Hang Seng Index, ASX 200, Nikkei 225 Index: How US Inflation is Steering Asian Market Forecasts

Key Insights:

• Hang Seng extended its losses for the sixth session; ASX 200 and Nikkei ended negatively on Wednesday.
• US CPI Report shifts investor focus, causing ripples across Asian markets and potential Fed changes.
• Australian employment faces scrutiny amidst Chinese economic uncertainty, impacting the labor market.

Overview of the Wednesday Session

On Wednesday, the Hang Seng Index extended its losing streak to six sessions. The ASX 200 and the Nikkei Index also ended the day in negative territory as investor focus turned to the US CPI Report.

Concerns about the upcoming US CPI Report affected Asian markets. While markets hoped for mild US inflation to keep Fed interest rates stable, economists predicted a rise in annual inflation, increasing Fed policy uncertainty for investors.

A stronger USD to JPY failed to deliver a positive session for the Nikkei. However, export stocks benefited from a weaker Yen. Hawkish Bank of Japan commentary raised expectations of a near-term move away from negative rates.

US CPI Report to Set the Mood

We expect investors to react to the overnight US CPI Report and the anticipated impact on Fed interest rate expectations. The US core inflation rate softened in line with forecasts while the annual inflation rate accelerated from 3.2% to 3.7% versus a forecasted 3.6%. The market focus was on the core inflation figure.

According to the CME FedWatch Tool, the probability of a September Fed rate hike fell from 8% to 4%. However, uncertainty about the November decision lingered.

On Wednesday, the US equity markets had a limited reaction to the CPI Report. The S&P 500 and NASDAQ Composite Index saw gains of 0.12% and 0.29%, respectively, while the Dow ended the session down 0.20%.

Australian Employment in the Spotlight Amidst China Economic Troubles

Investors should note the Australian employment numbers, given China’s significant role in Australian exports. A decline in Chinese demand can influence Australia’s labor market. China accounts for one-third of Australian exports, and Australian trade provides about 20% of total jobs in Australia.

Economists forecast the Australian unemployment rate to hold steady at 3.7%. Another rise in unemployment would fuel concerns over consumption.

US Retail Sales: The Final Piece of the Inflation Jigsaw

After the August CPI Report, investors should be mindful of looming retail sales and producer price index figures. A jump in retail sales and producer prices would signal a pickup in demand-driven inflationary pressures.

However, US labor market numbers should support a positive consumption outlook. Economists forecast US Initial Jobless Claims to increase modestly from 216k to 226k. Tight labor markets fuel wage growth, driving up disposable income and spending. Spending fuels demand-driven inflation. The remaining curveballs will likely continue to test buyer appetite through the Asian session.

Looking at the Futures Markets, the ASX 200 was down 5 points, while the Nikkei gained 200 points.

ASX 200

The ASX 200 fell by 0.73% on Wednesday. Mining and bank stocks struggled.

Fortescue Metals Group (FMG) fell by 1.80%. BHP Group Ltd (BHP) and Rio Tinto (RIO) declined by 0.88% and 0.63%, respectively. Newcrest Mining (NCM) bucked the trend, gaining 0.27%.

The big four banks had another mixed session. ANZ Group (ANZ) gained 0.24%. However, the National Australia Bank (NAB) and the Commonwealth Bank of Australia (CBA) saw losses of 0.45% and 0.40%, respectively. Westpac Banking Corp (WBC) fell by 0.32%.

Oil stocks steadied. Woodside Energy Group (WDS) and Santos Ltd (STO) ended the day up 0.42% and 0.26%, respectively.

Hang Seng Index

The Hang Seng Index slipped by 0.09% on Wednesday. Investor caution left the Index flat, with all eyes on the US CPI Report.

Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) ended the day with losses of 0.87% and 0.56%, respectively.

It was another mixed session for bank stocks. China Construction Bank (HK: 0939) and HSBC Holdings PLC saw gains of 0.70% and 1.81%, respectively. However, The Industrial and Commercial Bank of China (HK:1398) declined by 0.53%.

Nikkei 225

(Graph for reference purposes only)

The Nikkei 225 fell by 0.21% on Wednesday. Monetary policy uncertainty weighed on the broader market, while hawkish BoJ comments drove demand for bank stocks.

Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group ended the day with gains of 0.68% and 3.13%, respectively.

The main components had a mixed session.

Fast Retailing Co (9983) and KDDI Corp. (9433) ended the day with gains of 0.50% and 1.58%, respectively.

However, SoftBank Group Corp. (9984) and Sony Corp. (6758) saw losses of 1.63% and 1.35%, respectively. Tokyo Electron Limited (8035) fell by 0.60%.

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