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Hong Kong Slips into Recession, but Fed Meeting Steals the Spotlight

Hong Kong Slips into Recession, but Fed Meeting Steals the Spotlight

Peter Hanks, Strategist

Hong Kong Economy Slips into Recession:

  • Hong Kong has slipped into a technical recession following months of protests
  • The Hang Seng Index is down more than 10% since the protests escalated in May
  • That said, the market impact of Hong Kong’s economic recession has been overshadowed in anticipation of Wednesday’s Fed meeting

Hong Kong Slips into Recession, but Fed Meeting Steals the Spotlight

Hong Kong effectively fell into a recession over the weekend as city officials revealed a preliminary GDP reading would show two successive quarters of contraction – the technical definition of an economic recession. Months of protests have halted growth in the world’s 31st largest economy, similar in size to Ireland and South Africa, materially compounding global growth fears. In response, the Hang Seng Index has fallen more than 10% since the protests escalated in May.

Hang Seng Index Price Chart: Daily Time Frame (January – October) (Chart 1)

Hang Seng Index Price Chart Technical Analysis

Created with TradingView

That said, Hong Kong’s slowdown has been largely overshadowed by the upcoming FOMC meeting and data to be released from the United States and Canada later this week. While undoubtedly important, the data is likely to reveal only minor changes, while simultaneously overshadowing a flailing Hong Kong economy. To be sure, Hong Kong serves as one of the world’s key financial hubs and is classified as a developed economy – unlike most of its neighbors – thus expanding its impact compared to that of an emerging market economy of similar size.

Consequently, investors looking to get a grasp on the state of global growth should not discount Hong Kong’s slowdown. Although the market has seemingly discarded the development - as evidenced by fresh highs in the Nasdaq 100 and S&P 500 - the outlook for global growth has been undoubtedly dented. Further still, the protests have shown few signs of stopping and the issue threatens to spill over into other geopolitical matters.

Just last week, US Vice President Mike Pence gave a speech on US-China relations and remarked on the continued Hong Kong unrest, offering his support for the movement. Elsewhere, President Trump has considered taking a different stance in an attempt to reach a trade agreement with China. The differing tones highlight the uncertainty and fluidity of the matter.

Either way, a large developed economy has slowed significantly, yet the market’s interest remains elsewhere as signs of complacency emerge. If global growth slows further, discarding Hong Kong’s slowdown could prove to be detrimental. In the meantime, follow @PeterHanksFX on Twitter for further updates and analysis.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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