Hang Seng Index: AI Rally, Fed Rate Cut Bets, and Trump’s Tariffs – Weekly Recap

US Markets Advance on Tariff Developments and Geopolitics

It was a crucial week ending February 14 for US markets as investors assessed Trump’s tariff maneuvers, geopolitical news, US economic indicators, and the Fed’s monetary policy stance.

The Nasdaq Composite Index gained 2.58%, while the Dow and the S&P 500 rose 0.55% and 1.47% for the week. AI sector developments boosted demand for AI-linked stocks.

Notable movers included Apple Inc. (AAPL), which soared 7.46% on news of a partnership with Alibaba (BABA) to integrate AI into iPhones sold in China. Alibaba soared 20.5% in the week ending February 14.

In the bond markets, 10-year US Treasury yields fell for the third consecutive week despite briefly reaching a four-week high of 4.660%.

Tariff Delays and Geopolitical Moves Boost Risk Appetite

President Trump delayed reciprocal tariffs on nations imposing duties on US goods, temporarily lifting investor sentiment. Trump announced plans to introduce like-for-like tariffs, which could require lengthy investigations into levies on US goods. This may buy time for trade negotiations, potentially averting a global trade war.

News of a potential end to the Ukraine war also drove demand for risk assets. On February 13, Trump held separate discussions with Ukrainian President Zelenskyy and Russian President Putin, saying both leaders wanted peace.

Fed Chair Powell and US Data Send Mixed Signals

Key US economic indicators fueled speculation about an H1 2025 Fed rate cut, though rising inflation complicated the outlook.

• Core inflation rose from 3.2% in December to 3.3% in January, lowering bets on an H1 2025 Fed rate cut.
• Fed Chair Powell testified on Capitol Hill, saying they’re not quite there yet on inflation, pressuring risk assets.
• Producer prices softened with prices excluding Food, Energy, and Trade, rising 3.4% year-on-year in January, down from 3.5% in December.
• Retail sales slid by 0.9% month-on-month in January, reversing December’s 0.7% increase, which could ease demand-driven inflationary pressures.

While core inflation rose, softer producer prices and weak retail sales indicate mixed economic signals for Fed policy. According to the CME FedWatch Tool, the chances of the Fed holding rates at 4.25%-4.5% in June fell from 38.7% (February 7) to 31.8% (February 14).

China’s Inflation Picks Up as Stimulus Measures Take Effect

China’s annual inflation rate accelerated from 0.1% in December to 0.5% in January, signaling a pickup in demand. The data reflected the effectiveness of Beijing’s stimulus measures, aimed at boosting demand for credit and consumption,

A pickup in domestic consumption could be crucial as the threat of a US-China trade war simmers. China’s selective retaliatory tariffs on US goods took effect on February 10.

Meanwhile, Beijing reinforced its commitment to further stimulus, aiming to boost household incomes and drive consumption. Significantly, more consumption-focused stimulus could counter the potential effect of a full-blown US-China trade war.

East Asia Econ, a research service, dismissed the possibility that the Chinese New Year skewed the data, stating:

China – core CPI back up to +2%. January core CPI picked up. That doesn’t look like a Chinese New Year effect, and comes after Q4 when prices were already looking firmer. This doesn’t mean inflation, but if core, which has underperformed other price indicators, is now catching up, it would mean China isn’t in underlying deflation.”

Hong Kong and Mainland China Markets Climb on AI Optimism

The Hang Seng Index extended its winning streak to five weekly gains, surging by 7.04%, its best week since October. Rising bets on a Fed rate cut and DeepSeek’s AI-fueled market enthusiasm fueled the rally.

The Hang Seng Technology Index rallied 7.30%, contributing to the weekly gains. Tech giants Alibaba Group Holdings Ltd. (9988) soared 24.10% in the week, while Tencent (0700) and Baidu (9888) gained 10.55% and 11.94%, respectively.

Mainland China’s equity markets also benefited from US tariff developments and China’s position in the global AI race. The CSI 300 and Shanghai Composite rose 1.19% and 1.30%, respectively. However, the gains were more modest, with the Mainland markets unaffected by sentiment toward Fed policy.

For more analysis on the Hang Seng Index and global market trends, click here.

Commodities: Gold Nears $3,000 Iron Ore Dips

Commodities had a mixed week ending February 14:

• Gold extended its winning streak to seven weeks, rising 0.79% to close at $2,883. Significantly, gold struck a new record high of $2,943 before easing back.
• Meanwhile, Iron ore spot prices slid 3.14% to $788.11 amid lingering concerns over US-China trade policies, despite a temporary reprieve from tariff delays.
• Crude oil prices fell amid higher US inventories, a potential end to the Ukraine war, and tit-for-tat US tariff threats.

ASX 200 Strikes New Record on Banking and Gold Stocks

The ASX 200 rose 0.52% for the week, climbing to a new record high, with banking, gold, and tech stocks leading the charge.

• Northern Star Resources (NST) jumped 4.68%, tracking gold prices higher.
• The Commonwealth Bank of Australia (CBA) rallied 1.70% after posting better-than-expected profits, driven by a sharp drop in loan impairment charges.
• Westpac Banking Corp. (WBC) ended the week up 1.97%, benefiting from lower US Treasury yields, which increased demand for high-yielding Aussie banks.

Nikkei Index Gains as Yen Weakens

The Nikkei Index ended the week 0.62% higher, supported by the USD/JPY pair advancing by 0.59% to 152.282. A weaker Japanese Yen may boost overseas earnings and corporate valuations. The Yen weakened against the US Dollar despite rising bets on a second H1 2025 Bank of Japan rate hike.

Japan’s producer prices rose 4.2% year-on-year in January, up from 3.9% in December, signaling stronger demand.

Corporate earnings contributed to the weekly gains. Sony Corp. (6758) jumped 6.37% after reporting impressive gaming and music division performance.

Market Outlook: Key Events to Watch

The coming week is pivotal for Asian markets, with US tariff policies, geopolitics, and economic data in focus.

• A potential de-escalation in the Ukraine war and easing trade war fears would boost risk sentiment.
• The RBA interest rate decision could influence the ASX 200, while fresh stimulus measures from Beijing could support the broader markets.
• In Japan, economic data will drive BoJ rate hike bets, potentially lifting the Yen and weighing on export-linked stocks.

Traders should monitor global economic trends to navigate shifting market dynamics.