Hang Seng Index, ASX 200, Nikkei 225 Index: Hawkish Fed Sends Shockwaves, Forecasts Darken

Key Insights:

• ASX 200 and Nikkei led the Hang Seng Index into a significant downturn on Thursday.
• US labor stats align with the positive US outlook, stirring talks of a November rate hike.
• Economic forecasts put inflation and the BoJ interest rate decision in the limelight, overshadowing private sector PMIs.

Overview of the Thursday Session

On Thursday, the ASX 200 and the Nikkei led the Hang Seng Index deep into negative territory.

The more hawkish-than-expected US Federal Reserve sent the Asian equity markets into a tailspin. There were no economic indicators from the Asian region to distract investors from the hawkish Fed.

While holding interest rates unchanged, the FOMC economic projections showed a more upbeat outlook toward growth and labor market conditions. Significantly, a November rate hike remained on the table, with the chances of the Fed cutting rates in 2024 significantly lower.

The US equity markets set the tone for the Thursday session. On Wednesday, the S&P 500 and NASDAQ Composite Index declined by 0.94% and 1.43%, respectively, with the Dow falling by 0.22%.

Tight US Labor Market Sets the Stage for a Pre-BoJ Sell-Off

On cue, US labor market statistics aligned with the more upbeat assessment of the US labor market. Initial jobless claims tumbled from 221k to 201k, raising bets on a November Fed rate hike.

The markets brushed aside weaker-than-expected Philly Fed Manufacturing Index numbers. On Thursday, the US equity markets responded to the jobless claims, with the NASDAQ sliding by 1.82%. The Dow and S&P 500 fell by 1.08% and 1.64%, respectively.

Looking at the Futures Markets, the ASX 200 was down 97 points, with the Nikkei tumbling by 410 points.

Inflation and the Bank of Japan to Play Second Fiddle to the Fed

This morning, inflation figures from Japan will set the stage for the Bank of Japan (BoJ) interest rate decision. Economists forecast the annual core inflation rate to soften from 3.1% to 3.0% in August.

Speculation over a BoJ shift away from negative rates has done the rounds in recent weeks. However, recent wage growth and private consumption figures suggest an unchanged policy stance.

Bank of Japan Governor Ueda requires wage growth and consumption to fuel demand-driven inflation. The BoJ Governor and Board members also need to see inflation move toward target to justify a shift from negative rates.

Household spending tumbled by 2.7% in July, while wage growth increased by 1.3% in July versus 2.3% in June.

The Bank of Japan will need to offer dovish gestures to cushion the markets from the rising threat of Fed rate hikes.

While the BoJ will be a focal point, preliminary private-sector PMIs for September also need consideration. Weaker private sector PMIs from Australia and Japan will add to the pre-BoJ jitters.

ASX 200

The ASX 200 tumbled by 1.37% on Thursday. Tech stocks struggled for the fourth consecutive day. The S&P/ASX All Technology Index (XTX) fell by 0.50%. However, mining and the big four banks suffered heavier losses.

BHP Group Ltd (BHP) and Rio Tinto (RIO) ended the day down 1.21% and 0.97%, respectively. Fortescue Metals Group (FMG) slipped by 0.49%. Newcrest Mining (NCM) bucked the trend, gaining 0.41%.

The big four banks struggled. The National Australia Bank (NAB) and Westpac Banking Corp (WBC) slid by 2.18% and 2.51%, respectively. ANZ Group (ANZ) and the Commonwealth Bank of Australia (CBA) fell by 1.92% and 1.73%, respectively.

Oil stocks also wobbled. Woodside Energy Group (WDS) and Santos Ltd (STO) ended the day with losses of 2.59% and 1.43%, respectively.

Hang Seng Index

The Hang Seng Index fell by 1.29% on Thursday. The Hong Kong Monetary Authority (HKMA) offered little comfort by holding interest rates at 5.75%.

Alibaba Group Holding Ltd (9988.HK) and Tencent Holdings Ltd (0700.HK) slid by 2.19% and 2.01%, respectively.

Bank stocks also closed in negative territory. China Construction Bank (0939.HK) and the Industrial and Commercial Bank of China (1398.HK) fell by 0.68% and 1.05%, respectively. HSBC Holdings PLC (0005.HK) ended the session down 0.49%.

Nikkei 225

(Graph for reference purposes only)

The Nikkei 225 ended the Thursday session with a 1.37% loss.

Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group ended the day with gains of 1.21% and 1.31%, respectively.

However, the main components ended the session in negative territory.

Sony Corp. (6758) and SoftBank Group Corp. (9984) slid by 2.22% and 3.17%, respectively.

Tokyo Electron Limited (8035) and Fast Retailing Co (9983) fell by 1.09% and 1.10%, respectively. KDDI Corp. (9433) ended the session down 0.82%.

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