Hang Seng Index Leads Asia’s Gains; PBoC Policies Under Market Scrutiny

US Markets Start 2025 on a Cautious Note

Global markets remain under pressure from tariff uncertainties and potential central bank actions.

US equity markets started 2025 with losses. The Dow and the S&P 500 declined by 0.36% and 0.22%, respectively, while the Nasdaq Composite Index dipped by 0.16%.

The three indexes gave up early gains, with uncertainty about the potential impact of Trump’s policies on the Fed rate path testing market sentiment. 10-year US Treasury yields rebounded from Asian market session lows, likely adding pressure on equities.

Crypto-related stocks, however, found much-needed support as bitcoin (BTC) extended its winning streak to three sessions. MicroStrategy (MSTR) advanced by 3.59%, while Marathon Holdings (MARA) gained 2.62%, limiting the Nasdaq’s losses.

US Initial Jobless Claims Support a Hawkish Fed Rate Path

On Thursday, initial jobless claims unexpectedly dropped from 219k (week ending December 21) to an 8-month low of 211k (week ending December 28). Tighter labor market conditions support wage growth, fueling consumer spending and demand-driven inflation. A higher inflation outlook may dampen expectations for a Q1 2025 Fed rate cut.

Elevated borrowing costs could weigh on corporate earnings and stock prices.

Spencer Hakimian, founder of Tolou Capital Management, commented on the weekly labor market data:

“I am here once again to remind you that absolutely no one is getting laid off. Corporates don’t fire people when their profits are projected to go up 15% over the next 12 months.”

Hakimian highlighted the resilience in the US labor market that can unwind bets on multiple 2025 Fed rate cuts.

Beijing Stimulus Plans Face Market Skepticism

On Friday, January 3, Beijing continued to influence market sentiment. A State Planner official reportedly stated that there will be significantly increased funding from ultra-long Treasury bonds to support large-scale equipment upgrades and trade-in of consumer goods.

CN Wire also reported that the People’s Bank of China (PBoC) intends a policy overhaul, saying,

“The People’s Bank of China plans to cut interest rates this year as it makes a historic shift to a more orthodox monetary policy to bring it closer into line with the US Federal Reserve and the European Central Bank. It added that it would prioritize ‘the role of interest rate adjustments’ and move away from ‘quantitative objectives’ for loan growth in what would amount to a transformation of Chinese monetary policy.”

The PBoC said it would likely cut interest rates from the current 1.5% at the appropriate time.

Today’s policy updates follow Thursday’s Manufacturing PMI data, which highlighted sluggish demand. Concerns about a US-China trade war and weak demand could pressure Beijing to provide further policy support.

Hang Seng Index Reacts to Policy Pledges

In Asian markets, the Hang Seng Index advanced by 1.09% on Friday morning. The PBoC’s policy goals and anticipation of further stimulus measures supported demand for Hong Kong-listed stocks.

The tech sector led the way, with the Hang Seng Tech Index rallying 1.84%. Major tech players Alibaba (9988) and Baidu (9888) posted morning gains of 0.50% and 2.21%, respectively. Real estate stocks also found support, with the Hang Seng Mainland Properties Index gaining 0.94%.

However, the PBoC’s policy measures failed to boost demand for Mainland China-listed stocks. The CSI 300 and Shanghai Composite dropped by 0.16% and 0.32%, respectively. December’s PMI numbers highlighted Beijing’s mounting challenge to reboot the economy. Declining government bond yields reflected lingering economic concerns despite Beijing’s efforts.

ASX 200 Extends New Year Gains

Australia’s ASX 200 Index extended its gains from Thursday, rising 0.59%. US futures advanced on Friday, bolstering demand for Aussie-listed stocks. Banking, gold, and oil-related stocks continued to contribute to the positive start to the year.

Key movers included Northern Star Resources (NST), which advanced by 2.30% on Thursday’s 1.29% gold rally. The recent retreat in US Treasury yields also drove demand for high-yielding Aussie bank stocks. Commonwealth Bank of Australia (CBA) posted a 1.00% gain.

However, concerns about iron ore demand led iron ore spot prices down 1.87% on Friday. Mining giants BHP Group Ltd. (BHP) and Rio Tinto Ltd. (RIO) faced selling pressure, capping the Index’s upside.

Nikkei Braces for Post-Holiday Volatility

With Japanese markets closed on Friday, speculation surrounds Monday’s reopening. The USD/JPY declined by 0.16% to 157.267 on Friday. Nevertheless, the pair has trended higher over the holidays, potentially supporting demand for export-driven stocks. A weaker Yen could offset speculation about a January Bank of Japan rate hike, a potential Index headwind.

However, traders should brace for potential volatility from BoJ chatter and intervention threats.

Outlook

Global markets will closely watch central bank commentary, US tariff updates, and Beijing’s stimulus measures. These factors will likely dictate near-term trends:

• US tariffs could affect Chinese goods demand, impacting China-dependent economies like Australia.
• Hawkish central bank signals may pressure equities, particularly in the tech and real estate sectors.
• Beijing’s stimulus could counteract weaker external demand, providing critical support.

Discover the potential implications of these developments for your portfolio here.