Hang Seng Index, ASX 200, Nikkei 225: Asian Markets Up on Fed Rate Cut Bets

Softer US Inflation Cements Fed Rate Cut

On Friday, July 26, softer US inflation numbers for June bolstered investor bets on a September Fed rate cut. The PCE Price Index increased 2.5% year-on-year in June after a rise of 2.6% in May.

On July 26, the CME FedWatch Tool put the chances of a September Fed rate cut at 100%, up from 98.1% on July 19.

US Markets: US Treasury Yields Slide and Equity Markets Rally

Rising bets on a September Fed rate cut impacted 10-year US Treasury yields, which fell 51 basis points to 4.194%. Falling US Treasury yields drove buyer demand for riskier assets. The Dow rallied 1.64%, while the Nasdaq Composite Index and the S&P 500 gained 1.03% and 1.11%, respectively.

Expert Views on US Inflation

Arch Capital Global Chief Economist Parker Ross said,

“The June PCE price index printed right in-line with expectations at 0.08% m/m, continuing the string of soft headline inflation reports for the month. Market odds of a Sept rate cut were roughly unchanged after the report at ~110% (i.e., a 25bps cut fully priced in, with some expecting a potential 50bps cut).”

Friday’s gains set the tone for the Monday Asian session. However, Mainland China markets had a negative start to the week, with growth concerns lingering,

China Growth Concerns Linger

Investor concerns about China’s economic outlook lingered. The recent People’s Bank of China (PBoC) moves to boost demand highlighted Beijing’s concerns about growth. However, rate cuts have failed to drive buyer demand for Mainland-listed stocks. Disappointment over the outcome of the Third Plenum amid uncertain US-China relations likely affected investor sentiment.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the Third Plenum, saying,

“There’s nothing new under the sun: the same industrial policies, the same ideas. No consumer-led growth, no mention of market forces, nothing.”

Asian Markets Face a Pivotal Week Ahead

On Wednesday, July 31, the Bank of Japan and the US Federal Reserve will announce their monetary policy decisions.

Investors expect the BoJ to leave interest rates unchanged but to cut Japanese Government Bond (JGB) purchases. An unexpected rate hike and an aggressive cut to JGBs could boost Yen demand, impacting Nikkei-listed export stocks.

The US Federal Reserve interest rate decision will influence market risk sentiment on Thursday, August 1. An unexpected Fed rate cut would fuel buyer demand for riskier assets.

For the RBA and the ASX 200, the Monthly CPI Indicator could raise investor bets on an August RBA rate hike, which may impact ASX-listed stocks.

Hang Seng Index Gains While Mainland China Equities Fall

Meanwhile, the Hang Seng Index advanced by 1.04% on Monday morning. Tech stocks contributed to the gains.

The Hang Seng Tech (HSTECH) Index rose by 0.58% on Monday. Alibaba (9988) surged by 4.10%, while Baidu (9888) and Tencent (0700) gained 1.17% and 0.71%, respectively.

Mainland China equity markets bucked the positive trends.

The Shanghai SE Composite Index and CSI 300 were down by 0.01% and 0.36%, respectively.

Nikkei Index Leads the Asian Markets on Tech Sector Rally

The Nikkei Index rallied 2.41% on Monday on rising bets on a Fed rate cut boosting tech stock demand.

Softbank Group Corp. (9984) and Tokyo Electron Ltd. (8035) rallied 3.38% and 3.46%, respectively.

ASX 200 Tracks the Dow into the Red

The ASX 200 Index gained 0.86% on Monday morning, tracking the US equity markets into positive territory. Tech stocks contributed to the gains, with the S&P ASX All Technology Index (XTX) rising by 1.21%. Gold, mining, and oil also advanced.

Gold stock Northern Star Resources Ltd. (NST) rallied 1.95% following gold-spot gains from Friday. Mining giants BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) saw gains of 0.74% and 1.26%, respectively. Oil stock Santos Ltd. (STO) was up 1.81%.

Investors should remain alert with US politics and private sector PMIs in focus. 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.