Hang Seng and ASX 200 Fall as Global Markets React to Fed Rate Outlook

US Equity Markets Slide on Fed Rate Cut Bets

On Thursday, August 22, the US equity markets trended lower on falling bets on a 50-basis point September Fed rate cut. The Nasdaq Composite Index slid by 1.67%, while the Dow and the S&P 500 saw losses of 0.43% and 0.89%, respectively. Tech stocks bore the brunt of the sell-off as 10-year Treasury yields moved higher ahead of Fed Chair Powell’s looming speech.

US Economic Data Dims Hope for a 50-Basis Point Fed Rate Cut

Initial jobless claims rose slightly from 228k in the week ending August 10 to 232k in the week ending August 17. The modest rise in jobless claims was seen as an indication that the labor market isn’t deteriorating as quickly as feared.

Looser labor market conditions could impact wage growth and disposable income, possibly dampening consumer spending that contributes over 60% to GDP.

Additionally, the S&P Global Services PMI increased from 55.0 in July to 55.2 in August, signaling a resilient US economy.

The positive data lowered investor expectations of a hard landing, reducing the chances of a 50-basis point September Fed rate cut. According to the CME FedWatch Tool, the probability of a 50-basis point September Fed rate cut fell from 38.0% on Wednesday to 26.5% on Thursday.

The falling chances of a 50-basis point rate pushed Treasury yields higher, impacting market risk sentiment.

Expert Views on the US Economy

Arch Capital Global Chief Economist Parker Ross commented on the labor market data, stating,

“Overall, we are still seeing a very gradual deterioration underway in the jobless claims data. Continuing claims and insured unemployment rates reflect more labor market stress than initial claims, which is consistent with other indicators suggesting layoffs remain low but workers are struggling to find a new job once unemployed.”

USD/JPY on the Move

On Friday, August 23, inflation figures from Japan boosted Yen demand, impacting the appetite for Nikkei Index-listed export stocks. Core inflation edged up to 2.7% in July, increasing pressure on the Bank of Japan to raise interest rates. The inflation report was out before Bank of Japan Governor Kazuo Ueda’s speech in parliament.

BoJ Governor Ueda said he expected further rate hikes if inflation and the economy aligned with its forecasts. The USD/JPY responded to the inflation numbers and Governor Ueda’s comments, falling 0.47% to 145.597 in the morning session. A hawkish BoJ and stronger Yen may affect Nikkei-listed stocks.

Hang Seng and Mainland China Indexes See Losses

The Hang Seng Index declined by 0.73% on Friday morning. Real estate and tech stocks contributed to the losses as investors turned cautious before Fed Chair Powell’s speech.

The Hang Seng Mainland Properties Index (HSMPI) fell by 1.90%, while the Hang Seng Tech (HSTECH) dropped by 1.91%.

Notable movers included Baidu (9888), which tumbled by 6.36% on flat quarterly revenue missing forecasts. Tencent (0700) fell by 0.27%, while Alibaba (9988) gained 0.31%.

The Mainland equity markets also faced losses, with the CSI 300 and the Shenzhen Composite Index down by 0.02% and 0.49%, respectively. A lack of fresh stimulus measures from Beijing to bolster China’s economy remained a market headwind.

Nikkei Index Declines on Hawkish BoJ Stance

The Nikkei Index was down 0.38% on Friday morning, with a higher core inflation rate, hawkish BoJ, and a weaker USD/JPY contributing.

Tokyo Electron Ltd. (8035) slid by 2.57%, while Softbank Group Corp. (9984) declined by 0.57%. Sony Corp. (6758) was down 0.71% in the morning session.

ASX 200 Mirrors Wall Street’s Losses

The ASX 200 Index declined by 0.39% on Friday morning, mirroring the overnight losses from the US markets. Moreover, the ASX 200 may end a 10-day winning streak. Mining and gold-related stocks saw the heaviest losses in a broad-based sell-off.

Gold-related stock Northern Star Resources Ltd. (NST) slid 1.98% on spot gold’s 1.09% loss on Thursday. Mining giants BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) declined by 0.83% and 1.39%, respectively. Iron ore futures were down 1.89% on Friday morning, impacting buyer demand for the mining stocks.

Investors should remain alert, with earnings and central bank commentary pivotal after the shifting sentiment toward the US economy. Closely monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest news and analysis to manage positions across the Asian equity markets.