Hang Seng Index, ASX 200, Nikkei Index: Nikkei Gains on BoJ Rate Hike Doubts

US Equity Markets Affected by Rising Yields

The US equity markets had a mixed session on Thursday, June 20. The Nasdaq Composite Index and S&P 500 fell by 0.79% and 0.25%, respectively. Rising 10-year US Treasury yields, which increased by 48 basis points, affected demand for high-value tech stocks. The Dow bucked the trend, gaining 0.77%.

On Friday, June 21, US futures were also mixed. The Dow mini and S&P 500 mini were down by 24 and 2 points, respectively, while the Nasdaq mini was up by 12.

Can the Fed Cut Rates in a Tight Labor Market Environment?

US labor market data signaled a resilient US labor market. Initial jobless claims fell from 243k to 238k in the week ending June 15. The numbers tempered investor expectations of a September Fed rate cut.

However, the 4-week average painted a different picture, rising to 232.75k, the highest level since the week ending August 26.

Jan Hatzius at Goldman Sachs reportedly forecasted two Fed rate cuts on Thursday, saying,

“Ultimately, the key driver of labor demand is economic activity, and GDP growth has slowed meaningfully. So, despite the Federal Reserve’s surprisingly hawkish projections last week, we feel good about our forecast of two cuts (in September and December).”

Could China Implement a Stimulus Package?

This week, the People’s Bank of China left lending rates unchanged, testing investor expectations of more stimulus measures to bolster the Chinese economy.

Founder and managing director of Z-Ben Advisers Peter Alexander spoke on Bloomberg Television, saying,

“What has it been, the past year or so, where you’ll have people on that are always talking about the need for China to have this bazooka of fiscal stimulus? You know, China did that in 2008/9, and it led to some pretty disastrous long-term effects. They don’t want to do that again.”

Without a fiscal stimulus package, Mainland China stocks could face pressure if economic indicators suggest a weakening macroeconomic environment.

Hang Seng Index Falls Due to Nasdaq Pullback

The Hang Seng Index declined by 1.04% on Friday morning. Real estate and tech stocks contributed to the losses.

The Hang Seng Tech Index (HSTECH) slid by 1.17%, while the Hang Seng Mainland Properties Index (HSMPI) declined by 0.31%.

Alibaba (9988) and Baidu (9888) saw heavy losses, falling by 1.63% and 1.97%, respectively.

Furthermore, the Mainland China equity markets also saw losses in the Friday morning session. The Shanghai Composite Index and CSI 300 declined by 0.11% and 0.21%, respectively.

Nikkei Gains on Inflation and Weaker Yen

The Nikkei Index advanced by 0.16% Friday morning.

Fast Retailing Co. Ltd. (9983) gained 1.31%, with Kiddi Corp (9433) rising by 0.72%. Softbank Group Corp (9984) advanced by 0.88%.

Inflation and Services PMI numbers from Japan contributed to a weaker yen, signaling a seven-day winning streak for the USD/JPY.

Inflation excluding fuel and food slowed from 2.4% to 2.1% in May, with services inflation also slowing, testing expectations of a Bank of Japan rate hike. The Jubon Bank Services PMI fell from 53.8 to 49.8 in June, another blow for the BoJ eyeing services to fuel demand-driven inflation.

ASX 200 Rises on Commodity-Related Stock Gains

The ASX 200 advanced by 0.19% on Friday, tracing the Dow mini into positive territory.

Gold, oil, and mining stocks contributed to the early gains.

Mining giants BHP Group Ltd (BHP) and Rio Tinto Group Ltd. (RIO) were up 0.14% and 0.11%, respectively, with gold-related stock Evolution Mining Ltd (EVN) rallying 2.37%.

However, uncertainty about the RBA rate path caused bank stocks to decline. Commonwealth Bank of Australia (CBA) and National Australia Bank Ltd. (NAB) saw losses of 0.93% and 0.80%, respectively.

The Australian Judo Bank Services PMI fell from 52.5 to 51.0 in June. Despite the pullback, price pressures will likely concern the RBA.

Judo Bank Chief Economic Advisor Warren Hogan discussed the price trends, saying,

“Service sector price indicators pulled back in June, consistent with the view that inflation is gradually easing in 2024. However, index levels point to inflation still above the RBA’s target of 2-3%.”

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