Hang Seng Index, Nikkei 225, ASX 200: Hang Seng Index Soars on Fed Speculation

On Friday, the crucial US CPI Report impacted market risk sentiment in the Asian equity markets. Investors ignored US equity market trends, as bets on a September Fed rate cut delivered market relief.

How significant were the US inflation numbers?

Thursday’s US CPI Report supported Fed Chair Powell’s views on inflation. This week, Fed Chair Powell gave testimony on Capitol Hill, voicing optimism that the US economy is returning to the Fed’s 2% target.

The US core inflation rate unexpectedly eased from 3.4% in May to 3.3% in June.

Arch Capital Group Global Chief Economist Parker Ross commented on the US CPI Report, stating,

“The last two prints have been such a sharp divergence from the preceding months that the Fed will likely want to see one more print before gaining enough confidence to start normalizing its policy rate. Unsurprisingly, given how weak the headline and core prints were, the softness was widespread in June.”

The softer-than-expected inflation numbers raised investor expectations of a September Fed rate cut. According to the CME FedWatch Tool, the chances of a September Fed rate cut surged from 73.4% on Wednesday to 93.7% on Thursday.

The US equity market reaction to the US CPI Report was significant.

Nasdaq Ends 7-Day Streak as Investors Sell the News

Investors locked in sizeable profits on Thursday. The Nasdaq Composite Index ending a seven-day winning streak. News of Tesla (TSLA) delaying its Robotaxi event left the share price down 8.44%, contributing to the losses for the Nasdaq.

The Nasdaq Composite Index slid by 1.95%, while the S&P 500 declined by 0.88%. The Dow gained 0.08%.

The US CPI Report will set the tone for the Friday Asian session. However, trade data from China also warranted consideration.

China Exports Surge Before Fresh Tariffs Roll Out

On Friday, July 12, the Chinese economy was in the spotlight.

Exports increased 8.6% year-on-year in June, following a 7.6% rise in May. However, imports declined by 2.3% year-on-year in June after an increase of 1.8% in May.

The mixed trade data could affect investor hopes for an improving Chinese economy. China could have front-loaded exports before the rollout of fresh tariffs. The fall in imports suggested a future pullback in exports.

Investors should monitor trade data from China in the months ahead to assess the demand environment.

The trade data preceded the Third Plenum that begins on July 15. Investors remain hopeful for announcements of more policy measures to boost the Chinese economy.

However, Natixis Bank Asia Pacific Chief Economist Alicia Garcia Herrero does not expect a bazooka of fiscal policy measures, saying,

“The announcements will likely look more like Chinese medicine than shock therapy, even if China’s economic health issues are increasingly serious.”

Hang Seng Index Gets Fed Boost

Meanwhile, the Hang Seng Index advanced by 2.00% on Friday morning. Rising bets on a Fed rate cut boosted demand for real estate and tech stocks.

The Hang Seng Mainland Properties Index (HSMPI) surged by 4.02%, while the Hang Seng Tech (HSTECH) Index rallied by 1.37%.

Alibaba (9988) and Tencent (0700) were up 2.52% and 2.60%, respectively, while Baidu (9888) gained 1.54%.

However, Mainland China’s equity markets saw early losses as the third plenum loomed. The Shenzhen Component Index and CSI 300 were down by 0.40% and 0.07%, respectively. Uncertainty about future policy measures to bolster the Chinese economy left the Mainland Indexes in negative territory.

Nikkei Tumbles on USD/JPY Drop Below 160

The Nikkei Index was down 2.02% on Friday. On Thursday, the USD/JPY tumbled 1.79% to 158.763, sinking demand for Nikkei-listed export stocks. Intervention threats impacted the USD/JPY.

Tokyo Electron Ltd. (8035) slid by 5.83%. Softbank Group Corp. (9948) and Fast Retailing Co. Ltd. (9983) saw losses of 3.48% and 3.94%, respectively.

ASX 200 Gains as Commodity Prices Move Higher

The ASX 200 Index gained 0.76% on Friday morning, extending its gains from Thursday. Gold, iron ore, and crude oil price increases boosted demand for ASX 200-listed stocks.

Northern Star Resources Ltd. (NST), a gold-related stock, jumped by 3.01%, while mining giant Rio Tinto Ltd. (RIO) gained 0.53%. Furthermore, oil stock Woodside Energy Group Ltd (WDS) advanced by 0.81%.

Investors should remain alert as the focus shifts to next week’s Third Plenum. Closely track the news wires, economic indicators, and expert commentary to manage trading strategies accordingly. Keep updated with our latest news and analysis to navigate the Asian equity markets.