Hang Seng Index, ASX200, Nikkei 225: China Deflation Weighs

Key Insights:

• It was a bearish Wednesday morning for the Hang Seng Index and the broader markets.
• Investor angst over economic indicators from China overshadowed the influence of softer US inflation numbers.
• China wholesale inflation figures reignited growth concerns, weighing on mining stocks.

Market Overview

It was a bearish Thursday morning session for the Asian markets. The Hang Seng Index continued to trend downwards, with the ASX 200 and Nikkei also struggling.

Softer US inflation figures from Wednesday failed to provide morning support to riskier assets. While the US CPI Report eased bets on a June Fed interest rate hike, sticky inflation also contained bets on a near-term Fed interest rate cut.

In April, the US core annual inflation rate softened from 5.6% to 5.5%, with headline inflation easing from 5.0% to 4.9%. Economists forecast the headline inflation rate to hold steady at 5.0%.

Despite softer inflation, inflation remained too high, reducing the chances of a 2023 interest rate cut.

According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike fell from 21.2% to 5.0% in response to the CPI Report. However, the chances of a June rate cut remained at 0%.

On Wednesday, the NASDAQ Composite Index and S&P 500 saw gains of 1.04% and 0.45%, respectively, while the Dow fell by 0.09%.

While the US CPI Report delivered the Asian markets a bullish start to the session, economic indicators from China weighed on market risk sentiment.

In April, the annual inflation rate softened from 0.7% to 0.1% versus a forecasted 0.4%. Consumer prices fell by 0.1% in April, following a 0.3% decline in March. Significantly, the producer price index was down 3.6% year-over-year in April versus 2.5% in March. Economists forecast a 3.2% decline.

The wholesale inflation figures signal further weakness in demand.

ASX 200

The ASX 200 was down 0.33%, with mining stocks weighing.

The big-4 had a mixed morning. Westpac Banking Corp (WBC) and ANZ Group (ANZ) saw gains of 0.43% and 0.35%, respectively, with the Commonwealth Bank of Australia (CBA) rising 0.15%. However, the National Australia Bank (NAB) was down 0.25% to buck the trend.

Mining stocks had a bearish morning. Rio Tinto (RIO) and BHP Group Ltd (BHP) saw losses of 1.76% and 1.26%, respectively, with Fortescue Metals Group (FMG) falling by 2.01%. Newcrest Mining (NCM) was down 0.48%.

Oil stocks also struggled. Woodside Energy Group (WDS) and Santos Ltd (STO) saw losses of 0.06% and 0.21%, respectively. Brent Crude was up 0.75% to $76.98 this morning.

Hang Seng Index

This morning, the Hang Seng was down 0.12%. Softer inflation numbers from China and accelerating deflationary wholesale pressures weighed on risk sentiment.

Considering the main components, Tencent Holdings Ltd (HK:0700) fell by 0.24%, while Alibaba Group Holding Ltd (HK:9988) gained 2.00%.

Bank stocks had a mixed morning session. HSBC Holdings PLC rose by 0.40%, while the Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) saw losses of 0.45% and 0.37%, respectively.

CNOOC (HK: 0883) declined by 0.93%.

Nikkei 225

The Nikkei 225 fell by 0.21% this morning, with a weaker USD/JPY weighing.

Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group fell by 0.37% and 0.28%, respectively.

Considering the main components, KDDI Corp (9433) and Tokyo Electron Limited (8035) saw gains of 1.94% and 0.90%, respectively. However, SoftBank Group Corp. (9984) fell by 1.24%, with Sony Corp (6758) and Fast Retailing Co (9983) seeing losses of 0.20% and 0.19%, respectively.

KDDI Corp., SoftBank Group Corp., and Tokyo Electron Ltd. release earnings today.

Check out our economic calendar for today’s economic events.