Hong Kong is an important region in Asia because of its economic proximity to mainland China. The city is a special administrative district for China. As such, it has its own local government, currency, and a central bank that is responsible for setting the monetary policy. The city is one of the biggest financial district in Asia and has one of the largest exchanges. For this reason, investors who want to invest in China but want to avoid the mainland find Hong Kong as an ideal place to do business. The city has more than 7 million people and a GDP of $341 billion.
Today, the city released the manufacturing PMI data that showed an increase to 48.2. This was higher than the previous PMI number of 48. Still, the PMI number is still in the contraction level, which it entered in May of last year. While manufacturing is a minor contributor to Hong Kong’s GDP, contraction is usually a bad sign. The reduction of the PMI in Hong Kong is in line with the overall deterioration of the global PMI as trade tensions rise. In fact, yesterday, Trump ruled out that he would meet with President Xi of China before the March deadline on trade talks. This will likely lead to a prolonged period of trade tensions and sluggish growth.
The Hong Kong dollar is usually pegged to the US dollar, which helps reduce the volatility as is common with other emerging market economies. From December, the USD/HKD pair has moved from a low of 7.8012 to a high of 0.8480. The current level is closer to the important resistance level of 7.8505. In the past few weeks though, the pair has remained being unchanged as traders have been on a wait and see. This week, its sluggishness has happened because the markets have remained closed as they celebrate the new year. Therefore, when the market opens on Monday, there is a likelihood that volumes will increase, which could lead to sharper price increases.