Hang Seng Index Rallies on AI Boom and Ukraine Peace Talks Hopes

US Markets React to US CPI Report and Powell

On Wednesday, February 12, US equity markets had a mixed session as investors weighed US economic data, Fed Chair Powell’s testimony, and AI developments. The Dow and S&P 500 fell 0.50% and 0.27%, respectively, while the Nasdaq Composite Index edged up 0.03%.

In the bond markets, 10-year Treasury yields surged as investors cut Fed rate cut bets, pressuring risk assets. Despite falling bets on an H1 2025 Fed rate cut, AI-related and crypto-listed stocks buoyed the Nasdaq.

Apple Inc. (AAPL) gained 1.83% as investors reacted to news of a partnership with Alibaba (BABA) to integrate AI capabilities into Apple phones in China. Alibaba rallied 4.92% on February 12.

Meanwhile, gains in bitcoin (BTC) boosted demand for crypto stocks. Microstrategy (BTC) and Coinbase (BTC) advanced by 2.30% and 3.00%, respectively. Progress toward a US Strategic Bitcoin Reserve (SBR) helped mitigate concerns over higher US inflation and a hawkish Fed impact on BTC demand.

US Inflation and Powell Sink Fed Rate Cut Expectations

On February 12, the US CPI Report disappointed investors hoping for a less hawkish Fed policy stance. The US annual inflation rate rose to 3.0% in January from 2.9% in December, with core inflation also rising.

Higher inflation trends would likely delay Fed rate cuts, leaving borrowing costs elevated. Fed Chair Powell, testifying on Capitol Hill, reacted to the January data, saying the Fed is not quite there yet.

Hopes of a Ukraine-Russia Peace Deal Boost Risk Assets

On February 13, President Trump held separate phone calls with Ukrainian President Zelenskyy and Russian President Putin. Trump stated that both leaders expressed willingness for peace, fueling optimism about an end to the Ukraine war.

On social media, Trump announced:

“I have asked Secretary of State Marco Rubio, Director of the CIA John Ratcliffe, National Security Advisor Michael Waltz, and Ambassador and Special Envoy Steve Witkoff, to lead the negotiations which, I feel strongly, will be successful.”

The prospects of peace countered concerns about a more hawkish Fed and potential US reciprocal tariffs.

Hang Seng Index Rallies on Ukraine War News and Tech Stocks

In Asian markets, the Hang Seng Index rose 1.54% on Thursday morning. Hopes for an end to the Ukraine war and AI-driven sentiment offset concerns about BTC.

The Hang Seng Technology Index advanced by 1.46%, with tech giant Alibaba (9888) extending Wednesday’s gains, rallying 3.69%. Baidu (9888) soared 7.26% after announcing AI chatbot, Ernie bot, would be free of charge from April 1.

However, China’s Mainland equity markets remained under pressure as reciprocal US tariffs loomed. The CSI 300 fell 0.12%, while the Shanghai Composite Index declined by 0.10%.

Nikkei Index Rallies Despite BoJ Rate Hike Expectations

Japan’s Nikkei Index gained 1.31% on Thursday morning despite rising bets on a Bank of Japan rate hike after hotter-than-expected producer price data. The BTC pair rallied 1.27% to 154.407 on February 12, fueling demand for Japanese stocks. A weaker Japanese Yen could improve overseas earnings and valuations.

Hopes of a Ukraine-Russia peace deal countered the impact of the 4.2% year-on-year rise in January producer prices, up from 3.9% in December.

Fast Retailing Co. Ltd. (9983) rallied 2.5%, while Sony Corp. (6758) gained 0.95%.

ASX 200 Hits a New Record High as Mining Stocks Rally

Australia’s ASX 200 Index rose 0.20% on Thursday morning, hitting a record high of 8,552.6 before easing back. Ukraine War-related news and expectations for a February RBA rate cut drove demand for Aussie stocks.

Mining stocks led the gains, with BHP Group Ltd. (BHP) and Rio Tinto Ltd. (RIO) rising 2.34% and 1.33%, respectively. Iron ore spot prices increased 1.17% on February 12, driving demand for mining stocks.

Outlook: Risks and Opportunities Ahead

Looking forward, US-China trade developments and the AI market trends remain the key drivers. AI stocks could maintain momentum as partnerships and innovation drive sentiment. However, manufacturing and mining stocks remain exposed to tariff developments.

Hopes for US-China trade talks may lift Australian, Hong Kong, and Mainland Chinese markets. The Hang Seng Index could further benefit from the AI-driven frenzy. Nevertheless, Asian markets remain exposed to further tariff shocks, highlighting the need for caution.

For key trading strategies and deeper insights into market trends, click here.