Hang Seng Index: Tech Stocks Edge Higher on Softer US Inflation Data

US Markets Face Inflation Anxiety

Market sentiment shifted cautiously ahead of the Consumer Price Index (CPI) report, reflecting investor unease over inflation and Federal Reserve policy.

US markets delivered mixed results on Tuesday, January 14, as investors digested leading US inflation indicators. The Dow and the S&P 500 extended their Monday gains, advancing by 0.52% and 0.11%, respectively. The Nasdaq Composite Index dropped by 0.23%.

Meanwhile, 10-year US Treasury yields revisited 4.80%, their highest level since November 2023. Elevated yields indicate expectations of a more hawkish Fed rate path.

The upswing in yields continued to pressure rate-sensitive tech stocks. NVIDIA (NVDA) fell 1.10%, extending Monday’s 1.97% loss. However, 10-year US Treasury yields eased to 4.78% on Wednesday morning.

US Producer Prices Fuel Hope of Softer Inflation Outlook

US core producer prices increased by 3.5% year-on-year in December, mirroring November’s rise. Analysts expected core producer prices to advance at a more marked rate of 3.8% in December.

While softer-than-expected, core producer prices highlighted persistent inflationary pressures. Economists consider producer prices a leading indicator of consumer price trends. December’s figures suggest the Fed could remain in a policy-holding pattern in the near term. Higher borrowing costs, however, could weigh on company earnings and valuations.

While US Treasury yields remained elevated, the softer-than-expected US producer prices boosted demand for riskier assets in Wednesday morning’s Asian market session.

Hang Seng Edges Higher on Inflation Hopes

In Asian markets, the Hang Seng Index advanced by 0.21% on Wednesday morning. Softer-than-expected US producer prices bolstered support for Hong Kong-listed stocks.

Tech stocks contributed to the gains, with the Hang Seng Tech Index gaining 0.23%. Tencent (0700) rallied 1.87%, while Baidu (9888) rose 0.39%.

However, the gains were modest amid looming US tariffs on Chinese goods. China’s economic uncertainties also remained a headwind as investors await stimulus targeting consumption and domestic demand.

Ongoing concerns about US tariffs and China’s economic outlook weighed on Mainland China’s equity markets. The CSI 300 and Shanghai Composite were down 0.30% and 0.12%, respectively.

Meanwhile, some optimism emerged as monetary data hinted at potential improvements in liquidity. East Asia Econ, a research service specializing in the markets and macro of China, Japan, Korea, and Taiwan, noted:

“There are signs of a turn in the monetary data. It is tentative, but the rise in M1 relative to M2 is particularly important. If that continues, there would be a real reason to feel less negative about the economic cycle.”

An increase in M1 could signal a potential pickup in near-term spending or investment. Brian Tycangco, editor and analyst at Stansberry Research, commented on the latest M1 data, saying,

“M1 (serves) as a leading indicator of China’s equity market outlook.”

Nikkei Gains on Weaker Japanese Yen

Japan’s Nikkei Index advanced by 0.40% on Wednesday. A weaker Japanese Yen contributed to the morning gains as the USD/JPY advanced by 0.31% on Tuesday, closing at 157.941.

However, the gains were modest after Tuesday’s sell-off. Bank of Japan and Trump’s policy uncertainties tempered market enthusiasm.

Rate-sensitive tech stocks Tokyo Electron (8035) and Softbank Corp. (9984) posted gains of 0.79% and 0.17%, respectively. The weaker Yen also boosted export-focused stocks, with Sony Corp (6758) up 1.58%.

ASX 200 Advances on Banking Sector Stock Gains

Australia’s ASX 200 Index followed the Dow into positive territory, gaining 0.12% on Wednesday morning. The softer-than-expected US producer price data weighed on US Treasury yields. Lower US Treasury yields may increase the appeal of Aussie banks for yield-focused global investors.

ANZ (ANZ) rallied 1.15%, while National Australia Bank (NAB) gained 0.78%.

Outlook: Navigating Uncertainty

Global markets remain under the influence of geopolitical and macroeconomic risks:

• Ongoing US-China trade tensions and tariff uncertainties may weigh on growth prospects.
• Hotter-than-expected inflation could complicate expectations for near-term Fed rate cuts.
• Chinese stimulus measures, if enacted, could counterbalance global trade headwinds.

A measured US tariff rollout and softer inflation data could bolster demand for Asian equities. However, an aggressive Fed or intensified US-China disputes may require cautious investment strategies. Investors should closely monitor shifts in trade policy and monetary dynamics, which continue to drive market sentiment.

Investors must navigate these challenges as shifting trade policies and monetary dynamics influence asset price trends. Explore how these developments could impact your portfolio here.