Hang Seng Index Rallies on US Soft Landing Bets; BoJ Rate Decision Looms

US Equity Markets Surge Amid Soft Landing Hopes

On Thursday, September 19, the US equity markets reversed their losses from the previous session. The Nasdaq Composite Index surged by 2.51%, while the Dow and the S&P 500 advanced by 1.26% and 1.70%, respectively.

US Jobless Claims and the Fed Rate Path

On Thursday, better-than-expected US labor market data drove buyer demand for riskier assets. Initial jobless claims declined from 231k (week ending September 7) to 219k (week ending September 14). Stable labor market conditions could support wage growth and disposable income, driving consumer spending that contributes over 60% to the economy.

The upbeat US labor market data and expectations of November and December Fed interest rate cuts set a positive tone for the Friday Asian session.

Japan Inflation and the Bank of Japan

On Friday, September 20, inflation figures from Japan could raise expectations of a Q4 2024 Bank of Japan rate hike. The annual inflation rate increased from 2.8% in July to 3.0% in August. However, the USD/JPY avoided a sharp decline, with investors expecting the Bank of Japan to keep interest rates steady later this morning.

The USD/JPY was down by 0.12% to 142.451, with the modest decline having a limited impact on Nikkei-listed export stocks.

Expert Views on Japan’s Inflation and Bank of Japan Rate Path

PGIM Alternatives CIO Aniruddha Naha commented on the inflation figures, stating,

“Japan’s core CPI index climbed 2.8% year on year, in line with estimates, versus a 2.7% rise in the previous month. With inflation inching higher, likelihood of a interest rate hike in Japan. Interest times, as US has cut rates. The Yen carry trade unwinding is on.”

People’s Bank of China Impacts Mainland China Equity Markets

Meanwhile, the People’s Bank of China (PBoC) disappointed investors by keeping the 1-year and 5-year Loan Prime Rates (LPR) unchanged at 3.35% and 3.85%, respectively.

The decision impacted the demand for mainland China stocks. Recent economic data from China have challenged Beijing’s 5% growth forecast for 2024. Economists expect further stimulus measures to bolster the Chinese economy and deliver on the 5% projection.

Hang Seng Index and Mainland China Markets Diverge

On Friday morning, the Hang Seng Index advanced by 1.71%, tracking overnight gains from the US on soft landing bets. Tech and real estate stocks led the way, with investors betting on possible November and December Fed rate cuts.

The Hang Seng Mainland Properties Index gained 1.34%, while the Hang Seng Tech Index (HSTECH) rallied 2.07%. Alibaba (9988) rallied 2.51%, with Baidu (9888) and Tencent (0700) gaining 0.29% and 0.64%, respectively.

However, the mainland China markets trended lower after the PBoC decision, with the CSI 300 and the Shanghai Composite declining by 0.38% and 0.29%, respectively.

Nikkei Index Rallies Ahead of the Bank of Japan Decision

The Nikkei Index rallied 2.04% on Friday morning on hopes of a soft US economic landing. Positive sentiment toward the US economy drove demand for Nikkei-listed export stocks. Expectations of further Fed rate cuts and a resilient US economy also supported tech stocks.

However, investors should consider the Bank of Japan interest rate decision later this morning. While economists expect the BoJ to hold rates steady, rising support for a Q4 2024 BoJ rate hike could drive Yen demand and impact the Nikkei.

Fast Retailing Co. Ltd. (9983) surged by 4.29%, with Tokyo Electron (8035) jumping 5.65%. Nissan Motor Corp. (7201) and Softbank Group Corp. (9984) advanced by 1.72% and 1.64%, respectively.

ASX 200 Eyes Seven-Day Winning Streak

The ASX 200 Index was up 0.41% on Friday morning after climbing to a new intraday high of 8,246. Gains were broad-based, with oil and tech stocks leading the way.

Woodside Energy Group Ltd. (WDS) advanced by 1.26% on overnight oil price gains, while the S&P/ASX All Technology Index gained 1.17%.

With the focus on the Bank of Japan, investors should remain alert and closely monitor news wires, real-time data, and expert commentary to adjust trading strategies accordingly. Stay informed with our latest news and analysis to manage positions across the Asian equity markets.