Hang Seng Index, ASX 200, Nikkei 225 Index: Wary Eyes on FOMC Amid China’s Slowdown

Key Insights:

• The ASX 200 led the Hang Seng Index and the Nikkei deep into negative territory on Wednesday.
• China’s economic woes and jitters over the US banking sector remain headwinds.
• The overnight FOMC minutes revealed a divided committee focused on inflation. We expect further market stress with rate hikes on the table.

Wednesday Overview

It was a bearish Wednesday session for the Hang Seng Index and the broader Asian markets. The ASX 200 led the Hang Seng Index and the Nikkei into negative territory.

Economic indicators from China continued to weigh on investor sentiment. House prices fell by 0.1% in July year-over-year. House prices fell for four consecutive months before rising by 0.1% in May. In June, house prices stalled before the July decline.

The latest figures followed the disappointing data slew from China, which included a marked slowdown in Industrial production growth in July. News of the PBoC cutting key policy rates offset the negative numbers. However, investors await more stimulus to ease fears of contagion.

US economic indicators added to the bearish mood. US retail sales figures impacted market sentiment across the riskier asset spectrum. Retail sales figures continued to signal a hot US economy, increasing by 0.7% in July versus +0.3% in June.

FOMC Blues on Thursday

The overnight FOMC meeting minutes will impact market risk sentiment today.

The FOMC Meeting Minutes highlight a divided Committee on the need for further rate hikes. Significantly, the focus remained on inflation rather than the macroeconomic backdrop, leaving rate hikes and a hard landing on the table.

While the latest US economic indicators remove the immediate fear of a hard landing, the retail sales numbers for July support a more hawkish Fed policy outlook. According to GDPNow, the GDP estimate from the Federal Reserve Bank of Atlanta, the US economy is forecast to grow by 5.0% in Q3, up from 4.1% one week earlier.

The US equity markets responded to the FOMC meeting minutes. On Wednesday, the NASDAQ Composite fell by 1.15%. It was also a bearish session for the Dow and the S&P 500, which saw losses of 0.52% and 0.76%, respectively.

Economic indicators from the Asian economic calendar will likely have a limited impact on investor sentiment. This morning, trade and core machinery orders from Japan and employment figures from Australia are in focus.

Beyond the economic calendar, the banking sector will likely remain under pressure. The Fitch Ratings warning of a suite of US bank rating downgrades, including JPMorgan (JPM), will continue to resonate. China’s economic woes also suggest more downside.

ASX 200

The ASX 200 tumbled by 1.50% on Wednesday on China sentiment that overshadowed easing bets on a further RBA pause on interest rate hikes.

The Commonwealth Bank of Australia (CBA) slid by 1.31%, with ANZ Group (ANZ) and The National Australia Bank (NAB) seeing losses of 1.04% and 1.05%, respectively. Westpac Banking Corp (WBC) saw a more modest 0.86% decline.

Mining stocks bore the brunt of the risk aversion. Fortescue Metals Group (FMG) and BHP Group Ltd (BHP) slumped by 3.03% and 3.38%, respectively. Rio Tinto (RIO) and Newcrest Mining (NCM) ended the day down 2.26% and 1.33%, respectively.

Oil stocks also struggled with demand jitters. Woodside Energy Group (WDS) and Santos Ltd (STO) fell by 0.91% and 0.88%, respectively.

Hang Seng Index

The Hang Seng Index ended the Wednesday session down 1.36%. Market sentiment toward PBoC moves to boost growth weighed on buyer appetite following a slew of disappointing economic indicators from China.

Considering the main Index components, Tencent Holdings Ltd (HK:0700) and Alibaba Group Holding Ltd (HK:9988) ended the day with losses of 1.14% and 2.14%, respectively.

Bank stocks also had a bearish session. The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) ended the day down 1.72% and 1.67%, respectively. HSBC Holdings PLC slid by 2.04%.

CNOOC (HK: 0883) declined by 1.41% on falling oil prices.

Nikkei 225

(For reference purposes only)

The Nikkei 225 slid by 1.46%, with investors looking past better-than-expected GDP numbers from Tuesday.

The banks had a bearish session. Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group saw losses of 1.56% and 2.94% as investors responded to the Fitch Ratings warning.

Looking at the main components, SoftBank Group Corp. (9984) slid by 3.38%. Fast Retailing Co (9983) and Sony Corp (6758) ended the day down 1.87% and 1.72%, respectively. Tokyo Electron Limited (8035) and KDDI Corp (9433) also struggled, falling by 1.14% and 0.64%, respectively.

Check out our economic calendar for economic events.