Hang Seng Index and Nikkei 225: Stocks Rise on Easing Trade War Fears

US Markets Climb as Bond Yields Decline

On Wednesday, February 5, US equity markets extended Tuesday’s gains as investors welcomed signs of no escalation in US-China trade tensions. The Dow advanced by 0.71%, while the Nasdaq Composite Index and S&P 500 climbed 0.19% and 0.39%, respectively.

Notably, markets considered China’s retaliation to 10% US tariffs restrained, easing fears of a prolonged trade war. Natixis Asia Pacific Chief Economist Alicia Garcia Herrero remarked on the recent tariff news, stating:

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

Meanwhile, in the bond markets, 10-year US Treasury yields dropped to a session low of 4.4%, boosting demand for riskier assets. The bond markets responded to US data that signaled a softer inflation outlook.

US Services PMI Raises Rate Cut Expectations

The US services sector took center stage as investors assessed the Federal Reserve’s rate path in light of recent economic data and Trump administration policies.

The ISM Services PMI fell from 54.0 in December to 52.8 in January, while the ISM Services Prices Index dropped to 60.4, down from 64.4 in December. As the main contributor to inflation, falling prices could signal a softer inflation outlook, supporting a more dovish Fed rate path.

However, stronger labor market data tempered the market optimism. The ISM Services Employment Index and the ADP’s employment change figures signaled resilience. The ADP reported a 183k increase in employment for January, up from December’s 176k rise.

According to the CME FedWatch Tool, the chances of a 25-basis point May Fed rate cut rose from 33.1% to 34.9% on February 5.

China Eyes Apple with Antitrust Probe

On February 5, CN Wire reported news of a Chinese government investigation into Apple Inc. (AAPL), stating:

“China’s antitrust watchdog is laying the groundwork for a potential probe into Apple Inc.’s policies and the fees it charges app developers, part of a broader push by Beijing that risks becoming another flashpoint in the country’s trade war with the US. The State Administration for Market Regulation is examining Apple’s policies, which include taking a cut of as much as 30% on in-app spending and barring external payment services and stores.”

Morgan Stanley reportedly stated that Tencent (0700) and Netease (9999) could benefit from any cuts to Mainland China’s App Store commission fees.

Hang Seng Index Trends Higher on Trade Sentiment

The Hang Seng Index rose 0.29% in the morning session on Thursday, February 6. Hopes of the US and China avoiding a prolonged trade war drove demand for Hong Kong-listed stocks.

Tech stocks contributed to the morning gains, with the Hang Seng Technology Index advancing by 0.95%. Notable movers included Alibaba (9988), which rose 0.15%.

China’s Mainland equity markets reversed Wednesday’s losses. The CSI 300 and Shanghai Composite Index gained 0.69% and 0.76%, respectively.

Nikkei Index Advances Despite a Yen Surge

Japan’s Nikkei Index gained 0.45% on Thursday morning. Despite a USD/JPY slide below 153 on Bank of Japan rate hike bets, demand for export-linked stocks remained strong amid tariff relief.

Tokyo Electron (8035) and Softbank Group (9984) advanced by 1.46% and 0.52%, respectively. Meanwhile, Nissan Motor Corp. (7201) surged by 7.88% on news that Nissan’s board members rejected a Honda merger.

ASX 200 Rallies on Wall Street Momentum

Australia’s ASX 200 Index rallied 1.17% on Thursday morning, tracking Wall Street’s gains. Banking and gold-related stocks led the gains.

Northern Star Resources Ltd. (NST) soared by 2.78% as gold prices hit a record high of $2,882 on February 5.

Falling Treasury yields drove demand for high-yielding Aussie bank stocks. ANZ (ANZ) and the National Australia Bank (NAB) led the gains, rallying 2.49% and 2.26%, respectively.

Outlook: Risks and Opportunities Ahead

Geopolitical tensions, US-China tariff developments, and AI sector growth remain key drivers of market sentiment. AI stocks could continue outperforming as the global AI race intensifies, while trade-sensitive sectors such as mining and manufacturing face increased volatility.

If China advances trade talks with the US and expands AI initiatives, Hong Kong, mainland China, and Australian markets stand to benefit. However, escalating trade tensions could overshadow AI-driven optimism, adding to market uncertainty.

Discover strategies to navigate this week’s market trends here.