Hang Seng Index, ASX200, Nikkei 225: HSI in Breakout on Fed Bets and US Debt Deal

Key Insights:

• It was a bullish Friday morning, with the Hang Seng Index leading the ASX 200 and Nikkei Index.
• Easing bets of a June Fed interest rate hike and progress on Capitol Hill to avert a Monday default provided support.
• There were no economic indicators from the region this morning to distract investors ahead of the US Jobs Report.

Market Overview

It was a bullish start to the Friday session for the Asian markets. The Hang Seng Index led the ASX 200 and the Nikkei as investors responded to overnight economic indicators from the US and progress on Capitol Hill to avert a Monday default.

According to economic indicators on Thursday, ADP and jobless claims figures continued to signal tight labor market conditions. However, unit labor costs and sub-components of the ISM Manufacturing PMI fueled bets on a Fed pause in June.

According to the ADP, Nonfarm employment increased 278k in May versus a forecasted 170k rise. In April, nonfarm employment rose by 291k. Initial jobless claims also continued to signal tight labor market conditions.

However, unit labor costs fell short of forecasts, rising by 4.2% in Q1 versus 3.2% in Q4. Economists forecast a 6.3% increase. The US ISM Manufacturing PMI survey also supported a Fed pause. In May, the PMI fell from 47.1 to 46.9, with the ISM Manufacturing Prices Index tumbling from 53.2 to 44.2.

The easing bets on a Fed pause and progress on the debt ceiling deal drove demand for riskier assets.

The NASDAQ Composite Index rose by 1.28% on Thursday, with the Dow and S&P 500 seeing gains of 0.47% and 0.99%, respectively.

Following the bipartisan vote on Wednesday, investors expect the Senate to pass the Bill tonight to give US President Joe Biden the necessary time to sign the Bill and avert a Monday default.

However, the risk of a US default lingers, with the Democrats holding a thin Senate majority of 51 to 49. The Bill needs 60 votes to reach US President Joe Biden’s desk.

ASX 200

The ASX 200 was up by 0.30%, with mining stocks providing support. News of an increase in Australia’s minimum wage raised the prospects of a more hawkish RBA, pressuring bank stocks.

The big-4 had a bearish morning. The National Australia Bank (NAB) slid by 1.23%. ANZ Group (ANZ) and Westpac Banking Corp (WBC) saw losses of 0.53% and 0.39%, respectively, with The Commonwealth Bank of Australia (CBA) down by 0.39%.

However, mining stocks found support. Rio Tinto (RIO) and BHP Group Ltd (BHP) were up by1.28% and 1.88%, respectively, with Fortescue Metals Group (FMG) rising by 0.72%. Newcrest Mining (NCM) rallied 3.97%.

Oil stocks also had a bullish morning. Woodside Energy Group (WDS) and Santos Ltd (STO) gained 0.70% and 1.02%, respectively. Brent Crude was up 0.59% to $74.72 this morning.

Hang Seng Index

The Hang Seng was up 3.65% this morning.

Considering the main components, Tencent Holdings Ltd (HK:0700) and Alibaba Group Holding Ltd (HK:9988) saw gains of 4.31% and 5.56%, respectively.

Bank stocks also had a bullish morning session. HSBC Holdings PLC rose by 1.48%, with the Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK: 0939) up 1.94% and 1.21%, respectively.

CNOOC (HK: 0883) rose by 3.55%.

Nikkei 225

The Nikkei 225 was up 0.05% this morning, with a weaker USD/JPY capping the upside.

Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group saw losses of 0.79% and 0.01%, respectively.

Looking at the main components, investor-preferred AI stock SoftBank Group Corp. (9984) rallied 5.40%, with Sony Corp (6758) and KDDI Corp (9433) rising by 0.15% and 0.16%, respectively. However, Tokyo Electron Limited (8035) and Fast Retailing Co (9983) saw losses of 2.74% and 0.34%, respectively.

Check out our economic calendar for economic events.