Hang Seng Index, ASX200, Nikkei 225: Investors Stay Cautious

Key Insights:

• It was a mixed morning for the Asian equity markets, with the ASX200 finding support while the Hang Seng Index and Nikkei 225 saw red.
• Market angst toward central bank monetary policy continued to test buyer appetite, with the FOMC meeting kicking off today.
• Investor jitters towards tech stock earnings added to the bearish sentiment, while the IMF upwardly revised its growth forecast for 2023.

Market Overview

It has been a busy Tuesday session. While the economic calendar drew plenty of interest, investor focus remained on tomorrow’s Fed interest rate decision and, more importantly, the Fed Chair Powell press conference. The Hang Seng Index continued to struggle after the Monday pullback.

While inflation has softened, US labor market conditions remain tight, with the US unemployment rate (3.5%) well below the Fed’s 5% mandate. Fed Chair Powell could pour cold water over market hopes of a less aggressive interest rate trajectory to bring inflation to target.

A hawkish Fed would reignite fears of a hard landing and could soften the effect of China’s reopening on regional and global consumption.

US corporate earnings also played a hand in today’s session. With US tech stock earnings in focus this week. Apple (AAPL), Amazon.com (AMZN), and Alphabet Inc. (GOOGL) will release earnings results this week. A hawkish Fed and gloomy outlooks would be a bearish combination.

While earnings and the Fed will remain the focal point, economic indicators from China beat expectations. The NBS Manufacturing PMI increased from 47.0 to 50.1 in January, with the Non-Manufacturing PMI surging from 41.6 to 54.4. The PMIs reflected the effect of China’s reopening on private sector activity.

The release of today’s PMI numbers coincided with the IMF lifting its 2023 growth forecasts on China’s reopening and economic resilience in the US and Europe. The IMF projected global growth to fall from an estimated 3.4% in 2022 to 2.9% in 2023 before rising to 3.1% in 2024. Notably, the IMF revised the 2023 forecast upwards by 0.2 percentage points.

ASX 200

It was a busy morning on the economic calendar. From Australia, retail sales numbers also drew interest. In December, retail sales tumbled by 3.9%, reversing a 1.4% increase in November, with private sector credit growth slowing from 0.5% to 0.3%. The latest numbers failed to spook investors, however.

In response to the numbers from China and the retail sales figures, the ASX 200 was up 0.09% this morning.

The Big-4 bank stocks struggled through the morning. At the time of writing, ANZ Group (ANZ) was down 0.16%, with Westpac Banking Corp (WBC) and National Australia Bank (NAB) seeing losses of 0.13% and 0.17%, respectively. Commonwealth Bank of Australia (CBA) bucked the trend, rising by 0.16%.

However, the China PMI numbers supported mining and resource stocks. BHP Group (BHP) and Rio Tinto (RIO) were up by 0.65% and 1.79%, respectively, with Fortescue Metals (FMG) up 0.86%.

Near-term, improving China – Australia relations and the China reopening should support a pickup in demand for mining stocks.

Hang Seng Index

It was a choppy morning for the Hang Seng, with Fed Fear overshadowing better-than-expected private sector PMI numbers from China. Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) were down 1.01% and 2.01%, respectively, following Monday’s declines of 7.08% and 6.70%.

US corporate earnings and the Fed could put tech stocks under further pressure this week, leaving investors to tread carefully.

Real estate stocks also continued to see red. Henderson Land (HK: 0012) and Hang Lung Properties (HK: 0101) were down by 0.84% and 2.05%, respectively.

Nikkei 225

The Nikkei 225 was flat this morning, with investors on the sidelines ahead of tomorrow’s Fed interest rate decision and Fed Chair Powell’s press conference.

However, Nissan Motor Co Ltd was a front-runner, rallying by 2.07% on news of an overhaul of the long-standing alliance with Renault SA that puts them on an equal footing.

According to Reuters, Renault and Nissan will hold 15% stakes in each other. As a result, Nissan will get voting rights.

Through the morning session, the USD/JPY pegged the Nikkei 225 back, with the Yen up 0.09% to 130.20 against the greenback.

Looking Beyond Today’s Session

It’s a busy week on the global economic calendar. While private sector PMI numbers will draw interest, US corporate earnings, macroeconomic indicators, and the Fed’s interest rate decision and press conference will likely have more impact on market risk sentiment.

Late in the week, a bullish report could give the Fed hawks more ammunition to lift rates for longer.

See below and check out our economic calendar for today’s economic events.