Hang Seng Index, Nikkei Index, ASX 200: Markets Rise on Powell Comments

US Equity Markets Advance on Fed Chair Powell Optimism

The US equity markets extended their gains from Monday. On Tuesday, July 2, the Nasdaq Composite Index and the S&P 500 saw gains of 0.84 and 0.62%, respectively, while the Dow rose by 0.41%.

Fed Chair Powell fueled hopes of a September Fed rate cut, saying there was good progress on returning inflation to target. However, the Fed Chair did note that wage growth remained elevated, a key consideration for the inflation outlook.

Investors brushed aside an uptrend in US job openings. According to the JOLTs Job Openings Report, job openings increased from 7.919 million (revised from 8.060 million) in April to 8.140 million in May.

BCA Research Chief Global Strategist and Director of Research (formerly Goldman Sachs and IMF) responded to the JOLTs Job Openings Report, saying,

“Nice little pop in job openings in the JOLTS release this morning. Unfortunately, the more timely series from Indeed and LinkUp are still pointing down.”

Tighter labor market conditions could leave the Fed in a holding pattern and impact buyer demand for riskier assets.

For context, in April, job openings had fallen below 8 million for the first time since February 2021 before the May 2024 increase.

Optimism toward a September Fed rate supported a positive start to the Wednesday Asian session. However, economic indicators from Australia, China, and Japan and USD/JPY trends also needed consideration.

Hang Seng Index Extends Gains on Fed Chair Powell Comments

Meanwhile, the Hang Seng Index advanced by 0.55% on Wednesday morning. Recent upbeat new home sales data from China continued to drive buyer demand for real estate stocks. Tech stocks also moved higher, tracking the Nasdaq Composite Index.

The Hang Seng Mainland Properties (HSMPI) rallied 1.99%, with the Hang Seng Tech (HSTECH) Index gaining 1.10%.

Notably, Baidu (9888) and Alibaba (9988) advanced by 1.43% and 1.28%, respectively, while Tencent (0700) gained 0.27%.

However, it was a different morning session for the Mainland China markets. The Shenzhen Composite and CSI 300 saw losses of 0.55% and 0.38%, respectively.

Weaker-than-expected Service PMI numbers from China contributed to the losses. The Caixin Services PMI fell from 54.0 in May to 51.2 in June. Economists forecast a PMI of 53.4. Accounting for over 50% of the Chinese economy, the Services PMI fell to its lowest since November 2023.

Nikkei Advances on Weak Services PMI and Yen Trends

The Nikkei Index gained 0.78% on Wednesday morning as the USD/JPY held onto the 161 handle. Service sector PMI numbers from Japan tested investor bets on a July Bank of Japan rate hike, placing the Yen under more selling pressure.

The Jibun Bank Services PMI fell from 53.8 in May to 49.4 in June, down from a preliminary 49.8. For context, services output fell for the first time since August 2022. However, input prices increased at the most marked pace in ten months.

S&P Global Market Intelligence Economics Director Trevor Balchin commented on the June survey, saying,

“Looking beyond the headline figure, the picture is less concerning. […]. Moreover, the 12-month outlook and pace of job creation remained relatively strong.”

Balchin also noted that the weak Yen continued to boost international new business.

Despite the lingering threat of government intervention to bolster the Yen, Nikkei 225-listed stocks made ground mid-week.

Tokyo Electron Ltd. (8035) rallied 2.57%, with KDDI Corp. (9433) gaining 1.06%. Softbank Group Corp (9984) advanced by 0.24%. Nissan Motor Co. Ltd. (7201) rose by 0.26%.

ASX 200 Tracks the Dow Higher

The ASX 200 rose by 0.18% on Wednesday morning. Rising iron ore prices drove buyer demand for mining stocks, while bank stocks limited the upside.

Oil-related stock Woodside Energy Group Ltd (WDS) gained 0.65%. Mining stocks BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) advanced by 0.90% and 0.67%, respectively. Mining stocks reacted to higher iron ore prices, with crude oil prices higher on Wednesday.

However, uncertainty about the RBA rate path impacted the banking sector. Commonwealth Bank of Australia (CBA) and National Australia Bank Ltd. (NAB) saw losses of 0.31% and 0.27%, respectively.

Aussie retail sales increased by 0.6% in May after rising by 0.1% in April. The hotter-than-expected numbers follow the recent Monthly CPI Indicator, which showed the annual inflation rate hit 4.0%.

Higher inflation and a pickup in consumer spending could force the RBA into an interest rate hike, impacting rate-sensitive stocks.

For context, retail sales increased the most since January 2024 (+1.1%). However, the impact on the ASX 200 was limited.

ABS Head of Business Statistics Robert Ewing commented on the retail sales figures, saying,

“Despite the seasonally adjusted rise, underlying spending remains stagnant with retail turnover flat in trend terms. Compared to May 2023, trend is only up 1.5 per cent.”

In conclusion, Fed rate cut bets, a weak Japanese Yen, and commodity price trends influenced the Asian equity markets. But caution may be needed before the US Jobs Report, which could sink bets on a September Fed rate cut. Moreover, the Japanese government could intervene in the FX markets, with Aussie inflation numbers signaling an RBA rate hike.

Investors should monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest updates and insights to navigate the Asian equity markets effectively.