Hang Seng Index Declines Despite Mainland Real Estate Surge After PBoC Cuts

US Markets Advance on Corporate Earnings and Fed Rate Cut Bets

On Friday, October 18, US equity markets closed the week on a positive note. The Nasdaq Composite Index and the S&P 500 advanced by 0.63% and 0.40%, respectively, while the Dow gained 0.09%.

Netflix (NFLX) rallied by 11.09% after beating Q3 earnings estimates during after-hours trading on Thursday, driving the Nasdaq higher.

US Housing Sector Data Bolster November Fed Rate Cut Bets

On Friday, US housing sector data sent gloomy signals. Building permits declined sharply in September, with housing starts also falling, suggesting weaker demand. Weaker demand may impact house prices, consumer confidence, and the broader US economy. Waning consumer confidence may dampen private consumption, which accounts for over 60% of the US GDP.

Weaker housing sector data supported investor bets on a November 25-basis point Fed rate cut, driving demand for riskier assets. According to the CME FedWatch Tool, the chances of a 25-basis point November Fed rate cut increased from 90.4% to 92.6% on October 18.

People’s Bank of China Slashes Loan Prime Rates

On Monday, October 21, the People’s Bank of China (PBoC) cut both the 1-year and 5-year loan prime rates (LPR) by 25-basis points to 3.10% and 3.60%, respectively. Economists expected the PBoC to cut the LPRs by 20 basis points.

The rate cuts could lower consumer borrowing costs, including interest rates on consumer loans, mortgages, and credit cards, potentially increasing disposable income. Lower borrowing costs and higher disposable income could boost consumer borrowing and spending.

The PBoC cut Loan Prime Rates for the third time this year.

Expert Views on China’s Policy Measures

Natixis Asia Economist Alicia Garcia Herrero commented on recent stimulus measures from Beijing, stating,

“Beijing could deploy as much as 6 trillion yuan ($842.9 billion) in new fiscal stimulus, but the fund will be more of a ‘risk package’ to recapitalize banks, clean up sold but unfinished housing units and ease local governments’ hidden debt. This is to solve the deflationary pressure, not to stimulate consumption yet.”

Investors hope the next round of policy measures will target consumption, crucial to the Chinese and global economy. However, recent economic indicators from China could allow the Chinese government to delay measures targeting consumption. Retail sales increased by 3.2% year-on-year in September after a rise of 2.1% in August.

Hang Seng Index and Mainland China Equities Diverge on Policy

Shifting the focus to the Asian equity markets, the Hang Seng Index dropped by 0.14% in the Monday morning session. The PBoC’s morning decision to cut China’s LRPs boosted demand for real-estate stocks, limiting losses.

The Hang Seng Mainland Properties Index gained 1.10% in the morning, with Longfor Group Holdings Ltd (0960) advancing by 2.09%.

However, tech stocks dragged the Index into the red, with the Hang Seng Tech Index declining by 0.04%. Notably, Alibaba (9988) and Baidu (9888) were down by 1.09% and 1.93%, respectively.

Mainland China’s equity markets cheered the PBoC rate decision, with the CSI 300 and Shanghai Composite gaining 0.16% and 0.17%, respectively.

Nikkei Advances on Fading BoJ Rate Hike Bets

On Monday, the Nikkei Index was up by 0.31% in the morning session. A weaker USD/JPY pair failed to impact demand for Nikkei-listed stocks. Fading bets on a Q4 2024 Bank of Japan rate hike supported the USD/JPY return to 149, boosting demand for export-linked stocks. The USD/JPY was down 0.18% to 149.173.

Tech and auto stocks contributed to the Nikkei’s gains, with Tokyo Electron (8035) and Softbank Group Corp. (9984) advancing by 1.09% and 0.84%, respectively. Nissan Motor Corp. (7201) gained 0.96%.

ASX 200 Advances on Commodity Price Gains

On Monday morning, the ASX 200 Index gained 0.63%, tracking Friday’s US equity market trends. Gold, mining, and oil-related stocks led the gains.

China’s stimulus measures and economic indicators drove iron ore spot prices higher on Friday and Monday morning. Mining giants BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) advanced by 1.62% and 1.74%, respectively.

Gold climbed to a record high of $2,743 on Monday, driving gold stocks higher. Northern Star advanced by 1.52%. WTI Crude Oil was up 0.38% to $69.48, pushing Woodside Energy Group (WDS) up 0.99%.

Looking Ahead

Investors should remain vigilant, with fiscal stimulus from China and RBA and BoJ commentary needing consideration. USD/JPY trends will continue to direct the Nikkei Index, while the US futures may influence market risk sentiment.