Hang Seng Index: Gains Trimmed as Trump Tariff Uncertainty Weighs on Sentiment

US Markets Dip on Robust Consumption Data

US markets retreated on Thursday, January 16, 2025, as investors digested crucial US economic data. The Nasdaq Composite Index slid by 0.89%, while the Dow and the S&P 500 saw declines of 0.16% and 0.21%, respectively.

Among individual stocks, UnitedHealth Group (UNH) tumbled 6.04% after missing its quarterly sales estimates, pressuring the broader healthcare sector.

In the bond markets, 10-year US Treasury yields briefly dipped below 4.60% on expectations of a less hawkish Fed stance. However, falling yields failed to spur another breakout session. Investors locked in profits amid lingering uncertainty about the Fed rate path.

US Retail Sales and Jobless Claims Signal Resilient US Economy

US retail sales rose 0.4% month-on-month in December, down from November’s 0.8% increase. Despite the moderation, consumer spending remained robust, signaling a resilient US economy.

Upward trends in retail sales could fuel demand-driven inflation, potentially delaying Fed rate cuts.

Meanwhile, US initial jobless claims increased from 203k (week ending January 4) to 217k (week ending January 11). Despite the increase, the 4-week moving average edged lower, reflecting a resilient US labor market.

Tight labor market conditions could bolster wage growth, potentially boosting consumer spending and inflation.

While US economic data and market trends set the tone for the Friday Asian session, China’s economic indicators took the limelight.

China’s Economy Exceeds Beijing’s Growth Targets in Pre-Trump Resurgence

On Friday, January 17, the market focus turned to crucial economic data from China. China’s economy surged by 5.4% year-on-year in Q4 2024, compared to 4.6% in Q3 2024. Growth exceeded Beijing’s 5% target ahead of an uncertain 2025.

However, front-loading may have contributed to the Q4 expansion. The value of imports and exports exceeded CNY 4 trillion for the first time. December’s trade data questioned the sustainability of economic growth without stimulus measures targeting consumption.

While growth appeared robust, December numbers revealed mixed signals. Retail sales trends remained below historical levels, and unemployment rose to 5.1%. Rising unemployment may weigh on consumer sentiment and consumption, limiting the effectiveness of stimulus on demand.

Hang Seng Holds Steady as Trump Inauguration Looms

In Asian markets, the Hang Seng Index slipped by 0.01% on Friday morning, giving up China’s GDP-fueled gains. Global uncertainties weighed on investor sentiment ahead of Trump’s inauguration on January 20. Potential US import duties and growing protectionism could impact export-focused companies and valuations.

Real estate stocks provided support, with the Hang Seng Mainland Properties Index rising 0.95%. Investors reacted to housing sector data showing slower declines than anticipated. China’s House Price Index fell 5.3% year-on-year in December after falling 5.7% in November.

However, tech giants Alibaba (9988) and Baidu (9888) contributed to the morning retreat, declining by 1.14% and 0.56%, respectively.

Meanwhile, Mainland China’s markets had a mixed start to the day. The CSI 300 edged 0.01% higher, while the Shanghai Composite dipped by 0.07%. Friday’s trends underscored investor caution ahead of potential US tariffs.

Wall Street Journal Chief Economics Correspondent Nick Timiraos highlighted uncertainty about tariffs, stating,

“Strongly protectionist members of the incoming administration […] have argued for a more aggressive, universal approach, that would see tariffs applied to virtually all imports. More traditional economic advisers […] are advocating behind closed doors for a more targeted approach, either by exempting certain sectors or by applying tariffs gradually over time.”

Nikkei Slides as BoJ Rate Hike Bets Intensify

Japan’s Nikkei Index slid by 0.93% on Friday morning. Increasing speculation about a January Bank of Japan rate hike weighed on investor sentiment.

A stronger Japanese Yen contributed to the morning losses. The USD/JPY fell 0.84% on Thursday, closing at 155.114. A strengthening Yen could affect overseas earnings for export-focused stocks, impacting earnings and valuations.

Rate-sensitive tech stocks Tokyo Electron (8035) and Softbank Corp. (9984) dropped by 0.58% and 1.73%, respectively. Sony Corp. (6758) declined by 1.00%.

ASX 200 Finds Support from Mining Stocks

Meanwhile, Australia’s ASX 200 Index rose 0.01% on a choppy Friday morning. China’s economic data boosted demand for mining stocks, contributing to the modest gain.

Notable movers included Fortescue Metals Group (FMG) and BHP Group Ltd. (BHP), which rose 1.96% and 0.63%, respectively. Iron ore spot extended its gains from Thursday, advancing by 0.55% to $796 on Friday.

Outlook: Key Risks and Opportunities

Global markets remain vulnerable to geopolitical and economic uncertainties:

• US-China trade tensions and potential tariffs could weigh on global growth.
• Persistently strong US economic data may challenge market expectations for Fed rate cuts.
• China’s policy measures will play a crucial role in sustaining domestic growth.

A cautious approach by central banks and policymakers may provide some stability, but investors should closely monitor trade policies, inflation trends, and monetary signals to navigate the evolving market landscape.

Investors must remain vigilant as markets adjust to shifting economic and geopolitical developments. Discover strategies to navigate this week’s market volatility here.