Hang Seng Index, ASX200, Nikkei 225: Fed Bets to Spook Investors

Key Insights:

• It is a likely bearish start to the Friday session, with the ASX and Nikkei futures flashing red.
• This morning, we expect the Asian markets to react to the overnight US economic indicators that supported the more hawkish Fed outlook on interest rates.
• However, household spending figures from Japan will influence the Nikkei as investors look for reasons for the BoJ to shift from its ultra-loose monetary policy stance.

Market Overview

The Asian markets are set for another bearish opening this morning. US economic indicators supported a more hawkish Fed outlook on interest rates, leaving the NASDAQ Composite Index and the Dow with losses of 0.82% and 1.07%, respectively.

In June, the ADP reported a 497k surge in nonfarm employment, with the ISM Non-Manufacturing PMI up from 50.3 to 53.9. Economists forecast nonfarm to increase by 228k and the headline PMI to increase to 51.0.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 91.1% versus 90.5% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 26.4%, up from 18.1% on Wednesday.

On Wednesday, market jitters over increasing trade tension between the US and China and hawkish FOMC meeting minutes left the Asian markets in negative territory on Thursday.

The Hang Seng Index led the way down, with better-than-expected trade data from Australia providing the ASX 200 with little comfort. Fears of government intervention to steady the Yen contributed to the Nikkei losses.

ASX 200

On Wednesday, the ASX 200 fell by 1.24%. Better-than-expected Australian trade data failed to provide support.

The Australian trade surplus widened from A$10.454 billion to A$11.719 billion in May. Economists forecast an A$10.500 billion trade surplus. Exports jumped by 4.4%, with imports increasing by 2.5% midway through the second quarter.

The big-4 had a bearish Thursday. The National Australia Bank (NAB) slid by 2.11%, with ANZ Group (ANZ) declining by 1.92%. Westpac Banking Corp (WBC) and The Commonwealth Bank of Australia (CBA) also struggled, falling by 1.72% and 1.33%, respectively.

Mining stock also saw red. Rio Tinto (RIO) and Fortescue Metals Group (FMG) ended the day with 1.38% and 1.72% losses, with BHP Group Ltd (BHP) sliding by 2.29%. Newcrest Mining (NCM) ended the day with a 1.54% loss.

Oil stocks had a bearish session. Woodside Energy Group (WDS) and Santos Ltd (STO) fell by 1.37% and 0.53%, respectively.

Hang Seng Index

The Hang Seng tumbled by 3.02%, with the continued decline in the Yuan adding to the bearish mood.

Considering the main Index components, Tencent Holdings Ltd (HK:0700) and Alibaba Group Holding Ltd (HK:9988) fell by 2.56% and 1.39%, respectively.

Bank stocks also had a bearish session. HSBC Holdings PLC fell by 1.05%, with The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) seeing losses of 3.20% and 3.23%, respectively.

CNOOC (HK: 0883) declined by 0.69%.

Nikkei 225

The Nikkei 225 ended Thursday with a 1.70% loss, with risk aversion plaguing the markets for the second session. For the Nikkei, the lingering threat of a government intervention to bolster the Yen likely contributed to the pullback.

From the banking sector, Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group fell by 2.00% and 1.87%, respectively.

Looking at the main components, Tokyo Electron Limited (8035) and Fast Retailing Co (9983) slid by 3.92% and 2.44%, respectively. Sony Corp (6758) and SoftBank Group Corp. (9984) ended the day with losses of 1.24% and 1.90%, respectively, with KDDI Corp (9433) falling by 0.68%.

Check out our economic calendar for economic events.