Hang Seng Index Drops as China’s Rate Hold; ASX 200 Rallies on Fed Policy Stance

US Markets Rally on Dovish Fed Stance

On Wednesday, March 19, US equity markets rebounded from Tuesday’s pullback as investors reacted to the Fed’s dovish policy outlook. The Nasdaq Composite Index rose 1.41%, the S&P 500 gained 1.08%, and the Dow advanced 0.92%.

In the bond markets, 10-year Treasury yields dipped below 4.25%, reflecting optimism over the Fed rate path, boosting demand for risk assets.

FOMC Economic Projections Support Multiple Fed Rate Cuts

On March 19, the Fed maintained interest rates at 4.5%, aligned with market expectations. However, the FOMC Economic Projections eased concerns about a more hawkish Fed rate stance stemming from US tariffs. Key revisions included:

• PCE inflation: Raised from 2.5% to 2.7%.
• Unemployment rate: Revised from 4.3% to 4.4%
• 2025 GDP growth: Lowered from 2.1% to 1.7%.
• 2025 Fed Interest rate: Unchanged at 3.9%.

The Fed’s rate path outlook suggested a stronger focus on economic growth rather than price stability, tempering recession fears.

Asian Market Implications: Wednesday’s US market gains on the Fed’s rate path outlook set the tone for the Asian session on Thursday, March 20.

People’s Bank of China Leaves Rates Steady

On March 20, the People’s Bank of China maintained the one-year and five-year loan prime rates (LPR) at 3.1% and 3.6%, respectively. Thursday’s decision to hold rates came despite the PBoC’s recent pledge to cut interest rates when required, which impacted investor sentiment.

Notably, the PBoC’s hold and the lack of fresh stimulus measures from Beijing likely triggered profit-taking, overshadowing Wall Street’s gains.

Hang Seng Index Slides as Tech and Real Estate Sell-Off

In Asia, the Hang Seng Index reversed Tuesday’s gains, falling 1.09% on Thursday morning. The PBoC’s policy stance and the absence of stimulus measures weighed on sentiment, overshadowing optimism from the Fed’s overnight projections.

• The Hang Seng Technology Index dropped 1.62%, while the Hang Seng Mainland Properties Index declined by 1.53%.
• Tech giants Alibaba (09988.HK) and Tencent (00700.HK) slid by 3.68% and 2.27%, respectively.

Mainland China’s equity markets also posted morning losses, with the CSI 300 and Shanghai Composite Index down 0.38% and 0.06%, respectively.

Market analysts linked the pullback to Bank of America’s warning of a potential Mainland China market correction. Brian Tycangco, editor/analyst at Stansberry Research, noted:

“FUD headline now making the rounds. Note how it just appeared 6 hours ago in the widely followed The Standard HK.”

Nikkei Index Dips as Yen Strengthens

The Nikkei Index lost 0.25% on Thursday morning, pressured by Yen strength. The Fed’s overnight economic projections impacted US dollar demand, leaving the USD/JPY pair down 0.20% on Wednesday. The pair extended its losses on Thursday, weakening demand for Japanese stocks.

A stronger Yen reduces Japanese export competitiveness, dampening corporate earnings prospects.

Among the notable stock declines: Nissan Motor Corp. (7201), which slid by 2.41%, with tech stocks Softbank Group (9984) and Tokyo Electron (8035) falling 1.97% and 0.58%, respectively.

ASX 200 Rallies on Wall Street Optimism

Meanwhile, Australia’s ASX 200 rallied 1.28% on Thursday morning, tracking Wednesday’s US market gains. Banking, gold, and tech stocks led the rally.

• Banking stocks: The Commonwealth Bank of Australia (CBA) rose 2.09%, while ANZ (ANZ) gained 2.05%. Falling US Treasury yields boosted demand for high-yielding Aussie banks.
• Gold stocks: Northern Star Resources (NST) surged 3.41% as gold prices hit a record high of $3,056. The Fed’s weaker GDP outlook and dovish stance supported gold.
• Technology sector: The S&P/ASX All Technology Index jumped 2.22%, tracking the Nasdaq’s overnight gains.

Outlook: Key Risks and Opportunities

Global markets remain highly sensitive to monetary policies and macroeconomic factors:

• US-China Trade Tensions: Renewed friction could dampen sentiment and prompt Beijing to introduce monetary policy and fiscal stimulus measures.
• China’s Stimulus Measures: Further policy support could bolster HK and Mainland-listed stocks.
• Central Bank Forward Guidance: Following the Fed’s latest projections, Central Bank forward guidance remains crucial amid ongoing tariff policy uncertainty.

While geopolitical risks persist, China’s stimulus efforts and innovation drive could support regional equities. Further consumer-focused stimulus could offset US recession concerns, potentially lifting demand for Hong Kong and Mainland Chinese stocks.

For in-depth analysis and expert insights, stay updated on market trends here to make informed investment decisions.