Hang Seng Index and Nikkei 225: Fed Rate Worries and China Concerns Shake Markets

US Market Futures Signal Investor Caution

On Friday, January 10, the US futures markets reflected investor apprehension ahead of the crucial US Jobs Report. The Nasdaq 100 mini was down 95 points, while the Dow Jones mini and S&P 500 mini saw losses of 53 and 22 points, respectively.

In the bond market, 10-year US Treasury yields hovered around nine-month highs amid speculation about a more hawkish Fed rate path. The recent upswing in Treasury yields weighed on riskier assets.

US Economic Data Highlights Jobs Report Significance

Recent US services sector and labor market data have tempered investor bets on a near-term Fed rate cut. The ISM Services PMI increased from 52.1 in November to 54.1 in December. Accounting for around 80% of the US economy, the upswing reflected a robust US economy. Meanwhile, JOLTS job openings and initial jobless claims pointed to a resilient US labor market.

However, job cuts reportedly hit a 4-year low, with private-sector employment growth slowing, reflecting mixed labor market signals.

The mixed labor market data gives Friday’s US Jobs Report significant influence, leaving the Asian markets in a cautious mood.

Expert Views on the Fed Rate Path

On January 9, The Kobeissi Letter, a leading commentary on the global capital markets, remarked on the US ISM PMI data, stating,

“The Fed’s worst nightmare has begun: New ISM data, a key leading indicator for CPI, shows prices paid by purchasing managers are a 22-MONTH high. The last time ISM Prices Paid were this high, inflation in the US was at 6.0%+ in February 2023. Inflation is HOT.”

Hotter inflation and tighter labor market conditions could materially impact the Fed rate path. Higher borrowing costs may lower company earnings and valuations.

People’s Bank of China Halts Government Bond Purchases

Turning to the Asian markets, the People’s Bank of China (PBoC) announced a suspension of government bond purchases. CN Wire reported the announcement, stating,

“This decision comes amid record-low bond yields, driven by speculation of aggressive policy easing to boost the sluggish economy, and a rush to safe-haven assets due to weak consumption, a property crisis, and deflation worries. […] While analysts predict the PBOC may eventually refocus on short-term bonds, this unprecedented action reflects broader challenges in balancing economic growth, currency stability, and market control in uncertain times.”

The combination of a more hawkish Fed rate path and concerns about China’s economy remain headwinds.

Hang Seng Index Drops on Pre-Jobs Report Jitters

In Asian markets, the Hang Seng Index declined by 0.55% on Friday morning. Rising US-China tensions and Trump’s tariff threats contributed to the losses. These developments have heightened investor concerns about the economic outlook, contributing to declines in the Hang Seng Index.

Real estate and tech stocks led the declines. The Hang Seng Tech Index dropped by 0.60%, with tech giants Baidu (9888) and Alibaba (9988) falling 0.70% and 0.56%, respectively. The Hang Seng Mainland Property Index was down 0.73%, weighed by China’s real estate sector woes.

Mainland China’s equity markets also posted losses, with the CSI 300 and Shanghai Composite seeing declines of 0.39% and 0.30%, respectively.

Nikkei Drops Amid Fed Policy Uncertainty

On Friday morning, Japan’s Nikkei Index extended its losses from Thursday, falling 0.49%. Fed policy uncertainty has contributed to investor caution, further weighed down by concerns over Yen trends. The pullback came despite the USD/JPY advancing by 0.07% to 158.211.

Intervention threats from Wednesday resonated, contributing to the decline. On Wednesday, Japan’s Finance Minister Katsunobu Kato reportedly raised concern about recent Yen trends. A stronger Japanese Yen may impact Japanese exporters’ competitiveness and overseas earnings.

Notable movers included Fast Retailing Co. Ltd. (9983), which tumbled 6.53%. Investors reacted to the Uniqlo owner announcing falling profits from China. Sony Corp. (6758) declined by 0.77%, while Softbank (9984) dropped by 0.69%.

ASX 200 Slides Amid Banking Sector Losses

Australia’s ASX 200 Index tracked the broader market, declining by 0.47% on Friday morning.

Banking, oil, and tech-related stocks contributed to the losses. The S&P/ASX All Tech Index dropped by 0.18%. Westpac Banking Corp. (WBC) slid by 1.87% following news of Morgan Stanley’s downgrade of the bank, weighing on the broader banking sector. The Commonwealth Bank of Australia (CBA) declined by 1.53%.

Outlook

Global economic uncertainties remain key drivers of market sentiment:

• Escalating US-China tensions pose risks to regional economies.
• The persistent strength in the US labor market may delay Fed rate cuts, putting pressure on rate-sensitive sectors.
• Chinese stimulus efforts could counterbalance weak global trade.

Investors face a challenging period as trade tensions and monetary policy shifts continue to influence market dynamics. Explore how these developments could impact your portfolio here.