Hang Seng Index Rallies as US Tariff Relief Sparks Asian Market Optimism

US Markets Await Pivotal Inflation Data

Discover how market sentiment is shifting ahead of the CPI report.

On Monday, January 13, US markets had a mixed session as investors awaited Wednesday’s crucial US CPI Report. The Dow and the S&P 500 gained 0.86% and 0.16%, respectively, while Nasdaq Composite Index fell 0.38%.

In the bond market, 10-year US Treasury yields return to 4.80% for the first time since November 2023, indicating expectations of a more hawkish Fed rate path. Significantly, CN Wire reported that Fed Fund Futures show traders no longer fully price in a Federal Reserve Rate cut by year-end.

Rising yields weighed on rate-sensitive tech stocks, leaving NVIDIA (NVDA) down 1.97%.

Consumer Inflation Expectations Hold Steady

US Consumer Inflation Expectations increased by 3.0% in December, mirroring November’s rise while falling short of a consensus of 3.1%. Despite the softer than expected number, consumers expect inflation to remain well above the Fed’s 2% target, supporting the Fed’s more hawkish Fed Funds Rate projections.

Monday’s data held greater significance as Wednesday’s US CPI Report could further impact bets on a Fed rate cut. Economists forecast the US core inflation rate to ease from 3.5% in November to 3.4% in December – likely insufficient to justify a near-term rate cut.

While elevated US Treasury yields will influence the Tuesday Asian market session, US tariff developments will likely affect risk sentiment more.

Tariff Developments Fuel Asian Market Optimism

US tariff-related news drew investor interest on Tuesday, January 14. News of the incoming Trump administration discussing a gradual monthly rollout of US tariffs boosted demand for Hong Kong and Mainland China stocks.

According to overnight reports, the administration is floating the idea of using executive authorities to increase tariffs by 2% to 5% per month under the International Emergency Economic Powers Act. However, the reports also highlighted that the team has yet to present the idea to Trump.

Recently, Trump dismissed reports of a shift in tariff policy targeting critical sectors instead of sweeping import duties.

Hang Seng Surges Amid Tariff Relief Hopes

In Asian markets, the Hang Seng Index rallied 1.42% on January 14 as investors reacted to potentially softer tariffs. The overnight news came despite China’s surplus surge in December amid possible front-loading.

Tech stocks led the gains, reversing Monday’s pullback. The Hang Seng Tech Index jumped by 2.27%, with tech giants Alibaba (9988) and Tencent advancing by 1.22% and 1.91%, respectively. The Hang Seng Mainland Property Index also contributed to the gains, rising 0.70%.

Mainland China’s equity markets felt relief from reports of a more measured rollout of US tariffs. The CSI 300 and Shanghai Composite were up 1.74% and 1.75%, respectively.

Despite the tariff-related news, investors should remain cautious. Another Trump dismissal could reverse the morning gains.

Nikkei Stumbles in Delayed US Jobs Report Response

Japan’s Nikkei Index reopened after Monday’s holiday, tumbling 2.10%. Investors had their first opportunity to react to the hotter-than-expected US Jobs Report. However, a stronger Japanese Yen contributed to the morning losses, with the USD/JPY hovering at 157.5, down from a January 10 high of 158.874.

Rate-sensitive tech stocks Tokyo Electron (8035) and Softbank Corp. (9984) slid by 4.07% and 3.18%, respectively. The stronger Yen also weighed on export-focused stocks, with Nissan Motor Corp (7201) down 3.72%.

ASX 200 Gains as Mining Stocks Lead the Way

Meanwhile, Australia’s ASX 200 Index tracked the Dow’s lead, gaining 0.40% on Tuesday morning. The US tariff-related news eased fears of weakening iron ore demand. Mining giants Fortescue Metals Group (FMG) and Rio Tinto Ltd. (RIO) rallied 2.82% and 1.34%, respectively.

Gold, oil, and tech-related stocks also advanced, while Aussie banks trended lower, limiting the Index’s gains. Higher US Treasury yields are reducing the appeal of Aussie banks for yield-focused global investors.

Outlook

Global economic uncertainties remain key drivers of market sentiment:

• US-China tensions continue to pose risks to regional economies.
• A strong US labor market challenges near-term expectations of Fed rate cuts, pressuring rate-sensitive sectors like banking and technology.
• Chinese stimulus measures could mitigate the impact of US tariffs on global trade.

A more measured tariff rollout and softer US inflation figures could boost demand for Asian market-listed stocks. However, punitive tariffs and a more hawkish Fed rate path could adversely impact risk sentiment. This scenario may require a cautious approach to trading the Asian markets as the US administration negotiates terms with key economies, including China.

Investors must navigate these challenges as shifting trade policies and monetary dynamics influence asset price trends. Explore how these developments could impact your portfolio here.