Hang Seng Index Slides Amid PMI Concerns and Trade War Fears – Weekly Recap

US Markets Suffer New Year Blues

US equity markets recorded losses in the first week of 2025. The Dow fell 0.60%, while the Nasdaq Composite Index and the S&P 500 declined by 0.51% and 0.48%, respectively.

Concerns about Trump’s policies fueling inflation, potentially leading to a more hawkish Fed rate path, impacted risk sentiment. The losses came despite 10-year US Treasury yields falling for the first time in four weeks.

US economic indicators, however, painted a rosy picture of the US economy, aligning with the Fed’s more hawkish rate path outlook. The CME FedWatch Tool signals a first Fed rate cut in May. There is a 44.4% chance of a 25-basis point rate cut in May and an 11.8% probability of a 50 bps cut.

Resilient US Labor Market and Manufacturing Recovery

Key US Economic indicators underscored resilience in the US economy. Initial jobless claims unexpectedly fell from 219k (week ending December 21) to 211k (week ending December 28). A tighter labor market supports wage growth, fueling consumer spending and demand-driven inflation. Rising inflationary pressures would require a higher interest rate environment to curb demand.

Meanwhile, the US manufacturing sector showed signs of recovery. The ISM Manufacturing PMI increased from 48.4 in November to 49.3 in December, approaching the neutral 50 mark.

China’s Economy Signals Need for Stimulus

China’s NBS Manufacturing PMI slipped from 50.3 in November to 50.1 in December, holding above the neutral level. December’s survey revealed that total new orders increased the fastest since April while output waned. However, overseas orders fell sharply, with firms continuing to reduce staffing levels.

The more influential Caixin Manufacturing PMI painted a similar picture, falling from 51.5 in November to 50.5 in December. Notably, firms cut staffing levels as external demand weakened.

Ongoing job losses and concern about a potential US-China trade war could dilute the impact of stimulus measures targeting consumption and broader demand.

Beijing’s Policy Assurances

The People’s Bank of China tried calming the markets amid rising fears of a US-China trade war. On Friday, the PBoC announced it intends to move toward a more traditional monetary policy framework and lower interest rates in 2025. Lower interest rates could ease household living costs while boosting credit demand, potentially supporting output and consumption.

Additionally, the PBoC said it would cut the Reserve Requirement Ratio (RRR).

Friday’s assurances came after China’s President Xi Jinping reiterated the government’s commitment to achieving the 14th Five-Year Plan.

The latest reiterations and policy assurances underscored growing concerns about China’s economy.

However, Brian Tycangco, editor/analyst at Stansberry Research, provided some highlights that contrasted with the latest PMI data, including:

• Exports: +6.7% in November; +13% in 11 months.
• Retail sales: +3.3% in 11 months.
• Online sales: +7.4% in 11 months.
• NEV (New Energy Vehicles) Sales: +35.6% in 11 months.

Hang Seng Index Slides on PMI Data and Tariff Jitters

The Hang Seng Index reversed its gains from the previous week, falling 1.64% in the week ending January 3. Waning manufacturing sector activity and a potential US-China trade war weighed on market sentiment.

The tech sector led the declines, with the Hang Seng Tech Index falling 2.98%. Key movers included Baidu (9888), which slid by 4.65%, while JD.com (9618) and Tencent (0700) declined by 1.25% and 0.84%, respectively. Real estate stocks also contributed to the losses. The Hang Seng Mainland Properties Index ended the week down 1.39%.

Mainland markets posted heavier losses as investors considered the latest economic data, policy assurances, and Trump’s policies. The CSI 300 and Shanghai Composite tumbled by 5.17% and 5.55%, respectively.

Commodities Edge Higher on Demand Hopes

Commodities saw modest gains. Iron ore futures ended the week 0.45% higher despite China’s weaker manufacturing sector data. The upside was modest as markets expect more oversupply, with China’s real estate sector recovery unlikely to drive demand higher materially. Gold also trended higher, ending the week up 0.69% to $2,639.

ASX 200 Mirrors US Market Losses

Australia’s ASX 200 declined by 0.14% in the week ending January 3, tracking US market losses. Banking, mining, and tech stock losses countered gold and oil stock-related gains.

The S&P/ASX All Technology Index dropped by 0.80%, while banking giant Commonwealth Bank of Australia fell 0.76%.

In contrast, Northern Star Resources (NST) advanced by 1.03%, while Woodside Energy Group (WDS) rallied 3.96% on higher oil prices. Falling US inventories and China’s stimulus drove WTI crude higher.

Nikkei Index Set for a Choppy Reopen

In the week ending January 3, the Nikkei Index saw limited trading. Uncertainty about the Bank of Japan and the Fed’s policy outlooks weighed.

Looking at the week ahead, investors should consider the USD/JPY trends, Bank of Japan’s forward guidance, and potential intervention threats.

The USD/JPY dropped by 0.34% to 157.266 in the week. Holding onto the 157 level could support demand for export stocks. A weaker Yen improves overseas earnings. However, intervention threats and rising bets on a January BoJ rate hike could impact risk sentiment.

Outlook: Focus on Services PMIs and Trade Policies

Service sector PMIs will influence market sentiment as investors gauge global economic health. Strong data could signal tighter monetary policies in Japan and the US, while weaker readings may support riskier assets. Meanwhile, developments in Beijing’s stimulus measures and US-China trade relations remain critical drivers for global markets.

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.