Hang Seng Index, ASX 200, Nikkei 225: Falling Fed Rate Cut Bets to Test the Markets

Highlights

• On Wednesday, the Hang Seng Index led the ASX 200 and Nikkei into negative territory.
• Mixed economic indicators from China and easing bets on a March Fed rate cut affected market risk appetite.
• On Thursday, the Asian markets will respond to overnight US data, with Australian and Japanese data also in focus.

Overview of the Wednesday Session

On Wednesday, the Hang Seng Index led the ASX 200 and Nikkei into negative territory.

Overnight US economic indicators and Fed speakers from Tuesday set the tone for the Wednesday session. The NY Empire State Manufacturing Index slid from -14.5 to -43.7 in January versus a forecast of -5.0. The weak manufacturing numbers failed to fuel March Fed rate hike bets.

FOMC Waller sunk bets on a March Fed rate cut. Waller highlighted the need for a careful and methodical move on interest rates. 10-year US Treasury yields ended the session up 2.78% to 4.0628%, weighing on riskier assets. On Tuesday, the Nasdaq Composite Index and S&P 500 fell by 0.19% and 0.37%, respectively. The Dow declined by 0.62%.

However, economic data from China also affected investor appetite for riskier assets. The Chinese economy grew by 5.2% year-over-year in Q4, falling short of a 5.3% forecast. Weaker retail sales overshadowed a pickup in industrial production.

US Retail Sales, Fed Speakers, and the Asian Economic Calendar

On Thursday, overnight US retail sales figures will affect the Asian markets. US retail sales increased by 0.6% in December after rising by 0.3% in November. The better-than-expected numbers further reduced bets on a March Fed rate hike. 10-year US Treasury yields rose by 1.08%, ending the session at 4.106%.

The US equity markets responded to the numbers. On Wednesday, the Nasdaq Composite Index fell by 0.59%. The Dow and S&P 500 saw losses of 0.25% and 0.56%, respectively.

However, investors must consider the Asian economic calendar on Thursday. Machinery orders from Japan and Australian labor market figures warrant investor attention.

Economists forecast machinery orders to fall by 0.8% in November. Weaker-than-expected figures would further reduce pressure on the BoJ to exit negative rates. For the ASX 200 and the RBA, softer labor market conditions could raise bets on an H1 2024 RBA rate cut. Economists forecast employment to rise by 17.6k and the unemployment rate to remain at 3.9%.

Beyond the numbers, geopolitical tensions in the Middle East, Beijing stimulus chatter, and Bank of Japan commentary need monitoring.

On Thursday, the ASX 200 was down 20 points, while the Nikkei was flat in the futures markets.

ASX 200

The ASX 200 fell by 0.29% on Wednesday. Tech stocks made gains. The S&P ASX All Technology Index (XTX) rose by 0.06%, with mining stocks steadying. However, gold, oil, and bank stocks contributed to the losses.

Gold (XAU/USD) stocks suffered heavy losses, with oil stocks also struggling. Northern Star Resources Ltd. (NST) slid by 4.43%, with Evolution Mining Ltd. (EVN) tumbling by 17.33%. Evolution Mining tumbled on quarterly earnings results and on doubts the firm can meet its production forecasts.

Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) ended the session down 1.35% and 0.78%, respectively. Economic indicators from China fueled concerns about demand amidst a rising supply environment.

Bank stocks had a mixed session. Westpac Banking Corp. (WBC) and Commonwealth Bank of Australia (CBA) declined by 0.74% and 0.59%, respectively. ANZ Group Holdings Ltd (ANZ) and National Australia Bank Ltd. (NAB) saw gains of 0.08% and 0.03%, respectively.

Mining stocks also had a mixed session. Fortescue Metals Group Ltd. (FMG) and BHP Group Ltd (BHP) ended the day up 0.49% and 0.15%, respectively. Rio Tinto Ltd. (RIO) fell by 0.09%.

Hang Seng Index

The Hang Seng Index tumbled by 3.71% on Wednesday. Significantly, the Hang Seng Index broke below the trend line. The Hang Seng Tech Index (HSTECH) ended the session down 4.99%. Property stocks continued to trend lower. The Hang Seng Mainland Properties Index (HSMPI) slid by 5.35%.

Alibaba (9988) and Tencent (0700) declined by 4.02% and 2.76%, respectively.

Bank stocks also saw losses. HSBC (0005) fell by 1.95%. China Construction Bank (0939) and Industrial Commercial Bank (1398) declined by 2.47% and 2.47%, respectively.

The Nikkei 225

(Graph for reference purposes only)

The Nikkei declined by 0.40% on Wednesday, giving up gains from earlier in the session.

Bank stocks ended the session in positive territory. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) rose by 0.22% and 0.66%, respectively.

However, it was a mixed session for the main components of the Nikkei. Softbank Group Corp. (9948) and Tokyo Electron Ltd. (8035) ended the day up 2.19% and 1.81%, respectively. Sony Group Corp. (6758) rose by 0.24%.

However, Fast Retailing Co. Ltd. (9983) and KDDI Corp. (9433) saw losses of 0.64% and 0.34%, respectively.

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