Hang Seng and Nikkei 225: Stimulus Hopes, Yen Weakness Drive Gains – Weekly Recap

Nasdaq Soars as Fed Rate Cut Bets Gain Momentum

The US equity markets had a mixed week ending December 6. The Nasdaq Composite Index rallied 3.34%, extending its winning streak to three weeks, while the S&P 500 advanced by 0.96%. However, the Dow dropped by 0.60%.

Rising bets on a 25-basis point December Fed rate cut left 10-year US Treasury yields down for the third consecutive week. Falling yields bolstered demand for tech stocks, driving the Nasdaq rally.

Fed Rate Cut Bets Rise on Services and Labor Data

Key US Economic indicators, including the ISM Services PMI and US Jobs Report, fueled expectations of a Fed rate cut.

The ISM Services PMI fell from 56.0 in October to 52.1 in November, signaling slower activity in a sector that accounts for around 80% of the US GDP. Looser labor market conditions, underscored by a lower PMI’s Employment Index, suggested softer services inflation.

Meanwhile, the US Jobs Report further influenced Fed rate cut bets. The US unemployment rate increased from 4.1% in October to 4.2% in November, while the participation rate unexpectedly declined.

A looser labor market may curb wage growth, potentially dampening consumer spending and demand-driven inflation. Meanwhile, nonfarm payrolls underscored the effects of hurricanes and strikes.

According to the CME FedWatch Tool, the chances of a 25-basis point December Fed rate cut jumped from 71.0% on Thursday to 85.1% on Friday.

China Stimulus Bets Boost Hong Kong and Mainland Markets

Expectations for fresh stimulus measures from Beijing fueled demand for Hong Kong and Mainland China stocks.

Investors hope China’s President Xi Jinping and policymakers will announce new stimulus at next week’s Central Economic Work Conference. The December meeting sets policies for 2025. Experts anticipate stimulus targeting consumer spending and the real estate sector.

Trump’s softer stance on tariffs added to the optimism. In November, Trump proposed 10% tariffs on Chinese goods, down significantly from the previously touted 60%.

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The softer stance on China aligned with Trump appointing former US Senator David Perdue as the next US ambassador to the People’s Republic of China. David Perdue, who previously lived in Hong Kong and worked in China, is well-placed to improve US-China relations.

Expert Views on US Tariffs on China

Brian Tycangco, editor and analyst at Stansberry Research, commented on China’s growth targets and 5-year plan, stating,

“The current plan highlights innovation, green development, and dual circulation (focus on both domestic consumption and trade). They’ve so far been doing a good job in almost all these areas in terms of development except for consumption. I expect 2025 to be a big year in terms of policy support as Beijing cleans the balance sheets of its local governments. They’ll catch up to meet their stated targets.“

Achieving the 5% 2024 growth target and focusing on consumption could be a boon for the HK and Mainland China markets.

Hang Seng Rises on Stimulus Hopes: What Investors Need to Know

The Hang Seng Index extended its previous week’s gains, advancing by 2.28% in the week ending December 6. Investor optimism toward China’s economic outlook fueled real estate and tech stock demands.

The Hang Seng Mainland Properties Index ended the week up 1.98%, while the Hang Seng Tech Index rallied 2.55%. Tech giants Baidu (9888) and Tencent (0700) advanced by 4.49% and 3.78%, respectively.

Mainland markets also extended their gains, with the CSI 300 and the Shanghai Composite rising by 1.44% and 2.33%, respectively.

Gold and Iron Ore Slide Amid Market Optimism: Key Commodity Trends

Commodities faced headwinds in the week. Iron ore spot ended the week down 0.13%. Market bets on more stimulus from Beijing limited the losses.

Gold declined by 0.64% to $2,633, extending its losses from the previous week. Upbeat sentiment eased aggressive Fed rate cut expectations, impacting gold demand. Fed Chair Powell echoed this optimism, stating the economy is better than expected.

ASX 200 Hits Record High Before Sliding: What’s Next for Aussie Stocks?

Australia’s ASX 200 mirrored the Dow, falling 0.18% in the week ending December 6. Significantly, the Index climbed to a new high of 8,515 before hitting the reverse. Banking, gold, and oil-related stocks left the Index in negative territory.

Big movers included Northern Star Resources Ltd. (NST), which tumbled by 6.62%, partly due to falling gold prices. Woodside Energy Group Ltd. (WDS) declined by 1.84% in the week amid ongoing oil-related demand jitters.

Nikkei Index Advances on Tech Stock Gain and Yen Losses

In the week ending December 6, the Nikkei Index advanced by 2.31%. The USD/JPY gained 0.17%, ending the week at 149.962, supporting demand for export-linked stocks. A weaker Japanese Yen may boost earnings contributions from overseas, potentially lifting stock prices.

Upbeat sentiment toward the US economy drove dollar demand, countering rising bets on a December Bank of Japan rate hike. Friday’s household spending and wage growth increased in October, fueling speculation about a BoJ rate hike.

Major contributors included auto and tech stocks. Nissan Motor Corp. (7201) rallied 2.40%, with Tokyo Electron (8035) and Softbank Group Corp. (9984) posting gains of 2.75% and 1.28%, respectively.

Rate Cuts and Stimulus Bets: How Global Markets Are Shaping Up

In the coming week, policy announcements from China’s Central Economic Work Conference will be crucial for HK and Mainland China stocks. Meaningful stimulus measures targeting consumption would drive the equity markets higher. Stimulus measures may reduce the impact of inflation and trade data on market trends.

Meanwhile, RBA and BoJ policy updates will influence the ASX 200 and Nikkei Index. The RBA’s rate decision and commentary on rate-cut timelines will be critical for rate-sensitive sectors. Economic indicators from Japan and BoJ commentary will impact Yen demand and Nikkei Index trends.

This week, Kurt S. Altrichter, founder of Ivory Hill, commented on the Bank of Japan being pivotal for the global markets, stating,

“The Fed is not the most important central bank to watch right now. The Bank of Japan is. Japanese companies are passing rising labor costs to consumers at the fastest rate in 32 years, supporting the case for a BOJ rate hike. A BOJ rate hike could send shock waves through global equity markets.”