Hang Seng Index: Alibaba Sinks on Earnings as the Markets Turn Cautious

US Equity Markets Hit Brakes Before Nvidia Earnings

On Monday, August 26, the post-Powell US equity market rally stalled. Better-than-expected US economic data and caution before NVIDIA’s (NVDA) earnings report influenced sentiment.

The Nasdaq Composite Index and the S&P 500 saw losses of 0.85% and 0.32%, respectively, while the Dow advanced by 0.16%.

US Economic Data Challenge 50-Basis Point September Fed Rate Cut Bets

Economic indicators signaled a resilient US economy. Durable goods orders jumped by 9.9% in July, reversing a 6.9% fall from June, indicative of strong demand.

The Dallas Fed Manufacturing Index rose from -17.5 in July to -9.7% in August, with wage growth trending higher.

The signs of a resilient US economy eased expectations of a 50-basis point September Fed rate cut. According to the CME FedWatch Tool, the chances of a 50-basis point rate cut in September fell from 36.0 on Friday, August 23, to 28.5 on Tuesday, August 26.

Expert Views on the Fed Rate Path

On Friday, Arch Capital Chief Global Economist Parker Ross considered the US labor market and Fed rate path, stating,

“The Fed has never started a mid-cycle adjustment with the unemployment rate already on the upswing y/y… But I hear there are too many rate cuts priced in!”

Ross elaborated on his Friday remarks, saying,

“This is why I emphasized on Friday that we’ve never been this far into the deterioration of the labor market prior to Fed rate cuts. The Fed is putting a lot of faith in its ability to turn the economy around, despite little historical evidence that it has such an ability.”

Chinese Industrial Profits Rise Unexpectedly

Chinese manufacturers saw profits increase by 3.6% year-on-year for the seven months of 2024, up from 3.5% in June. High-tech manufacturers reportedly led the way, with profits up 12.8% year-on-year.

However, the upswing in profits failed to boost buyer demand for riskier assets, with recent economic indicators from China signaling a waning demand environment.

Industrial production rose by 5.1% year-on-year in July, down from 5.3% in June, while the Caixin Manufacturing PMI fell from 51.8 in June to 49.8 in July.

Geopolitical Tensions Test Risk Appetite

Rising tensions in the Middle East also affected buyer demand for riskier assets. Reports of Israel and Lebanon’s Hezbollah exchanging fire raised fear of an escalation across the region. The escalation pushed oil prices higher.

Hang Seng and Mainland China Fall into Negative Territory

The Hang Seng Index was down 0.11% on Tuesday morning. Real estate stocks tumbled, with tech stocks contributing to the losses.

The Hang Seng Mainland Properties Index (HSMPI) slid by 1.70%, while the Hang Seng Tech (HSTECH) declined by 0.80%.

Notable movers included Alibaba (9988), down 4.68% following Q2 earnings and warning of lower sales from PDD Holdings. In contrast, Baidu (9888) was up 1.02%, while Tencent (0700) was flat for the morning.

The Mainland equity markets extended their losses from Monday, with the CSI 300 and the Shanghai Composite Index falling by 0.53% and 0.25%, respectively. Industrial profit numbers for July failed to mitigate lingering economic growth concerns.

Nikkei Index Drops in Risk-off Session

The Nikkei Index fell by 0.29% on Tuesday morning. USD/JPY gains from Monday and the Tuesday morning session failed to counter the risk-off mood affecting the equity market trends.

Tokyo Electron Ltd. (8035) slid by 2.53%, while Softbank Group Corp. (9984) fell by 0.66%.

Nissan Corp. (7201) benefitted from the softer Japanese Yen, advancing by 0.95%.

ASX 200 Steady on Oil and Gold Price Gains

The ASX 200 Index advanced by 0.03% on Tuesday morning. Oil, gold, and mining stocks offset losses in the banking and tech sectors.

Gold-related stock Northern Star Resources Ltd. (NST) rose by 0.99% on spot gold’s post-Powell’s speech gains. Oil stock Woodside Energy Group (WDS) surged by 4.59% on rising tensions in the Middle East and supply concerns after Libya closed its oil fields.

Mining giants BHP Group Ltd. (BHP) and Rio Tinto (RIO) gained 2.18% and 0.38%, respectively, on higher iron ore prices. Additionally, BHP earnings results met expectations, further boosting the stock price.

Investors should remain alert, with central bank commentary pivotal after the Jackson Hole Symposium. 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.