Hang Seng Index Dips 0.30% as Fed Rate Path Uncertainty Weighs on Markets

US Markets: Nasdaq Rallies Amid Fed Rate Cut Bets

Here’s what US equity markets revealed on Monday, December 16.

US equity markets kickstarted the week with mixed performances. The Nasdaq Composite Index advanced by 1.24%, driven by Broadcom Inc. (AVGO), which rallied 11.21% after above consensus revenue projections. The S&P 500 rose 0.38%. Meanwhile, the Dow declined by 0.25%, extending its losing streak to eight sessions.

10-year US Treasury yields rose for the sixth consecutive session, weighing on the Dow amid uncertainty toward the Fed’s Q1 2025 rate path.

US Services PMI Highlights Robust US Economy

The S&P Global Services PMI rose to a 38-month high of 58.5 in December, up from 56.1 in November. Accounting for around 80% of the US GDP, the upswing in service sector activity reflected a robust US economy.

However, subcomponents sent mixed signals. Input prices climbed at the weakest pace in four-and-a-half years, suggesting a softer inflation outlook. Input price trends supported bets on a December Fed rate cut. Meanwhile, a rise in staffing levels, for the first time since July, eased expectations of a January Fed rate cut.

According to the CME FedWatch Tool, the chances of a 25-basis point January Fed rate cut dropped from 18.5% on December 13 to 16.3% on December 16.

Beijing Targets Consumers with New Measures

On Monday, December 16, China’s Central Financial and Economic Affairs Commission offered assurances that it would target consumers, reportedly stating,

“China will promote stable household income growth next year through increasing direct fiscal support to consumers, improving social security.”

Markets view consumer-focused stimulus as crucial, especially amid US tariff threats. Notably, the announcement followed November’s retail sales, which fell sharply from October.

How did the Experts React to Monday’s Policy Announcement?

Brian Tycangco, editor/analyst at Stansberry Research, reacted positively to Monday’s policy announcement but stressed the importance of clarity, stating:

“There we go. But, an actual amount would help even more in understanding the scope and intensity of such ‘special campaigns.’”

Hang Seng Index Dips Despite Stimulus Optimism

In Asian markets, the Hang Seng Index dropped by 0.30% on Tuesday. Despite gains in mainland China, uncertainty surrounding the Fed’s Q1 2025 rate path weighed on the Hang Seng Index. The Fed will announce its interest rate decision on Wednesday, along with updated FOMC Economic Projections, which may signal a less dovish stance.

Real estate stocks led the losses, with the Hang Seng Mainland Properties Index sliding by 1.26%.

Meanwhile, the Hang Seng TECH Index dipped by 0.22%. Tech giants Alibaba (9988) and Baidu (9888) saw declines of 0.83% and 0.69%, respectively. News of Alibaba Group considering the sale of its Intime department store arm contributed to the morning pullback.

Mainland China markets, however, responded positively to Monday’s policy announcement. The CSI 300 and the Shanghai Composite advanced by 1.03% and 0.25%, respectively. Despite gains, US tariff threats and low consumer confidence remain headwinds.

Nikkei Advances USD/JPY Tops 154

Japan’s Nikkei Index advanced by 0.18% in the Tuesday morning session. The USD/JPY gained 0.34% on Monday, breaking the 154 level for the first time since November 25, 2024.

Fading bets on a December Bank of Japan rate hike weakened the Japanese Yen. A weaker Japanese Yen may drive demand for Japanese goods and overseas earnings.

Tokyo Electron (8035) and Softbank Group (9984) gained 0.57% and 3.82%, respectively, mirroring overnight Nasdaq tech gains.

ASX 200 Rises on Tech and Banking Stocks

Meanwhile, Australia’s ASX 200 Index rose 0.84%, aiming to end a five-day losing streak. Banking and tech stocks led the recovery. The S&P/ASX All Technology rallied 1.00%, tracking the Nasdaq Composite Index.

Banking stocks Commonwealth Bank of Australia and National Australia Bank advanced by 1.34% and 1.55%, respectively.

Outlook

Global markets could face choppy waters as traders await the Fed and the BoJ’s policy decisions. Stimulus developments from Beijing remain in focus, with markets seeking more clarity on consumer-driven fiscal measures. Equities, currencies, and commodities could experience increased volatility as global trade protectionism concerns linger.

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