Hang Seng Index, ASX 200, Nikkei 225: Positive Start Driven by Fed Rate Cut Hopes

Bets on a September Fed rate cut set the tone for the Thursday, July 4, Asian session. Will there be any market shocks to spook investors?

US Equity Markets: US Labor Market Data Greenlights Fed Rate Cut

The US equity markets had a mixed mid-week session. On Wednesday, July 3, the Nasdaq Composite Index and the S&P 500 advanced by 0.88 and 0.51%, respectively. However, the Dow declined by 0.06%.

Investors reacted to US labor market data that influenced expectations of a September Fed rate cut.

US continuing jobless claims rose to the highest level since 2021, climbing from 1,832k to 1,858k in the week ending June 22.

Arch Capital Global Chief Economist Parker Ross commented on the jobless claims report, stating,

“While both measures of unemployment have been deteriorating since the beginning of the year, continuing claims still reflect a more substantial softening of the labor market.”

ADP labor market data also fell short of forecasts, with 150k jobs added in June, down from 157k in May.

The US labor market data fueled investor bets on a September Fed rate cut. According to the CME FedWatch Tool, the probability of a September Fed rate cut (25 or 50 bps) increased from 68.9% to 74.4% on Wednesday.

A Fed rate cut could reduce borrowing costs, drivee buyer demand for riskier assets, and may improve company profit margins.

Positive sentiment toward the Fed rate path spilled into the Thursday, July 4, Asian session. However, investors also needed to consider the Asian economic calendar, USD/JPY trends, and commodity price movements.

Hang Seng Index Joined by Mainland Stocks in Positive Territory

Meanwhile, the Hang Seng Index gained 0.29% on Thursday morning. Tech stocks contributed to the gains, while profit-taking from the latest real estate sector rally limited the morning gains.

The Hang Seng Mainland Properties (HSMPI) declined by 0.42%, while the Hang Seng Tech (HSTECH) Index was up 0.91%.

Baidu (9888) and Alibaba (9988) rallied 1.28% and 1.66%, respectively, while Tencent (0700) advanced by 0.26%.

Hopes of the EU dropping tariffs on electric vehicle imports from China contributed to the gains for EV-linked stocks.

XPeng Motors (9868) jumped 4.82%, with Li Auto (2015) up 4.37%.

China Xinhua News reported that the German association VDA said EU tariffs on China EVs would affect Europe’s interests and find a solution.

The Mainland China markets also had a positive start to the Thursday session. The Shenzhen Composite and CSI 300 saw gains of 0.52% and 0.50%, respectively.

Nikkei Trends Higher as USD/JPY Holds Its Ground

The Nikkei Index advanced by 0.38% on Thursday morning as the USD/JPY hit a decades high 161.951 on Wednesday. Notably, investor fears of a Japanese government intervention abated, with carry trades favoring the US dollar.

Weaker Yen trends drive buyer demand for Nikkei 225-listed export stocks.

Nissan Motor Co. Ltd. (7201) rallied by 2.53%, with Toyota Motor Corp. (7203) up 1.02%.

Tokyo Electron Ltd. (8035) gained 0.31%, with Softbank Group Corp (9984) rising by 0.93%.

There were no stats from Japan for investors to consider as the markets ponder the July Bank of Japan monetary policy decision.

ASX 200 Leads the Broader Asian Market

The ASX 200 Index rallied 1.10% on Thursday morning. Gains were broad-based, though gold (XAU/USD), oil, and mining stocks were among the front-runners.

Mining stocks BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) jumped by 2.70% and 2.46%, respectively. Iron ore spot rallied 2.52% on Wednesday, driving buyer demand for Aussie mining stocks.

Upward trends in oil and gold prices drove buyer demand for oil and gold-related stocks.

Woodside Energy Group Ltd. (WDS) and Santos Ltd. (STO) advanced by 1.03% and 5.14%, respectively.

Furthermore, gold-related stocks Northern Star Resources Ltd. (NST) and Evolution Mining Ltd. saw gains of 1.57% and 4.19%, respectively.

Aussie trade data warranted investor attention on Thursday. The trade surplus narrowed from A$6.027 billion in April to A$5.773 billion in May.

However, exports reversed a 2.2% loss in April, rising by 2.8% in May, while imports jumped by 3.9%. Imports slid by 7.0% in April.

The rebound in imports and exports suggested an improving demand environment.

For context, Australian exports had trended lower in 2024, impacting the Australian economy. The latest figures could provide some relief, with Australia having a trade-to-GDP ratio of over 50%.

In conclusion, investors responded to rising expectations of a September Fed rate cut. Commodity price trends drove buyer demand for ASX 200-listed mining stocks, while the weaker Yen fueled buyer appetite for Nikkei-listed export stocks. However, the US Jobs Report remains pivotal, with EU-China tariff talks and RBA policy goals also needing consideration.

Investors should closely monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest updates and insights to navigate the Asian equity markets effectively.