Hang Seng Index, ASX 200, Nikkei 225 Index: Market Trembles, but is a Fed Rate Hike Certain?

Key Insights:

• Asian equity markets reflected a risk-off session on Thursday with notable losses in Hang Seng and ASX 200.
• Australian trade surplus contracted; Chinese export data failed to ease concerns, adding to market volatility.
• Tightening US labor market conditions hint at a possible hawkish turn in Federal monetary policy.

Thursday Overview

It was a risk-off session for the Asian equity markets. The Hang Seng Index and ASX 200 saw heavy losses, with the Nikkei ending an eight-day winning streak.

Better-than-expected US ISM Non-Manufacturing PMI numbers for August set the tone. Beyond the headline figure, employment, inflation, and new orders were higher, fueling bets on a hawkish Fed stance. Investors responded to the rising threat of another Fed rate hike.

Economic indicators from the region added to the risk-off sentiment. The Australian trade surplus narrowed on another fall in exports. Trade data from China failed to offer relief despite a less marked decline in exports.

US Jobless Claims and Fed Speeches Will Test Risk Appetite

US Jobless Claims fueled a more hawkish view toward Fed monetary policy. Tight labor market conditions drive wage growth and support an upward trend in disposable income. Higher disposable income supports consumption and demand-driven inflation. Tighter labor market conditions may require a more hawkish Fed interest rate trajectory.

On Thursday, the S&P 500 and  NASDAQ Composite Index saw losses of 0.32% and 0.09%, respectively. The  Dow ended the session up 0.17%.

Japan Economy and Regional Theme to Affect the Mood

The Japanese economy is in focus this morning. Recent economic indicators support the BoJ ultra-loose monetary policy stance. GDP numbers for the second quarter must reflect a pickup in demand to support a BoJ policy shift.

BoJ Governor Ueda recently discussed the need for wage growth and a pickup in demand to justify moving away from an ultra-loose policy.

Economists forecast the economy to expand by 1.5%, aligned with the first estimate figures. In the first quarter, the economy grew by 0.9%.

Fed Speakers Pose a Real Threat to the Bulls

The latest US economic indicators poured cold water on hopes the Fed will end its monetary policy tightening cycle. Fed speakers will continue to test investor sentiment. The talk of further Fed rate hikes would weigh on riskier assets.

After the Asian market closing bell, FOMC member Michael Barr is on the calendar to speak. Investors will likely be mindful of the threat of hawkish chatter before the weekend. Barr is a voting member of the FOMC.

The markets expect the Fed to leave interest rates unchanged later this month. However, investors remain divided on a November pause or a rate hike. According to the CME FedWatch Tool, the probability of a November Fed 25-basis rate hike stood at 47.5%, up from 37.1% one week earlier.

ASX 200

The ASX 200 slid by 1.19%. Mining stocks slid in response to China jitters and a fall in iron ore futures.

BHP Group Ltd (BHP) tumbled by 5.18%. Fortescue Metals Group (FMG) and Rio Tinto (RIO) saw losses of 2.31% and 2.48%, respectively. Newcrest Mining (NCM) slipped by 0.39%.

The big four banks also saw red. ANZ Group (ANZ) and The Commonwealth Bank of Australia (CBA) saw losses of 0.76% and 0.60%, respectively. Westpac Banking Corp (WBC) and The National Australia Bank (NAB) fell by 0.33% and 0.24%, respectively.

Oil stocks struggled. Woodside Energy Group (WDS) and Santos Ltd (STO) ended the day down 1.48% and 1.77%, respectively.

Hang Seng Index

The Hang Seng Index fell for a third consecutive session, declining by 1.34%. Trade data from China weighed.

Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) declined by 1.57% and 1.83%, respectively.

However, bank stocks had a mixed session. HSBC Holdings PLC and China Construction Bank (HK: 0939) fell by 0.78% and 0.92%, respectively. The Industrial and Commercial Bank of China (HK:1398) bucked the trend, gaining 0.80%.

Nikkei 225

(For reference purposes only)

The Nikkei 225 fell by 0.75% on Thursday. Trade data from China weighed, while a stronger USD/JPY cushioned the downside.

Bank stocks struggled on the current macroeconomic backdrop. Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group declined by 0.21% and 0.16%, respectively.

Looking at the main components, it was a mixed session.

Tokyo Electron Limited (8035) and SoftBank Group Corp. (9984) saw losses of 0.70% and 0.70%, respectively. Sony Corp. (6758) declined by 0.47%. However, Fast Retailing Co (9983) and KDDI Corp. (9433) gained 0.12% and 1.09%, respectively.

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