Hang Seng Index Rises on China Stimulus Amid Tariff Chatter – Weekly Recap

US Markets Enjoy Weekly Gains Despite a Friday Sell-Off

US equity markets posted gains in the week ending December 27. The Nasdaq Composite Index advanced by 0.76%, while the Dow and the S&P 500 gained 0.35% and 0.67%, respectively.

Early in the week, weaker-than-expected US data eased fears of a more hawkish Fed rate path, boosting demand for riskier assets. However, upbeat US labor market data, concerns about inflation, and uncertainty about the Fed rate path capped the upside.

10-year US Treasury yields ended higher for the third consecutive week, reflecting expectations for fewer Fed rate cuts. Yields reached their highest level since April before easing back.

US Consumer Confidence and Labor Market Data Gyrate Markets

Key US Economic indicators painted a mixed picture. The US CB Consumer Confidence Index fell to 104.7 in December, down from 112.8 in November. December’s survey highlighted consumer concerns about the present situation and the outlook.

Weaker consumer confidence may weigh on spending, dampening demand-driven inflation. This scenario would support a more dovish Fed rate path.

Durable goods orders declined by 1.1% in November after rising 0.8% in October. The weaker numbers raised hopes for a more dovish 2025 Fed rate path.

However, US initial jobless claims unexpectedly fell from 220k (week ending December 14) to 219k (week ending December 21), underscoring a robust labor market. A tight labor may boost wage growth, fueling consumer spending and inflationary pressures. This scenario could support the Fed’s less dovish rate path outlook.

The CME FedWatch Tool showed a modest increase in the probability of a January Fed rate cut, rising from 8.6% to 10.7% over the week.

China Stimulus Drives Regional Gains Amid Lingering Uncertainty

China’s National Fiscal Work Conference, on December 24, announced plans to ramp up fiscal spending, reportedly stating,

“Will step up fiscal spending, accelerating spending speed in 2025. Fiscal spending will focus more on people’s livelihood, boosting consumption.”

Economists welcomed this consumer-targeted stimulus as Hong Kong and Mainland China markets rallied on the news. Beijing also announced a new infrastructure project, a potential boost for the labor market, consumer confidence, and spending.

Brian Tycangco, editor/analyst at Stansberry Research, reacted to Beijing’s infrastructure news, saying,

“This is how China stimulus is done. Massive infrastructure projects that are designed to benefit people many years down the road without having to take into account if it will get you enough votes to win office in the next election cycle. It can be done in democracies too but few of those in power or seeking office care to.”

However, The Kobeissi Letter discussed the possibility of a China recession, stating,

“Lastly, China is facing the EXACT opposite situation as the United States. Their 10-year yield has collapsed nearly 100 basis points in 2024 and widespread stimulus has begun. China is nearing a recession.”

Uncertainty about China’s economic outlook limited gains for the week while stimulus measures ensured markets advanced.

Hang Seng Index Gains on China Stimulus and Data

The Hang Seng Index reversed its losses from the previous week, climbing 1.87% in the week ending December 27. China’s fresh stimulus measures boosted demand for Hong Kong and Mainland China-listed stocks.

Additionally, a smaller-than-expected fall in China’s industrial profits benefited the equity markets. Industrial profits declined by 4.7% year-to-date in November compared with the same period in 2023. Economists expected industrial profits to fall 5%.

The Hang Seng Tech Index advanced by 2.12%, with tech giants Baidu (9888) and Alibaba (9988) rising by 3.72% and 2.81%, respectively. Fresh stimulus measures also drove demand for real estate stocks. The Hang Seng Mainland Properties Index ended the week up 1.41%.

Mainland markets also posted gains on stimulus targeting consumers. The CSI 300 and the Shanghai Composite posted gains of 1.36% and 0.95%, respectively.

However, concerns about Trump’s threat of tariffs capped the weekly gains. Markets remain unsure if targeting domestic demand and consumption can counter the effects of a potential US-China trade war.

Commodities Gain Amid Demand Optimism

Iron ore spot ended the week down 1.37%, extending its losses from the previous week. Oversupply concerns weighed on spot prices amid US tariff threats and Beijing’s fresh stimulus measures.

Reportedly, China is seeing steel manufacturing continue to contract while iron ore imports drive inventories. Supply from China and Africa could flood the market, potentially sinking prices.

Meanwhile, gold declined by 0.06% to $2,621 in the week ending December 27, marking a second consecutive weekly loss.

ASX 200 Enjoys China Fueled Rebound

Australia’s ASX 200 rallied 2.41% in the week ending December 27, rebounding from a 2.76% loss from the previous week. Banking and tech stocks led the rally.

The S&P/ASX All Technology Index gained 2.47%. Banking giants National Australia Bank (NAB) and Commonwealth Bank of Australia rallied 3.33% and 3.96%, respectively. Expectations of a February RBA rate cut bolstered demand for Aussie banks as lower interest rates may boost credit appetite.

Nikkei Index Rallies as the USD/JPY Ascends to 158

In the week ending December 27, the Nikkei Index surged by 4.08%. Bank of Japan’s hesitance to signal a rate hike and a less dovish Fed rate path outlook fueled a USD/JPY rally. The pair advanced by 0.92% to 157.802, extending its winning streak to three weeks.

The weaker Japanese Yen countered speculation about a Q1 2025 BoJ rate hike. Tokyo inflation and retail sale figures fueled bets on a January BoJ rate hike. However, the BoJ previously stated that it needed to assess the effects of Trump’s policies and more wage growth data before making a move.

Tech stocks contributed to the weekly gains. Tokyo Electron (8035) and Softbank Group Corp. (9984) advanced by 4.64% and 5.64%, respectively.

Market hopes of a merger between Honda Motor and Nissan Motor Corp. (7201) supported demand for auto stocks. Nissan Motor Corp jumped 14.94% in the week.

Outlook: Private Sector PMIs and Policy in Focus

Private sector PMI data could be crucial as markets assess the global economic outlook in the coming week. The PMI data will give investors insights into demand across the private sector, labor market conditions, and price trends.

Weak data from the US could signal a more dovish Fed, potentially improving demand for riskier assets. Meanwhile, China’s economic developments and US tariff policies will remain key drivers of market sentiment.

Traders should closely monitor global economic trends and trade dynamics to navigate shifting market conditions.

For in-depth analysis of the Hang Seng Index and global market trends, click here.