Hang Seng Index, ASX200, Nikkei 225: China Inflation in Focus

Key Insights:

• It is a likely mixed start to the Monday session.
• This morning, we expect the Asian markets to react to the US Jobs Report from Friday that signaled a slower pace of hiring but resilient wage growth.
• However, inflation numbers from China could influence investor sentiment early in the Asian session.

Market Overview

The Asian markets are set for a mixed opening this morning. US economic indicators supported a 25-basis point July Fed rate hike. Significantly, the US Jobs Report had a limited impact on sentiment toward the September Fed monetary policy decision.

Despite the softer nonfarm payroll numbers, hawkish Fed bets left the NASDAQ Composite Index and the Dow with losses of 0.13% and 0.55%, respectively.

In June, nonfarm payrolls increased by 209k. Nonfarm payrolls rose by 306k in May. Significantly, average hourly earnings were up 4.4% versus 4.4% in May, suggesting the need for more Fed action. There was little movement in Fed bets following the US Jobs Report, despite the weaker NFP numbers being dovish.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 93.0% versus 86.8% one week earlier. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 24.2%, up from 20.8% one week earlier.

From the Asian region, it was a quiet Friday session, with household spending numbers from Japan having a limited impact on the Nikkei as investors responded to the ADP nonfarm employment change numbers from Thursday.

On Friday, the ASX 200 and Nikkei led the Hang Seng into the red for the third consecutive session.

Looking to the Monday session, it is a quiet start to the week. However, inflation numbers from China will provide direction. Economists forecast the annual inflation rate to hold steady at 0.2%.

However, economists expect the Producer Price Index to fall 5% year-over-year versus 4.6% in May.  A more marked decline would signal a weakening demand environment and signal more doom and gloom.

Away from the economic calendar, updates on the US Treasury Secretary Janet Yellen visit to Beijing are bullish. Yellen reportedly said that 10 hours of meetings were direct and productive.

ASX 200

On Friday, the ASX 200 slid by 1.69% on hawkish Fed bets.

The big-4 had a bearish Friday. The National Australia Bank (NAB) slid by 2.11%, with ANZ Group (ANZ) declining by 1.92%. However, Westpac Banking Corp (WBC) and The Commonwealth Bank of Australia (CBA) led the way, falling by 1.42% and 1.69%, respectively.

Mining stock also saw red. Rio Tinto (RIO) and Fortescue Metals Group (FMG) ended the day with 0.74% and 0.37% losses, with BHP Group Ltd (BHP) sliding by 1.75%. Newcrest Mining (NCM) ended the day with a 2.57% loss.

Oil stocks had a bearish session. Woodside Energy Group (WDS) and Santos Ltd (STO) fell by 0.99% and 1.45%, respectively.

Hang Seng Index

The Hang Seng saw red for the third consecutive session, falling by 0.90%.

Considering the main Index components, Tencent Holdings Ltd (HK:0700) slipped by 0.06%, while Alibaba Group Holding Ltd (HK:9988) rallied by 3.44%.

However, bank stocks had a bearish session. HSBC Holdings PLC fell by 0.57%, with The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) seeing losses of 1.37% and 1.35%, respectively.

CNOOC (HK: 0883) ended the day flat.

Nikkei 225

The Nikkei 225 ended Friday with a 1.17% loss, with Fed jitters and household spending figures from Japan weighing on investor appetite.

Household spending fell by 1.1% in May, following a 1.3% decline in April. Economists forecast a 0.5% increase. While the numbers support an ultra-loose Bank of Japan monetary policy outlook, weak consumption weighed on hopes of a bullish economic outlook.

From the banking sector, Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group fell by 1.29% and 1.67%, respectively.

Looking at the main components, Tokyo Electron Limited (8035) and KDDI Corp (9433) slid by 1.34% and 1.67%, respectively. Sony Corp (6758) and SoftBank Group Corp. (9984) ended the day with losses of 1.07% and 1.22%, respectively, with Fast Retailing Co (9983) falling by 0.78%.

Check out our economic calendar for economic events.