Hang Seng Index, ASX 200, Nikkei 225: US CPI Report, China, and the Fed in Focus

Highlights

• On Tuesday, the Hang Seng Index ended a three-day losing streak to lead the Nikkei and ASX 200 into positive territory.
• Hopes of a meaningful stimulus package from Beijing contributed to gains for the Hang Seng Index and the ASX 200.
• On Wednesday, the Asian markets will respond to overnight US inflation numbers from Tuesday.

Overview of the Tuesday Session

On Tuesday, the Asian equity markets enjoyed a positive session. The Hang Seng Index ended a three-day losing streak. Hopes for a stimulus package from Beijing drove buyer demand. Investors responded to news of Chinese officials meeting to discuss stimulus plans and growth targets. The ASX 200 also benefitted from stimulus bets and Monday’s US equity market gains.

Easing fears of a Bank of Japan pivot from negative rates contributed to gains for the Nikkei Index. The gains came despite a weaker USD/JPY during the Asian session.

The US equity markets set the tone for the Tuesday Asian session. On Monday, the Dow and S&P 500 rose by 0.43% and 0.39%, respectively. The Nasdaq Composite Index gained 0.20%.

US CPI Report to Set the Tone for the Wednesday Session

The overnight US CPI Report from Tuesday will set the tone for the Wednesday Asian session. The US annual and core inflation rates aligned with forecasts, signaling sticky inflation. In November, the core inflation rate held steady at 4.0%. Bets on a Q1 2024 Fed rate cut eased, while market expectations of a May 2024 Fed rate cut remained steady.

According to the CME FedWatch Tool, probabilities for a May Fed rate cut were:

• 25-basis point rate cut – 50.0% vs. 50.4% (before the CPI Report).
• 50-basis point rate cut – 23.7% vs. 24.0% (before the CPI Report).

10-year US Treasury yields initially jumped in response to the CPI Report before pulling back, supporting the appetite for riskier assets. On Tuesday, the Nasdaq Composite Index ended the day up 0.70%. The Dow and S&P 500 saw gains of 0.48% and 0.46%, respectively.

Asian Economic Calendar, China, and Fed Jitters

On Wednesday, the Asian economic calendar warrants attention. Tankan Survey-based numbers from Japan will draw investor interest. The Tankan Large Manufacturers Index will be the focal point. Economists forecast the Index to rise from 9 to 10 in Q4. Notably, the Bank of Japan will consider the survey-based numbers in the next monetary policy meeting.

Post-release BoJ commentary could also influence the Nikkei. Rising bets on the BoJ delaying plans to exit negative rates could support buyer demand.

However, updates from the closed-door meetings in China and Fed jitters will also influence the Asian equity markets.

ASX 200

The ASX 200 rose by 0.50% on Tuesday. Tech stocks led the way, with the S&P/ASX All Technology Index rallying 1.17%.

Oil stocks had a positive Tuesday session. Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) gained 0.26% and 0.27%, respectively. However, it was a mixed session for the big four banks and mining stocks.

ANZ Group Holdings Ltd (ANZ) and National Australia Bank Ltd. (NAB) saw gains of 0.77% and 0.75%. Commonwealth Bank of Australia (CBA) rose by 0.44%, while Westpac Banking Corp. (WBC) ended the session flat.

BHP Group Ltd (BHP) and Fortescue Metals Group Ltd. (FMG) ended the session up 0.04% and 1.62%, respectively. Rio Tinto Ltd. (RIO) declined by 0.29%.

Gold (XAU/USD) stocks also had a mixed session. Northern Star Resources Ltd. (NST) fell by 0.16%, while Evolution Mining Ltd. (EVN) rose by 0.28%.

Hang Seng Index

The Hang Seng Index gained 1.07% on Tuesday, with the tech and real estate sectors contributing. The Hang Seng Tech Index rallied 1.74%, with the Hang Seng Mainland Properties index climbing 4.53%.

Alibaba (9988) and Tencent (0700) saw gains of 1.89% and 1.37%

Bank stocks also had a positive session on hopes of a stimulus plan. HSBC (0005) increased by 0.58%. China Construction Bank (0939) and Industrial Commercial Bank (1398) ended the day up 1.58% and 1.11%, respectively.

The Nikkei 225

(Graph for reference purposes only)

The Nikkei increased by 0.16%. A weaker USD/JPY capped the upside.

Bank stocks ended a four-day winning streak on easing bets on a BoJ pivot. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) fell by 1.20% and 1.60%, respectively. However, it was a positive session for the main components of the Nikkei.

Tokyo Electron Ltd. (8035) gained 1.48%. Fast Retailing Co. Ltd. (9983) and KDDI Corp. (9433) ended the day up 0.65% and 0.64%, respectively. Sony Group Corp. (6758) and Softbank Group Corp. (9948) rose by 0.19% and 0.36%, respectively.

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