a year-to-date gain of 23.5%, which outperformed the major US stock CFD Indices; (+3.08%), (+2.03%), and (+0.70%) over the same period (see Fig 1).
Given that the medium-term downtrend phase of the US Dollar Index remains intact as it is still trading below its 20-day and 50-day moving averages, it is likely that medium-term US dollar weakness may persist, in turn leading to further positive outperformance of the Hong Kong 33 CFD Index over US major stock indices.
China’s Credit Impulse Index Has Bottomed
Fig 2: Bloomberg’s China Credit Impulse Index & Hang Seng Index major trends as of 9 June 2025 (Source: MacroMicro)
The Bloomberg Credit Impulse Index for China, which represents the percentage of new loans in GDP, has started to turn around since November, where it steadily increased to a positive level of 24.04 in April from 21.71 in November.
The current expansionary monetary policy stance undertaken by the central bank of China (PBoC) has led to an increase in liquidity in the Chinese economy, using China’s Bloomberg Credit Impulse Index as a gauge.
Since October 2008, prior major bottoms seen in China’s Bloomberg Credit Impulse Index have led to major cyclical uptrend phases of the Hang Seng Index (see Fig 2).
Bullish Reversal After a Retest on the 50-day MA
Fig 3: Hong Kong 33 CFD Index major & medium-term trends as of 9 June 2025 (Source: TradingView)
Key technical elements suggest the start of a potential new medium-term (multi-week) uptrend phase within its major uptrend cyclical phase that is still intact since the 22 January 2024 low for the Hong Kong 33 CFD Index.
Price actions have shaped a” V-shaped” movement after a retest of its 50-day moving average on last Monday, 2 June.
The daily RSI momentum indicator has continued to flash out bullish momentum conditions as it shaped a series of “higher lows” above the 50 level and has not reached its overbought region (70 and above).
Watch the 22,690 key medium-term pivotal support with the next medium-term resistances coming in at 25,080 and 26,200 (also the upper boundary of the major ascending channel from 22 January 2024 low) (see Fig 3).
However, failure to hold at the 22,690 key support invalidates the bullish scenario to kickstart another corrective decline sequence to expose the next medium-term support at 21,225 (also the key 200-day moving average).