Hang Seng Index: Beijing Stimulus Lifts Tech and Auto Stocks: Nissan Motors Jumps 17%

US Markets: Fed Jitters Impact Sentiment

Here’s how US equity markets performed on Tuesday, December 17.

US equity markets posted losses on Tuesday as investors took profits ahead of Wednesday’s Fed interest rate decision and FOMC Economic Projections. The Nasdaq Composite Index and the S&P 500 declined by 0.32% and 0.39%, respectively. Meanwhile, the Dow dropped by 0.61%, extending its losing streak to nine sessions.

In the bond markets, 10-year US Treasury yields climbed to their highest since November before retreating. Rising expectations of a hawkish Fed stance pushed yields higher.

Rising US retail sales fuel inflation fears—could this derail Fed rate cut bets?

US retail sales jumped by 0.7% month-on-month in November after rising 0.5% in October. Upward retail sales trends could fuel demand-driven inflation, challenging expectations of multiple Fed rate cuts.

A less dovish Fed rate path would leave borrowing costs higher than previously expected, potentially influencing company earnings and stock prices.

According to the CME FedWatch Tool, the chances of a 25-basis point January Fed rate cut rose from 14.7% on December 16 to 16.8% on December 17. Markets have cemented bets on a Fed rate cut later today.

Japan: Export Growth Overshadowed by Domestic Concerns

Japan’s trade data drew investor interest on Tuesday, December 18. Exports increased by 3.8% year-on-year in November, while imports were down 3.8%.

With a trade-to-GDP ratio of around 50%, upward export trends highlight an improving demand environment. However, the sharp drop in imports could raise red flags for the Bank of Japan. Waning domestic demand could stem from the weaker Japanese Yen, which may increase living costs and inflation.

The Bank of Japan will announce its monetary policy decision on Thursday, December 19. While markets expect the BoJ to stand pat, fears of a surprise rate hike linger.

How did the Experts View the BoJ Policy Outlook?

On Tuesday, Kurt S. Altrichter, founder of Ivory Hill, remarked on the Bank of Japan rate path, saying,

“Japanese wage growth is accelerating, pressuring the Bank of Japan to act. With the Yen carry trade deeply entrenched, a shift in policy could trigger a massive unwind, making Japan the potential epicenter of a financial crisis.”

In July, the BoJ raised interest rates and cut Japanese Government Bond (JGB) purchases, triggering market turmoil because of Yen carry trade unwinds.

Hang Seng Index Advances on Beijing’s Policy Pledges

In Asian markets, the Hang Seng Index advanced by 0.95% on Wednesday morning. Fresh pledges from Beijing drove demand for Hong Kong and Mainland China-listed stocks.

CN Wire reported Beijing targeting a budget deficit of 4% of GDP in 2025, up from the current 3% goal. Beijing anticipates a 4% budget deficit to deliver 5% growth in 2025. Other measures included guidelines to boost state-owned enterprises and reduce dividend-related fees buoyed sentiment.

Tech and auto stocks led the gains. Tech giants Alibaba (9988) and Baidu (9888) advanced by 0.78% and 1.91%. Auto stocks Li Auto (2015) and Geely Automobile Holds. (0175) were up 3.87% and 3.05%, respectively.

Mainland China markets followed suit, with the CSI 300 and the Shanghai Composite gaining 0.52% and 0.62%, respectively.

Nikkei Index Falls on Yen Strength

Japan’s Nikkei Index declined by 0.22% in the Wednesday morning session. The USD/JPY dropped by 0.39% on Tuesday, closing at $153.498, weighing on demand for Japanese stocks. Overnight losses from the US session contributed to the pullback.

Tokyo Electron (8035) and Softbank Group (9984) declined by 0.29% and 3.43%, respectively.

However, auto stocks limited the losses. Nissan Motor Corp. (7201) surged by 21.80% as investors on news of a potential holding company with Honda Motor Corp. (7267) and Mitsubishi Motor Corp. (7211). Mitsubishi shares climbed 16.7%.

A consolidation could revive Japan’s auto industry by sharing resources to tackle waning margins.

ASX 200 Dips as Banks and Gold Retreat

Meanwhile, Australia’s ASX 200 Index fell 0.15% on Wednesday morning, tracking the US markets into negative territory.

Banking stocks Commonwealth Bank of Australia (CBA) and ANZ (ANZ) dropped by 1.19% and 0.68%, respectively. Northern Star Resources (NST) was down 0.72% following a pullback in gold prices on Tuesday.

Outlook: Key Decisions Drive Volatility

Two pivotal decisions—by the Fed and the BoJ—could decide the fate of global markets this week. Meanwhile, Beijing’s stimulus measures continue to influence sentiment in Asian markets. Traders will monitor global economic trends and trade protectionism developments for further direction.

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