Hang Seng Index, ASX 200, Nikkei 225: The Fed and US ISM Services to Impact

Highlights

• The Hang Seng Index and ASX 200 ended the Monday session in negative territory as investors cut bets on a March Fed rate cut.
• On Tuesday, US economic indicators from Monday will influence market risk sentiment.
• Economic indicators from Japan, the RBA, and corporate earnings also warrant investor attention.

Overview of the Monday Session

On Monday, the Hang Seng Index and ASX 200 ended the session in negative territory. However, the Nikkei bucked the broader market trend.

A hotter-than-expected US Jobs Report on Friday reduced bets on a March Fed rate cut. Nonfarm payrolls jumped 353,000 in January. Average hourly earnings increased by 4.5% year-over-year versus 4.1% in December.

US investors brushed aside the US Jobs Report on Friday. Better-than-expected earnings from Apple Inc. (AAPL), Amazon.com Inc. (AMZN), and Meta Platforms Inc. (META) contributed to the Friday session gains for the US equity markets. The mega-cap tech stocks released earnings results during after-hours trading on Thursday.

On Friday, the Nasdaq Composite Index and S&P 500 ended the session up 1.74% and 1.07%, respectively. The Dow gained 0.35%.

However, the Asian markets reacted to the US Jobs Report from Friday and the sliding bets on a March Fed rate cut. Concerns about the Chinese economy also pressured the Hang Seng Index and the ASX 200.

On Monday, the Asian economic calendar garnered investor interest. The China Caixin Services PMI declined from 52.9 to 52.7 in January. Economists forecast the Caixin Services PMI to remain at 52.9. Notably, the decline came despite stimulus measures from Beijing to boost demand.

In December, the Australian trade surplus narrowed from A$11.764 billion to A$10.959 billion, influencing the ASX 200. However, a stronger USD/JPY contributed to gains for Nikkei-listed export stocks.

US Services PMIs and Fed Chair Powell to Set the Tone

On Tuesday, overnight US economic indicators from Monday will set the tone for the Asian session. The ISM Services PMI increased from 50.6 to 53.4 in January. A pickup in price inflation and rising employment also impacted investor bets on a March Fed rate cut. ISM Services Prices jumped from 57.4 to 64.0, with ISM Services Employment up from 43.3 to 50.5.

10-year US Treasury yields surged 3.38%, ending the session at 4.160% as the markets responded to the ISM Services PMI survey. The US equity markets also reacted to the numbers. On Monday, the Nasdaq Composite Index and S&P 500 fell by 0.20% and 0.32%, respectively. The Dow ended the session 0.71%.

Fed Chair Powell contributed to the jump in Treasury yields and losses across the US equity markets. The Fed Chair warned the Fed is not considering near-term interest cuts.

Beyond the numbers, Caterpillar (CAT), McDonald’s Corp. (MCD), and The Estee Lauder Companies Inc. (EL) were among the big names to release earnings on Monday.

The Japanese Economy, the RBA, and China in the Spotlight

On Tuesday, investors must consider the Asian economic calendar. Wage growth and household spending figures from Japan could influence expectations of a Bank of Japan pivot from negative rates.

Economists forecast household spending to rise by 0.5% in December. Moreover, economists expect average cash earnings to decline by 0.5% year-over-year. Average cash earnings rose by 0.1% year-over-year in November.

The RBA interest rate decision will impact the ASX 200. Economists expect the RBA to leave the cash rate at 4.35%. However, uncertainty lingers about the RBA rate path. A more hawkish-than-expected RBA press conference could pressure the ASX 200.

Beyond the economic calendar, stimulus chatter from Beijing, corporate earnings, and geopolitical tensions need consideration.

On Tuesday, the ASX 200 and Nikkei futures were down 33 and 40 points, respectively.

ASX 200

The ASX 200 declined by 0.95% on Monday. Losses were broad-based. Gold (XAU/USD) and mining stocks led the ASX 200 into negative territory. Tech stocks saw relatively modest losses. The S&P ASX All Technology Index (XTX) fell 0.08%.

Sliding bets on a March Fed rate cut impact gold stocks. Northern Star Resources Ltd. (NST) and Evolution Mining Ltd. slid by 3.81% and 4.67%, respectively.

Concerns about China left mining stocks in negative territory. BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) declined by 2.44% and 2.18%, respectively. Fortescue Metals Group Ltd. (FMG) fell by 2.79%.

Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) fell by 1.26% and 0.76%, respectively.

Banking stocks had a mixed session. ANZ Group Holdings Ltd (ANZ) and Commonwealth Bank of Australia (CBA) ended the day down 0.18% and 0.28%, respectively. National Australia Bank Ltd. (NAB) and Westpac Banking Corp. (WBC) gained 0.28% and 0.54%, respectively.

Hang Seng Index

The Hang Seng Index declined by 0.15% on Monday. Real estate and tech stocks contributed to the losses. The Hang Seng Mainland Properties Index (HSMPI) declined by 0.71%. The Hang Seng Tech Index (HSTECH) ended the session down 0.17%.

Alibaba (9988) slipped by 0.07%, while Tencent (0700) gained 0.07%.

However, bank stocks had another mixed session. HSBC (0005) fell by 0.49%. China Construction Bank (0939) ended the session flat, while Industrial Commercial Bank (1398) rose by 0.26%.

The Nikkei 225

(Graph for reference purposes only)

The Nikkei rose by 0.54% on Monday.

Bank stocks had a positive session. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) saw gains of 1.57% and 3.23%, respectively. Better-than-expected earnings drove buyer demand for Mitsubishi UFJ Financial Group Inc. stocks.

However, the main components of the Nikkei had a mixed session.

Softbank Group Corp. (9948) rallied 3.13%. Tokyo Electron Ltd. (8035) and Fast Retailing Co. Ltd. ended the day up 0.37% and 0.72%, respectively.

However, KDDI Corp. (9433) declined by 2.15%, while Sony Group Corp. (6758) ended the session flat.

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