Hang Seng Index: Markets React to China Tariffs as Services PMI Signals Weakness

US Markets Advance on Trade Developments and Earnings

On February 4, US equity markets reversed losses from Monday as investors considered tariff developments and corporate earnings. The Nasdaq Composite Index rallied 1.35%, while the Dow and S&P 500 rose 0.30% and 0.72%, respectively.

Canada and Mexico’s response to US President Trump’s tariffs and swift suspension of tariffs eased fears of sweeping US tariffs. Trump’s moves suggest a strategic effort to prevent a full-blown trade war with key partners, raising the chances of progress in US-China negotiations. The gains came despite China’s retaliation, with markets considering the response as measured.

In corporate earnings, Palantir Technologies soared 23.99% after beating earnings estimates and raising its 2025 guidance.

US JOLTS Job Openings Support Dovish Fed Stance

The US labor market was under scrutiny on February 4. JOLTS job openings fell from 8.156 million in November to 7.6 million in December.

The pullback in job openings could signal weaker hiring, potentially slowing wage growth. Softer wages may impact consumer spending, dampening inflationary pressures. A lower inflation outlook would support a more dovish Fed rate path, potentially reducing borrowing costs and boosting corporate earnings.

The US market sentiment set the tone for Wednesday’s Asian market session. However, the Asian economic calendar and concerns about the US-China trade war tested risk sentiment.

China Caixin Services PMI Unexpectedly Falls

On Wednesday, February 5, China’s markets reopened after the Lunar New Year holidays. However, economic indicators failed to impress, with the Caixin Services PMI falling from 52.2 in December to 51.0 in January.

Firms reported higher new business, including new business from overseas, returning to growth. However, new business growth was modest, leading firms to reduce headcounts. Staffing levels fell at the fastest pace since April 2024.

Meanwhile, the upward trend in new business enabled firms to pass rising input costs on to customers. Selling prices rose for the second month, albeit modestly.

Senior Economist at Caixin Insight Group, Dr. Wang Zhe, commented on the January survey, stating:

“Market sentiment continued to be optimistic. The indicator for business expectations remained in expansionary territory in January, rising by more than 2 points from the previous month. However, the gauge remained below its historical average. Service firms continued to express concerns about intense market competition and global trade uncertainties.”

Hang Seng Index Dips as China Retaliates

The Hang Seng Index declined by 0.69% on Wednesday morning. Investors reacted to China’s services sector data and its retaliation to US tariffs. China introduced 15% levies on coal and LNG and 10% duties on crude oil, agricultural equipment, large-displacement vehicles, and pickup trucks. Beijing also targeted Google, launching an anti-trust investigation.

Despite the escalation, markets viewed China’s retaliation as restrained, limiting the downside.

Real estate and tech stocks contributed to the morning losses. The Hang Seng Mainland Properties Index dropped by 0.97%, while the Hang Seng Technology Index declined by 0.61%. Notable movers included Alibaba (9988), which slipped by 0.48%, while Baidu (9888) gained 0.52%.

China’s Mainland equity markets resumed trading, with the CSI 300 and Shanghai Composite Index falling 0.36% and 0.27%, respectively.

Nikkei Index Holds Firm as Yen Strengthens

Japan’s Nikkei Index edged 0.01% higher on Wednesday morning. Wage growth and Services PMI data supported a more hawkish Bank of Japan policy stance, boosting demand for the Japanese Yen. The USD/JPY pair fell 0.70% to 153.237 in the morning session.

However, easing fears of sweeping US tariffs countered a stronger Japanese Yen, boosting export-linked stocks. Nissan Motor Corp. (7201) and Sony Corp. (6758) advanced by 2.07% and 0.81%, respectively. Tech giant Softbank Group (9984) gained 1.00%.

ASX 200 Rises on Wall Street Momentum and Commodity Gains

Meanwhile, Australia’s ASX 200 Index climbed 0.61% on Wednesday morning, tracking Wall Street’s gains. Mining and gold-linked stocks led the gains.

Mining giants BHP Group Ltd. (BHP) and Rio Tinto Ltd. (RIO) rallied 1.69 % and 2.36%, respectively. SGX TSI Iron Ore CFR China (62% Fe Fines) Index Futures rose 0.43% on Tuesday, driving demand for mining stocks. China’s measured response to US tariffs also contributed.

Gold stocks also outperformed, with Northern Star Resources Ltd. (NST) surging by 1.77%. Gold prices hit a record high of $2,858 on February 5, adding to the previous sessions 0.98% gain.

Outlook: Risks and Opportunities Ahead

Geopolitical tensions, US-China tariff developments, and AI sector advancements are key drivers of risk sentiment. AI stocks could continue outperforming as the AI race heats up. However, trade-linked sectors, including mining and manufacturing, face volatility.

If China advances trade talks with the US and expands AI initiatives, Hong Kong, mainland China, and Australian markets could benefit. However, escalating trade tensions may overshadow AI-driven optimism, increasing market uncertainty.

Discover strategies to navigate this week’s market trends here.