Hang Seng Index Tumbles Amid US-China Tensions and Weak China Data – Weekly Recap

US Markets Slide as Fed’s Rate Path Worries Persist

As global markets navigate inflationary pressures and diverging central bank policies, pivotal shifts are redrawing trading landscapes.

US equity markets posted a second weekly loss ending January 10. The Dow declined by 1.86%, while the Nasdaq Composite Index and the S&P 500 slid by 2.34% and 1.94%, respectively.

Economic indicators signaled a robust US economy, sinking bets on a near-term Fed rate cut. In the bond markets, 10-year US Treasury yields surged to a fifteen-month high of 4.788% on Friday, January 10. The upswing in yields reflects market expectations of fewer Fed rate cuts, weighing on riskier assets.

US Services PMI Highlights Economic Resilience Amid Labor Market Pressures

Key US economic indicators underscored a robust economy and resilient labor market.

• ISM Services PMI climbs from 52.1 in November to 54.1 in December. A sharp rise in prices dampened Fed rate cut bets.
• JOLTS job openings jumped from 7.839 million in October to 8.098 million in November, signaling strong hiring momentum.
• Initial jobless claims fall from 211k (week ending December 28) to 201k (week ending January 4).
• US nonfarm payrolls surged by 256k in December, up from 212k in November. As a result, the unemployment rate falls from 4.2% in November to 4.1% in December,

Tighter labor market conditions may boost wage growth and consumer spending, fueling demand-driven inflation.

China Grapples With Deflationary Pressures Amid PBoC Action

China’s annual inflation rate dropped from 0.2% in November to 0.1% in December, reigniting deflationary fears. Producer prices also suggested a potential deflation threat, falling 2.3% year-on-year in December, up slightly from a 2.5% drop in November.

The inflation numbers highlighted a weak demand environment, raising doubts about whether Beijing can reboot consumer confidence and consumption.

Brian Tycangco, an editor and analyst at Stansberry Research, highlighted the deflation threat, saying,

“Beijing should take this latest data as a cue to act more decisively on stimulus.”

On Friday, the People’s Bank of China (PBoC) announced the suspension of government bond purchases. Chinese government bond yields had fallen to record lows amid speculation about aggressive policy measures to boost the economy and real estate sector woes.

CN Wire remarked on the announcement:

“This unprecedented action reflects broader challenges in balancing economic growth, currency stability, and market control in uncertain times.”

China’s economic woes clashed with rising tensions with the US. President-elect Donald Trump denied reports of the incoming US administration focusing tariffs on critical sectors rather than sweeping import duties, triggering policy uncertainty.

The US defense department fueled US-China tensions, including Tencent Holdings Limited, COSCO Shipping Holdings, and China National Offshore Corporation’s CNOOC China Ltd to the Section 1260H list. The list contains company names the US believes work with China’s military.

Tencent responded to the news, reportedly saying its business would not be impacted as it is not a military-related group.

Hang Seng Index Slides Amid US-China Tensions and China’s Economic Woes

The Hang Seng Index extended its losses from the previous week, sliding by 3.52% in the week ending January 10. Rising US-China tensions, weak economic data, and a hawkish Fed led to the largest weekly drawdown since November. Real estate and tech stocks led the declines.

The Hang Seng Mainland Properties Index declined by 3.22%, while the Hang Seng Tech Index dropped by 3.23%. Key movers Tencent (0700), which tumbled 10.41% as investors reacted to its inclusion on the Section 1260H list. Baidu (9888) and Alibaba (9988) saw losses of 4.13% and 3.63%, respectively.

China’s Mainland equity markets also ended the week in negative territory. The CSI 300 and Shanghai Composite saw declines of 1.13% and 1.34%, respectively.

Mixed Performance in Commodities Markets

Commodities had a mixed week ending January 10. Gold ended the week up 1.87% to $2,688. The US Jobs Report briefly tested buyer demand. However, FOMC member Austan Goolsbee downplayed the influence of the Jobs Report on the Fed rate path, triggering a positive end to the week. Crude oil advanced amid supply concerns.

Meanwhile, iron ore spot closed at $766 on Friday, down 0.02% for the week. Concerns about oversupply stemming from China’s waning economy left iron ore spot in the red.

ASX 200 Advances on RBA Rate Cut Bets

Australia’s ASX 200 advanced by 0.53% in the week ending January 10. Increasing bets on a February RBA rate cut drove demand for rate-sensitive Aussie stocks.

This week, ANZ (ANZ) forecasted the RBA to lower its cash rate on February 18, aligning with the Commonwealth Bank of Australia (CBA). Underlying inflation eased from 3.5% in October to 3.2% in November, triggering bets on a February policy maneuver.

Northern Star Resources Ltd. (NST) surged by 5.14% amid rising gold prices, while the S&P/ASX 200 All Technology Index gained 0.45% in the week.

Meanwhile, Fortescue Metals Group (FMG) and BHP Group Ltd. (BHP) declined by 2.61% and 0.20% in the week as the iron ore supply-demand outlook remained grim.

Nikkei Index Slips Amid BoJ Uncertainty

In the week ending January 10, the Nikkei Index fell by 0.30%. Uncertainty about the upcoming Bank of Japan monetary policy decision and a more hawkish Fed weighed. A weaker Japanese Yen cushioned the downside, however, as the USD/JPY pair ended the week up 0.27% to 157.692.

Notably, Fast Retailing Co. Ltd. (9983) ended the week down 9.51% after announcing falling profits from China. In contrast, Tokyo Electron (8035) surged by 11.74% amid optimistic demand sentiment.

Outlook: Stimulus and Tariff Developments in Focus

With policy decisions looming, markets remain poised for sharp reactions—stay ahead of the curve.

Key developments this week include US inflation data, Chinese trade and GDP figures, and central bank forward guidance. However, rising geopolitical tensions and hawkish central bank commentary could weigh on sentiment, while targeted Chinese stimulus and easing US inflation might spark a market rebound.

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.