Hang Seng Index Gains on Fed Rate Cut Bets, Nikkei Rises as BoJ Holds Steady

US Markets Dip Amid Pre-Fed Caution

US equity markets ended a two-day winning streak on Tuesday, March 18, as investors shifted their focus to the upcoming Fed rate decision. The Nasdaq Composite Index and the S&P 500 slid by 1.71% and 1.07%, respectively, while the Dow fell 0.62%.

While the Fed is expected to hold rates steady, Trump’s tariffs could influence future rate-cut decisions by driving inflation higher.

US Housing Sector Data Signals Softer Demand Outlook

On March 18, US housing data influenced sentiment toward the US economy, presenting mixed signals.

Housing Starts surged 11.2% month-on-month (MoM) in February after tumbling 11.5% in January. Meanwhile, building permits dipped by 1.2% after falling 0.6% in January. While housing starts signaled a short-term boost in demand, falling building permits suggest a weaker long-term outlook. A cooling housing market could weigh on consumer confidence, spending, and GDP growth.

Tuesday’s data coincided with shifting sentiment toward the US economic outlook. Brian Tycangco, editor/analyst at Stansberry Research, commented on the gloomy results of a CNBC Fed Survey, saying:

“Markets hate bad news.”

According to the CNBC Fed Survey,

• The probability of a US recession increased from 23% in January to 36%.
• Average GDP growth forecasts fell from 2.4% to 1.7%.
• Analysts, fund managers, and strategists cited tariffs as the key threat to the US economy.
• 77% of respondents expect two or more Fed rate cuts in 2025.

Asian Market Implications: While Fed rate cut expectations supported risk appetite, lingering uncertainty about the US economy limited gains for risk assets early in the Asian session on Wednesday, March 19.

Bank of Japan Holds Rates Steady at 0.5%

On March 19, the Bank of Japan maintained interest rates at 0.5%, aligned with market expectations. According to the Statement on Monetary Policy:

• Moderate economic recovery, though some sectors show weakness.
• Improvements in employment and income levels.
• Gradual increases in underlying inflation.
• Continued high uncertainty surrounding Japan’s economy and trade policies.

Hang Seng Index Advances on Fed Rate Cut Bets and China Stimulus Hopes

In Asia, the Hang Seng Index extended gains from March 18, rising 0.15% on Wednesday morning. However, uncertainty about the US economic outlook and Fed policy capped the upside.

• The Hang Seng Technology Index fell 1.04%, while the Hang Seng Mainland Properties Index dropped 1.87%.
• Tech giants Baidu (09888.HK) and Alibaba (09988.HK) succumbed to profit-taking, sliding 4.21 and 1.39%, respectively.
• However, NIO Inc. (09866.HK) rose 0.85%, with BYD Company Ltd. (01211.HK) rallying 1.62% on positive EV developments.

Meanwhile, Mainland China’s equity markets posted morning losses, with the CSI 300 and Shanghai Composite Index falling 0.17% and 0.21%, respectively. Beijing’s silence on anticipated stimulus measures left investors on a cautious footing.

Nikkei Index Gains as BoJ Holds Rates at 0.50%

The Nikkei Index gained 0.69% on Wednesday following the Bank of Japan’s interest rate decision. The USD/JPY pair rose 0.11% to 149.433 in the morning session as the BoJ cited economic uncertainty stemming from Trump’s tariff policies. A more dovish BoJ rate path could weaken the Japanese Yen, making Japanese exports more competitive and boosting corporate earnings prospects.

Notable gainers included Sony Corp. (6758) and Tokyo Electron (8035), which advanced by 1.89% and 1.14%, respectively.

Later this morning, comments from BoJ Governor Kazuo Ueda require consideration. Support for a near-term rate hike may erase the morning gains.

ASX 200 Mirrors Wall Street’s Losses

Australia’s ASX 200 dropped 0.12% on Wednesday morning, tracking Wall Street’s overnight declines. Banking stocks dragged the Index lower, with the Commonwealth Bank of Australia (CBA) down 0.74% and ANZ (ANZ) falling 0.35%.

Outlook: Key Risks and Opportunities

Global markets remain highly sensitive to policy and economics:

• US-China Trade Tensions: Escalating tensions could dampen sentiment, prompting stimulus efforts.
• US Fed Policy and Projections: Recession fears could drive a more dovish rate path, influencing risk sentiment.
• China’s Stimulus Measures: Further policy support could bolster HK and Mainland-listed stocks.

Despite ongoing tariff risks, China’s stimulus efforts and innovation drive could sustain demand for regional stocks. Fresh policy measures targeting consumption could offset US recession jitters, boosting demand for Hong Kong and Mainland stocks. The OECD’s latest economic projections highlighted China’s limited exposure to US tariffs.

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