Hang Seng Index, ASX 200, Nikkei Index: HSI Leads on Fed Rate Cut Signals

On Thursday, July 11, investors interpreted Fed Chair Powell’s testimony as a signal for a September Fed rate cut.

Will pre-US CPI jitters influence risk sentiment later in the Asian session?

US Equity Markets:

On Wednesday, July 10, Fed Chair Powell reaffirmed his views on inflation and the labor market. Powell expressed confidence that inflation was softening without outlining an inflation level for a Fed rate cut. Powell’s comments reinforced investor expectations of a September Fed rate cut.

According to the CME FedWatch Tool, the probability of a September Fed rate cut increased slightly from 73.2% on Tuesday to 73.3% on Wednesday.

Optimism about a Fed rate cut boosted demand for riskier assets. The Nasdaq Composite Index rallied 1.18%, while the Dow and the S&P 500 saw gains of 1.09% and 1.02%, respectively.

Wall Street Journal Chief Economics Correspondent Nick Timiraos discussed Fed Chair Powell’s views on the labor market during a Fox Business Live interview, stating,

“They’re now focused on a real chance of more weakness in the labor market than they would want to see and that is not something we have heard from the Fed up until now.”

A cooling US labor market and softer-than-expected US inflation figures could cement a September Fed rate cut.

While Powell set the tone for the Thursday Asian session, the Asian economic calendar also needed consideration.

Aussie Consumer Inflation Expectations Soften

On Thursday, Aussie consumer inflation expectations unexpectedly fell from 4.4% in June to 4.3% in July. Economists expected an increase to 4.5%.

Softer inflation expectations could ease pressure on the RBA to hike interest rates, contributing to the gains in the ASX 200. Consumers could delay plans to purchase goods if they expect prices to fall, easing demand-driven inflationary pressures.

Hang Seng Index and Mainland China Stocks Rally

Meanwhile, the Hang Seng Index rallied 1.09% on Thursday morning. Hopes of a Fed rate cut fueled buyer demand for tech and real estate stocks.

The Hang Seng Mainland Properties Index (HSMPI) advanced by 1.69%, while the Hang Seng Tech (HSTECH) Index rose by 1.47%.

Alibaba (9988) and Tencent (0700) saw gains of 1.78% and 1.33%, respectively. Baidu (9888) was up by 0.58%.

Mainland China’s equity markets continued to climb higher. The Shenzhen Component Index and CSI 300 were up by 1.88% and 1.06%, respectively.

New restrictions from the China Securities Regulatory Commission (CSRC) aimed to support the ailing stock market and strengthen investor confidence.

Nikkei Advances on Fed Rate Cut Bets and Yen Weakness

The Nikkei Index rose by 0.88% on Thursday following overnight rallies in the US equity markets and a weaker Yen. The USD/JPY held onto the 161 handle, driving buyer demand for Nikkei-listed export stocks.

Sony Group Corporation (6758) surged by 3.67%, while Fast Retailing Co. Ltd. (9983) advanced by 1.45%. Tokyo Electron Ltd. (8035) gained 1.22%,

ASX 200 Reverse Losses from Wednesday

The ASX 200 Index advanced by 0.99% on Thursday morning, reversing its losses from Wednesday. Gold and iron ore spot prices increased by 0.30% and 1.49%, respectively, driving buyer demand for gold and mining stocks.

Northern Star Resources Ltd. (NST), a gold-related stock, rallied 2.61%, while mining giant Fortescue Metals Group Ltd. (FMG) gained 1.53%.

Investors should remain alert as the focus shifts to the US CPI Report. 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.