Hang Seng Index and Mainland Markets Diverge on Stimulus Woes – Weekly Recap

US Markets: Nasdaq Hits Record High

The US equity markets had a mixed week ending December 13. The Nasdaq Composite Index advanced by 0.34%, extending its winning streak to four weeks. However, the Dow and the S&P 500 posted weekly losses of 1.82% and 0.64%, respectively.

US economic indicators fueled expectations of a 25-basis point December Fed rate cut. Sentiment toward the Fed rate path drove demand for rate-sensitive tech stocks. However, market bets on a hawkish December rate cut weighed on the Dow and the S&P 500.

10-year US Treasury yields rose 25 basis points to 4.401%, underscoring market sentiment toward the Fed’s policy outlook.

US Inflation and Labor Market Data Signal Diverging Trends

Key US Economic indicators highlighted a complex outlook. US inflation edged higher, with the annual inflation rate rising from 2.6% in October to 2.7% in November, while the core inflation rate remained at 3.3%.

US producer prices increased by 3.0% year-on-year in November, up from 2.6% in October. As a leading inflation indicator, rising producer prices may signal higher demand, potentially driving inflation upwards.

Conversely, US labor market data pointed to potential weakness. Initial jobless claims jumped from 225k (week ending November 30) to 242k (week ending December 7). Claims rose to the highest level since early October, showing potential cracks in the US labor market.

A weaker labor market may curb wage growth and consumer spending. A pullback in consumer spending could dampen demand-driven inflation.

Despite the upward trend in inflation, the chances of a December Fed rate cut increased from 86.0% (December 6) to 96.0% (December 13). However, the inflation data could affect Q1 2025 policy moves, potentially weighing on risk sentiment.

China Stimulus Measures Fall Short

On Monday, China’s Politburo announced plans to loosen monetary policy and introduce stimulus, targeting consumption and broader domestic demand. The news fueled demand for Hong Kong and Mainland China-listed stocks.

However, proposals from China’s Central Economic Work Conference (CEWC) underwhelmed investors. On Thursday, the CEWC outlined measures, including a higher budget deficit, issuing more debt, and looser monetary policy. Concerns about waning consumer sentiment left experts questioning whether the measures would boost demand.

Brian Tycangco, editor/analyst at Stansberry Research, reacted to Beijing’s stimulus measures, saying,

“China’s economy is weak but not catastrophically weak. Trying to figure out the minimum amount (of stimulus) needed to keep the economy going. Property is weak in large part because they (Beijing) want it to be weak. What should be soaring is consumption but not doing too well. You can’t incentivize consumption through one-off vouchers.”

The Kobeissi Letter underscored the weakness in China’s consumer sentiment, saying,

“Even as hundreds of billions of dollars of stimulus have begun, Chinese consumer sentiment is terrible. Over the last 3 years, consumer confidence in China is down ~ 50 points. Such a drop in consumer assessment of the Chinese economy has almost never been seen before.”

Hong Kong and Mainland-listed stocks suffered heavy losses on Friday as investors reacted to the CEWC’s policy measures.

Hang Seng Index Advances on Fed Rate Cut Bets

The Hang Seng Index extended its winning streak to three weeks in the week ending December 13, advancing by 0.53%. Expectations for a December Fed rate cut contributed to the gains, alongside the Politburo’s announcement. However, the CEWC’s measures left the Index with modest gains for the week.

The Hang Seng Mainland Properties Index ended the week down by 1.30% as stimulus measures underwhelmed. However, the Hang Seng Tech Index trended higher on Fed rate bets. Tech giants Baidu (9888) and Alibaba (0700) saw weekly gains of 2.24% and 2.14%, respectively.

Conversely, Mainland markets ended the week in the red, with the CSI 300 and the Shanghai Composite falling 1.01% and 0.36%, respectively.

Commodities Gain Amid Demand Optimism

Iron ore spot ended the week up 1.56%. Investor hopes of China’s stimulus measures boosting iron ore demand drove prices higher. CN Wire reported rising iron ore arrivals at Chinese ports, contributing to the gains.

Meanwhile, gold gained 0.57% to $2,648, ending a two-week losing streak. On December 7, CN Wire announced China increased gold reserves for the first time since May, driving gold higher.

ASX 200 Stumbles as Aussie Labor Market Data Test RBA Rate Cut Bets

Australia’s ASX 200 slid by 1.48% in the week ending December 13. Banking and tech stocks saw heavy losses, overshadowing rising gold and mining stocks.

The S&P/ASX All Technology Index tumbled 4.32%. Banking giants ANZ (ANZ) and National Australia Bank (NAB) posted heavy weekly losses. News of CEO Shayne Elliot’s retirement plans and rising US Treasury yields weighed on banking stocks. Higher US Treasury yields lower demand for high-yielding Aussie bank stocks.

Nikkei Index Advances on Tech Stock Gain and Yen Losses

In the week ending December 13, the Nikkei Index gained 0.97%. The USD/JPY surged 2.41%, closing the week at 153.579, driving demand for export-linked stocks. A weaker Japanese Yen may increase overseas earnings contributions and demand for Japanese goods, potentially lifting stock prices.

Market bets on Fed rate cut and expectations for the Bank of Japan to stand pat next week contributed to the weekly gains.

Major contributors included Sony Corp. (6785), which rallied 6.81%, while Toyota Motor Corp. (7203) gained 2.61%. Softbank Group Corp. (9984) advanced by 3.08%.

Outlook: Central Banks in Focus – How will the Fed’s decision impact your portfolio?

In the coming week, the US Federal Reserve and the Bank of Japan will dominate market sentiment.

A hawkish Fed stance, even with a rate cut, could drive US dollar demand while weighing on riskier assets. The BoJ could have more influence with an unexpected rate cut. Fears of a Yen carry trade unwind could add to the broader market nerves.

Key economic indicators, including preliminary private-sector PMIs, US retail sales, Japan’s inflation data, and monthly stats from China, also need consideration. Mixed data may fuel policy uncertainty, potentially pressuring the Asian equity markets.