Hang Seng Index, ASX 200, Nikkei 225: The Fed Pause Debate Continues

Key Insights:

• ASX200 and Nikkei scored gains on Thursday, while Hang Seng faces its second red session, painting a mixed Asian market landscape.
• Despite the uptick in the Core PCE Price Index, the US Personal Income and Outlays Report doesn’t move September Fed rate hike bets.
• Futures markets signal bearish open for ASX 200 and Nikkei, with the China Caixin Manufacturing PMI in focus.

Thursday Overview

It was another mixed session for the Asian equity markets. The ASX200 and Nikkei extended their winning streaks, while the Hang Seng Index saw red for a second session.

Investors responded to another round of softer-than-expected US economic indicators from Wednesday. Weaker ADP nonfarm employment figures for August eased bets on further Fed interest rate hikes. Downward revisions to second-quarter GDP numbers failed to spook investors. The markets are transfixed on inflation and labor market numbers this week.

The shift in sentiment toward Fed interest rates supported another positive session for the US equity markets. The NASDAQ, S&P 500, and the Dow ended the day in positive territory.

However, economic data from the region signaled more doom and gloom across the manufacturing sector. Industrial production in Japan tumbled by 2.0%. Manufacturing sector activity in China contracted for a fifth consecutive month.

US Personal Income and Outlays Report Sets the Tone

After weaker-than-expected US labor market numbers, investors turned their attention to the US Personal Income and Outlays Report.

The Core PCE Price Index rose by 4.2%, in line with expectations, while personal spending jumped by 0.8% in July, beating forecasts. However, personal income came in weaker-than-expected, up 0.2%.

Significantly, the numbers left investors betting on a Fed pause later this month. According to the CME FedWatch Tool, the probability of the Fed hitting pause in September stands at 89.0% versus 90.0% one day earlier.

On Thursday, the S&P 500 and Dow declined by 0.16% and 0.48%, respectively. The NASDAQ Composite Index bucked the trend, gaining 0.11%.

China Caixin Manufacturing PMI to Fuel Stimulus Bets

Following NBS private sector PMIs from Thursday, the more influential Caixin manufacturing PMI will move the dial today. Economists forecast the Caixin Manufacturing PMI to increase from 49.2 to 49.4 in August.

While the headline figure will influence, investors should consider the sub-components. New orders, inflation, employment, and delivery times will give investors a more detailed overview of the manufacturing sector.

Weak global demand has been a general theme in recent months. Further weakness would increase pressure on Beijing to deliver a substantial stimulus package.

This morning, the futures markets signal a bearish open for the ASX 200 and the Nikkei.

US Jobs Report: The Final Piece of the Fed Jigsaw

After a mixed set of US economic indicators, further Fed interest rate hikes may depend on the US Jobs Report.

Weaker-than-expected US labor market numbers raised bets on the Fed ending its monetary policy tightening cycle. Despite the uptick in the Core PCE Price Index and the jump in personal spending, the US Personal Income and Outlays Report failed to move bets on a September Fed rate hike.

However, hotter-than-expected wage growth and a steady US unemployment rate could force the Fed to lift rates higher. Economists expect the US unemployment rate and average hourly earnings to send hawkish signals. With an unemployment rate of 3.5% and wage growth of 4.4%, the August Jobs Report could put the Fed hawks in the driving seat again.

ASX 200

The ASX 200 extended its winning streak to four sessions, gaining 0.10%. However, private-sector PMIs from China capped the upside.

Westpac Banking Corp (WBC) and ANZ Group (ANZ) ended the day up 1.06% and 1.16%, respectively. The National Australia Bank (NAB) and The Commonwealth Bank of Australia (CBA) ended the day with gains of 0.38% and 0.33%, respectively.

Mining stocks also had a bullish session. Rio Tinto (RIO) and BHP Group Ltd (BHP) rose by 0.60% and 0.27%, respectively. Fortescue Metals Group (FMG) gained 0.05%, while Newcrest Mining (NCM) fell by 0.46%.

Oil stocks bucked the broader market trend. Woodside Energy Group (WDS) and Santos Ltd (STO) fell by 3.67% and 0.52%, respectively. Woodside Energy Group went ex-div on Thursday.

Hang Seng Index

The Hang Seng Index bucked the broader market trend for a second session. On Thursday, the HSI fell by 0.55%. Private sector PMIs from China showed no immediate signs of a Chinese economic recovery. Later this morning, the Caixin Manufacturing PMI will have more influence.

The main Index components weighed on the HSI for a second session. Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) declined by 0.17% and 0.25%, respectively.

Bank stocks had another mixed session. The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) ended the day up 0.84% and 0.24%, respectively. HSBC Holdings PLC bucked the trend, falling by 0.84%.

Nikkei 225

(For reference purposes only)

The Nikkei 225 rose by 0.88% as investors responded to easing bets on further Fed interest rate hikes. Investors brushed aside the influences of a weaker USD/JPY. Dovish BoJ commentary limited the impact of the industrial production numbers on investor sentiment.

Bank stocks had a mixed session. Sumitomo Mitsui Financial Group (8316) gained 0.19%, while Mitsubishi UFJ Financial Group declined by 0.34%.

However, Fast Retailing Co (9983) and Tokyo Electron Limited (8035) led the way, with gains of 1.39% and 1.24%, respectively. Sony Corp. (6758) and KDDI Corp. (9433) also found support, rising by 0.91% and 0.98%, respectively.

However, SoftBank Group Corp. (9984) ended the session down 0.43%.

Check out our economic calendar for economic events.