Hang Seng Index Soars on AI Stocks, While Nikkei Falls on BoJ Rate Hike Bets

US Markets Retreat on Hawkish Fed Expectations

It was a turbulent week ending February 7 for US markets as tariff developments, corporate earnings, and economic indicators influenced risk sentiment.

The Dow snapped a three-week winning streak, falling 0.54%, while the Nasdaq Composite Index and the S&P 500 dropped 0.53% and 0.24%, respectively.

Amazon.com (AMZN) beat earnings estimates but ended the week down 3.59% after a weak Q1 outlook. Honeywell (HON) announced plans to break into three separate entities and disappointed investors with its forward guidance, tumbling 8.14%.

US Economic Indicators Dampen Fed Rate Cut Hopes

Key US economic indicators signaled a more hawkish Fed policy stance:

• The ISM Services PMI fell from 54.0 in December to 52.8 in January. However, the ISM Services Employment Index climbed to 52.3, up from 51.3 in November.
• Initial jobless claims rose to 219k (week ending February 1), up from 208k (week ending January 25).
• Average hourly earnings increased by 4.1% year-on-year in January, mirroring December’s rise.
• The US unemployment rate unexpectedly fell from 4.1% in December to 4.0% in January despite a participation rate of 62.6% (previous: 62.5%).

A tighter labor market could bolster wage growth, fueling consumer spending and demand-driven inflation.

The Michigan Consumer Sentiment Report also affected risk sentiment amid a surge in consumer inflation expectations. The Consumer Inflation Expectations Index jumped from 3.3% in January to 4.3% in February also supporting a more hawkish Fed rate path.

China Strikes Back with Tariffs on US Goods

China announced retaliatory tariffs on certain US imports, effective February 10:

• 15% tariffs on coal and LNG.
• 10% levies on crude oil, agricultural equipment, large-displacement vehicles, and pickup trucks.

Beijing also launched antitrust investigations into US tech giants Google and Apple Inc. (AAPL). However, markets perceived China’s response as measured, as the tariffs remained limited in scope, fueling hopes for renewed trade negotiations.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on China’s retaliatory measures, saying:

“My impression is that this is mostly about face, and also its domestic audience. It is not really a full escalation but a posture.”

Hong Kong and Mainland China Markets Climb on AI-Stocks and Tariff Relief

The Hang Seng Index had its best week since October, rallying 4.49%. Easing trade tensions and China’s advancement in the AI space lifted investor sentiment.

The Hang Seng Tech Index soared 9.03% in the week, extending its winning streak to four weeks. Tech giants Tencent (0700) and Alibaba (9988) posted gains of 6.36% and 13.25%, respectively.

Mainland China’s equity markets also benefitted from trade relief and AI momentum. The CSI 300 and Shanghai Composite advanced by 1.98% and 1.63%, respectively.

Notably, investors brushed aside weaker-than-expected private sector PMI numbers. China’s Caixin Manufacturing PMI fell from 50.5 in December to 50.1 in January, while the Services PMI dropped to 51.0 (previous: 52.2).

For more analysis on the Hang Seng Index and global market trends, click here.

Commodities: Gold Rallies, Oil Weakens on Demand Concerns

Commodities had a mixed week ending February 7:

• Gold extended its winning streak to an impressive six weeks, climbing 2.25% to close the week at $2,860. Significantly, gold hit a new record high of 2,887 before easing back.
• Iron ore spot gained 0.98% to $813.68 amid hopes that China and the US can avoid a full-blown trade war.
• Meanwhile, crude oil prices retreated as US inventories surged, and Trump threatened counter-tariffs against trading partners retaliating to US tariffs. The news broke after the Asian markets had closed on Friday.

ASX 200 Ends Four-Week Winning Streak

The ASX 200 fell 0.24% in the week ending February 7. However, banking, gold, mining, and tech stocks provided some support.

Notable movers included Northern Star Resources, which rallied 2.49%, tracking higher gold prices.

Falling US Treasury yields boosted demand for high-yielding Aussie banks. The National Australia Bank (NAB) advanced 1.40%, while The Commonwealth Bank of Australia gained 1.31%.

Nikkei Index Retreats Amid BoJ Rate Hike Bets

The Nikkei Index ended the week down 1.03%. Economic data from Japan fueled expectations of a second Bank of Japan rate hike in H1 2025. Key data included:

• Average cash earnings jumped by 4.8% year-on-year in December, up from 3.9% in November.
• Household spending increased by 2.7% year-on-year in December after falling 0.4% in November.

The USD/JPY pair tumbled 2.43%, closing the week at 151.90 on BoJ rate hike expectations. A stronger Yen could dent earnings, pressuring Japanese stocks.

Tokyo Electron (8035) fell 2.69%, while Nissan Motor Corp. (7201) rallied 4.23% after its board rejected a merger with Honda Motor Co. (7267). Honda Motor Co ended the week down 2.84%.

Market Outlook: Key Events to Watch

Asian markets face potential volatility in the coming week. Trump’s threat of tariffs on economies retaliating against US import duties could escalate trade tensions. An escalation in the US-China trade war could weigh on Asian markets.

However, central bank forward guidance, corporate earnings, and economic indicators will also be crucial.

• Major earnings reports include Softbank Group, ANZ Holdings (ANZ), Macquarie (MQG), Commonwealth Bank of Australia (CBA), Northern Star Resources, Sony Corp. (6758), and Honda Motor Co.
• Monetary policy expectations will likely influence ASX 200 and Nikkei Index trends. A hawkish BoJ and stronger Yen could weigh on Japanese stocks, while rising bets on multiple RBA rate cuts may support Aussie stocks.

Traders should closely monitor economic trends to navigate shifting dynamics.