Hang Seng Index Leads Asian Market Rally on China PMI and Fed Rate Cut Bets

US Markets Rally on June Fed Rate Cut Bets

On Friday, February 28, US equity markets rebounded from Thursday’s losses as investors reacted to US inflation data. Softer inflation boosted expectations of a June Fed rate cut, driving demand for risk assets. According to the CME FedWatch Tool, the probability of a June Fed rate cut rose from 63% on February 21 to 80.9% on February 28.

The Nasdaq Composite Index and the S&P 500 climbed 1.63% and 1.59%, respectively, while the Dow gained 1.39%.

In the bond markets, 10-year US Treasury yields dropped below 4.2% for the first time since December 10, signaling a more dovish Fed rate path.

US Personal Income and Outlays Report Sends Mixed Signals

On February 28, the crucial US Personal Income and Outlays Report took center stage amid shifting sentiment toward the Fed rate path. Key takeaways included:

• Personal spending fell 0.2% month-on-month in January after increasing by 0.8% in December.
• Personal income increased by 0.9% month-on-month in January after rising 0.4% in December.
• The Core PCE Price Index increased by 2.6% year-on-year in January, down from 2.8% in December.

The softer inflation reading and fall in spending countered the pickup in personal income, raising expectations of an H1 2025 Fed policy move. Friday’s US data and market moves set the tone for the Asian session on Monday, March 3.

China Private Sector PMI Data Signals Manufacturing Sector Rebound

China’s private sector PMI data, released on March 1 and March 3, drew investor interest. Manufacturing sector data proved crucial in calming market jitters ahead of Tuesday’s US tariff measures.

• The National Bureau of Statistics (NBS) Manufacturing PMI rose from 49.1 in January to 50.2 in February.
• The Caixin Manufacturing PMI increased to 50.8 in February, up from 50.1 in January.

However, the upswing in manufacturing activity could stem from a rush to fulfill orders ahead of potential US tariffs rather than reflecting sustainable demand. Last week, President Trump reaffirmed plans for 10% tariffs on Chinese imports, effective March 4.

Meanwhile, investors remained hopeful of fresh stimulus measure to support China’s economy. On Sunday, March 2, Beijing pledged to continue offering support. CN Wire reported:

“PBoC Governor Pan Gongsheng: As long as China’s inflationary pressures remain manageable, efforts will be made to ensure that the financing costs for private enterprises are maintained at a relatively low level for an extended period of time.”

Hang Seng Index Rallies on China Data and Stimulus Hopes

In Asia, the Hang Seng Index rallied 1.86% on Monday morning as investors considered China’s latest PMI data and Beijing’s stimulus plans. The Hang Seng Mainland Properties Index surged 3.48%, while the Hang Seng Technology Index rose 1.26%.

Tech giants Alibaba (9988) and Tencent (0700) rallied 4.16% and 3.24%, respectively.

Mainland China’s equity markets also posted gains as investors braced for the March 4 tariffs. The CSI 300 and the Shanghai Composite Index advanced by 0.75% and 0.63% in the morning session.

China’s third session of the 14th National People’s Congress gets underway on Tuesday, March 5. Markets expect measures to counter the potential impact of a US-China trade war, bolstering risk sentiment.

Nikkei Index Gains on Fed Rate Cut Bets

Japan’s Nikkei Index gained 1% on Monday morning. Fed rate cut bets drove demand for Japanese stocks. However, rising Japanese Government Bond (JGB) yields and weaker USD/JPY limited the gains. A stronger Japanese Yen could weigh on corporate earnings.

Notable movers included Uniqlo’s parent company, Fast Retailing Co. Ltd. (9983), which rose 1.89%. Tokyo Electron (8035) and Nissan Motor Corp. (7201) gained 0.27% and 0.40%, respectively.

ASX 200 Steadies Following Wall Street Gains

Australia’s ASX 200 Index recovered 0.50% on Monday morning after a sell-off on Friday, with mining and tech stocks leading the charge.

• Upbeat Chinese manufacturing sector data boosted demand for mining stocks. BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) rose 1.15% and 2.06%, respectively, as iron ore spot prices climbed 1.09%.
• The S&P/ASX All Technology Index advanced by 1.59%, mirroring the Nasdaq’s gains from Friday.

Outlook: Key Risks and Opportunities

Looking ahead, market sentiment will hinge on tariff developments, upcoming US labor market data, China’s National People’s Congress, and central bank guidance.

While innovation and strategic AI partnerships present growth opportunities, heightened tensions between the US and China over AI regulation could trigger risk aversion, dampening investor sentiment. If new tariffs take effect on March 4, volatility may intensify.

In Asia, escalating US-China trade tensions may weigh on regional stocks, though additional stimulus measures from Beijing could support risk sentiment.

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