Hang Seng Index, ASX200, Nikkei 225: Fed Fear to Weigh on the HSI

Key Insights:

• It is a likely bearish start to the Thursday session.
• This morning, we expect the Asian markets to react to the hawkish overnight FOMC meeting minutes, which signaled a commitment to push forward with interest rate hikes.
• However, Australian trade data will provide the ASX 200 with direction as investors consider US ISM Non-Manufacturing PMI and labor market stats out later today.

Market Overview

The Asian markets are set for a bearish opening this morning. Overnight, hawkish FOMC meeting minutes set the tone.

Significantly, the minutes aligned with recent Fed Chair Powell testimony and speeches, affirming that consecutive interest rate hikes remain on the table. While US economic indicators revealed cracks in the US economy, the recent Core PCE Price Index numbers suggest more from the Fed.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 88.7% versus 86.8% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 17.7%, down from 20.8% on Monday.

While the markets will react to the overnight minutes, investors should also consider trade data from Australia and US economic indicators later today. US ADP nonfarm employment change and ISM Non-Manufacturing PMI numbers could significantly impact sentiment toward Fed monetary policy ahead of the US Jobs Report on Friday.

The Asian markets had a bearish Wednesday session, with economic indicators from China doing the damage. In June, the China Caixin services PMI fell from 57.1 to 53.9. Economists forecast a fall to 56.2. As a result of the weaker Caixin Manufacturing PMI and Services PMI, the Chinese Composite PMI declined from 55.6 to 52.5.

ASX 200

On Wednesday, the ASX 200 fell by 0.35%. Economic indicators from China and Australia weighed on market risk sentiment. In June, the AIG Manufacturing Index tumbled from -5.1 to -19.8, with the Services PMI down from 52.1 to 50.3. The latest figures supported the RBA decision to hit the brakes on interest rate hikes on Tuesday.

The big-4 had a bearish Wednesday. ANZ Group (ANZ) declined by 0.83%, with Westpac Banking Corp (WBC) and The National Australia Bank (NAB) falling by 0.74% and 0.75%, respectively. The Commonwealth Bank of Australia (CBA) also struggled, declining by 0.49%.

However, mining stock had a mixed morning. Rio Tinto (RIO) ended the day flat, with Fortescue Metals Group (FMG) gaining 0.23%. However, Newcrest Mining (NCM) and BHP Group Ltd (BHP) struggled, falling by 0.29% and 0.44%, respectively.

Oil stocks had a bearish morning. Woodside Energy Group (WDS) and Santos Ltd (STO) saw losses of 0.40% and 0.52%, respectively, on falling Brent Crude prices.

Hang Seng Index

The Hang Seng slid by 1.57% on Wednesday, with economic indicators from Hong Kong and China and US-China tensions weighing.

After weaker China Caixin Manufacturing PMI numbers on Monday, the Hong Kong Manufacturing PMI also weakened, falling from 50.6 to 50.3 in June. Economists forecast an increase to 51.5. While the HK PMI drew interest, the China Caixin Services PMI had more impact.

Considering the main Index components, Tencent Holdings Ltd (HK:0700) and Alibaba Group Holding Ltd (HK:9988) fell by 1.12% and 1.61%, respectively.

Bank stocks also had a bearish session. HSBC Holdings PLC fell by 0.96%, with The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) seeing losses of 1.91% and 1.77%, respectively.

CNOOC (HK: 0883) rose by 0.52%.

Nikkei 225

The Nikkei 225 ended Wednesday with a 0.25% loss, with risk aversion overshadowing a stronger USD/JPY. For the Nikkei, the lingering threat of a government intervention to bolster the Yen likely contributed to the pullback.

From the banking sector, Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group fell by 0.33% and 1.35%, respectively.

Looking at the main components, Fast Retailing Co (9983) slid by 2.54%, with KDDI Corp (9433) and Tokyo Electron Limited (8035) seeing losses of 0.54% and 0.35%, respectively.

However, Sony Corp (6758) and SoftBank Group Corp. (9984) bucked the trend, with gains of 0.87% and 1.27%, respectively.

Check out our economic calendar for economic events.