Hang Seng Index Climbs on Trade News and May Day Holiday Stats

Dow Snaps Nine-Day Winning Streak on Tariff Hikes

President Trump spooked markets with new tariffs on Monday, May 5, ending nine-day winning streaks for the Dow and S&P 500. The Nasdaq Composite Index dropped 0.74%, while the Dow and the S&P 500 posted losses of 0.24% and 0.64%, respectively.

Trump proposed a 100% tariff on foreign films, triggering a flight to safety despite upbeat US economic data.

US ISM Services PMI Challenges Fed Rate Cut Optimism

The ISM Services PMI rose unexpectedly to 51.6 in April, up from 50.8 in March and above forecasts of 50.6. The April survey revealed accelerating prices, potentially delaying Fed rate cuts. April’s data also eased concerns of a US recession, limiting Monday’s market losses. According to prediction market Polymarket, the probability of a 2025 US recession dropped to 57%, down from 66% on May 2.

US Tariffs Impact China Services

On Tuesday, May 6, China’s Caixin Services PMI fell from 51.9 in March to 50.7 in April, well below a consensus of 51.7. April’s survey highlighted the effects of US tariffs on sentiment and the labor market.

The weak PMI reading contrasted with upbeat consumer data from the May Day holidays. CN Wire reported:

“China says 314 million domestic trips made during May holiday, +6.4% y/y. Travel expenditure of domestic tourists was 180.269 billion Yuan, +8.0% y/y.

Hang Seng Rises on Hopes of Trade Breakthrough

Asian markets opened higher on Tuesday, May 6, amid optimism over a US-China trade deal. The Hang Seng Index advanced 0.69% in the morning session. Tech stocks led the gains, with Alibaba (09988.HK) rallying 1.07%, while Baidu (09888.HK) rose 0.17%.

Mainland China’s markets also trended higher, with the CSI300 and Shanghai Composite up 0.95% and 0.94%, respectively.

US Treasury Secretary Scott Bessent reportedly spoke optimistically about a US-China trade deal, boosting demand for regional stocks.

ASX 200 Steadies After Monday’s Sell-Off

Australia’s ASX 200 edged 0.07% higher in morning trade after falling 0.97% on May 5. Gold and tech stocks led the rebound. Northern Star Resources (NST) jumped 4.05% as gold soared 2.86% overnight to $3,332 in response to Trump’s films tariff. The S&P/ASX All Technology Index added 0.65%.

However, banking stocks struggled as rising US Treasury yields weakened demand for high-yielding Aussie bank stocks. National Australia Bank (NAB) and Westpac Banking Corp. (WBC) slid 1.23% and 1.69%, respectively.

Nikkei Futures Climb as Trade Tensions Ease

Though markets were shut for Greenery Day, Nikkei 225 futures gained 300 points on optimism surrounding US-Japan trade talks. Improving sentiment supported the USD/JPY pair, which rose 0.03% to 143.717. A weaker Yen and a potential US-Japan trade deal could improve Japan’s export competitiveness and corporate earnings outlook.

Outlook: Trade, Stimulus, and Central Bank Cues

Investor sentiment hinges on developments in trade negotiations, policy action from Beijing, and central bank commentary. Renewed stimulus, progress on trade, or dovish tones could lift risk assets. Trade deals could ease concerns about supply chain disruptions that may impact trade-reliant economies and fuel inflationary pressures. Rising inflation would force banks to delay rate cuts to dampen inflation. This could lead to higher borrowing costs, weighing on corporate earnings.

Conversely, hawkish pivots or prolonged policy uncertainty may pressure risk assets. An escalation in the trade war could drive gold prices higher. As volatility persists, traders may benefit from strategies aligned with evolving global macro signals. For more, see our full market coverage.