Hang Seng Index, Nikkei Index, ASX 200: US Market Retreat Spills Over

US Markets: Jobless Claims Support Multiple 2024 Fed Rate Cuts

On Thursday, July 18, the US labor market was in focus. Continuing jobless claims increased by 20k to 1,867k in the week ending July 6.

Weaker labor market conditions supported investor bets on a September Fed rate cut. A deterioration in labor market conditions could affect wages and reduce purchasing power. Falling disposable income could curb consumer spending and dampen demand-driven inflation.

Arch Capital Global Chief Economist Parker Ross commented on the labor market data, stating,

“Looking at just the NSA insured unemployment rate vs the pre- (2018-2019) and post-COVID (2022-2023) averages, you can again see the clear deterioration that has been underway for the past few months vs the typical seasonal pattern.”

However, the numbers were not weak enough to raise investor expectations of a July Fed rate cut. Fed Chair Powell’s recent testimony and US data cemented investor bets on a September Fed rate cut.

According to the CME FedWatch Tool, the probability of a September rate cut fell from 100% on Wednesday to 95.2% on Thursday.

US Equity Markets Slide

On Thursday, the tech sector rout spilled over to the broader US equity market. The Dow slid by 1.29%, while the Nasdaq Composite Index and the S&P 500 declined by 0.70% and 0.78%, respectively.

The losses set the tone for the Friday Asian morning session. However, the Asian economic calendar also required consideration.

Asian Markets: Inflation Supports a Bank of Japan Rate Hike

On Friday, July 19, sticky inflation numbers from Japan raised investor bets on a July Bank of Japan rate hike. Investors also expect the BoJ to cut Japanese Government Bond (JGB) purchases as part of its Quantitative Tightening (QT).

Higher interest rates and QT could narrow interest rate differentials with the US dollar and bolster the Yen. A stronger Yen could impact buyer demand for Nikkei-listed export stocks.

Japan’s annual inflation rate remained steady at 2.8% in June.

What the Experts Say

AMP Head of Investment Strategy and Chief Economist Shane Oliver commented on the inflation numbers, saying,

“Japan June inflation unchanged at 2.8% yoy, but core measures up. Core ex food and energy inflation rose to 1.9%yoy…down from 2023 high but supports the case for further gradual BoJ tightening.”

Hang Seng Index and Mainland China Stocks Extend Losses

Meanwhile, the Hang Seng Index slid by 1.86% on Friday morning. Real estate and tech stocks saw significant losses.

The Hang Seng Tech (HSTECH) Index declined by 1.61%. Alibaba (9988) fell by 2.37%, while Baidu (9888) was down 1.73%. Tencent (0700) fell by 0.81%.

The Hang Seng Mainland Properties Index (HSMPI) tumbled 3.62%.

Mainland China’s equity markets also fell. The Shanghai SE Composite Index and CSI 300 declined by 0.61% and 0.40%, respectively.

Nikkei Index Falls on BoJ Rate Hike Bets

The Nikkei Index declined by 0.20% despite the USD/JPY retaking the 157 handle. Rising bets on a July Bank of Japan rate hike impacted demand for Nikkei Index-listed stocks.

Softbank Group Corp. (9948) fell by 1.36%, while Nissan Motor Corp. (7201) was down 0.70%.

ASX 200 Slides on Broad-Based Sector Pullback

The ASX 200 Index slid by 1.31% on Friday morning. Commodity prices trended lower, impacting gold, mining, and oil stocks. Investor fears of a Q3 2024 RBA interest rate hike affected demand for bank stocks.

Gold-related stock Evolution Mining Ltd (EVN) was down 4.28%, while mining giant Fortescue Metals Group (FMG) slid by 2.40%. Aussie Bank ANZ Group Holdings Ltd. (ANZ) fell by 2.23%

Investors should remain alert with trade tensions between the US and China also market headwinds. Closely monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest news and analysis to trade the Asian equity markets.