Hang Seng Index, Nikkei 225, ASX 200: Is China Evergrande a Dark Cloud Over the Forecast?

Key Insights:

• Asian equity markets, led by Nikkei, plunged into negative territory on Friday as tech stocks tumbled.
• Powell’s speech shifts focus; option for rate hikes remains, but hopes of softer inflation limit impact.
• US gains bolster confidence, but China Evergrande Group’s trading resumption application could test risk sentiment.

Friday Overview

The Asian equity markets hit the reverse on Friday. The Nikkei led the Hang Seng Index and the ASX 200 into negative territory.

Tech stocks tumbled despite the (NVDA) earnings release, with the news of China banning the import of seafood from Japan adding further selling pressure. Investors ignored softer inflation numbers from Japan, with a stronger dollar providing little comfort.

US economic indicators from Thursday and losses across the US equity markets weighed on investor sentiment. Tight labor market conditions fueled fear of a hawkish Fed interest rate outlook. US initial jobless claims slipped from 240k to 230k. Core durable goods orders also impressed, rising by 0.5% in July. Economists forecast a 0.2% increase.

The hotter-than-expected numbers coincided with a shift in focus to Fed Chair Powell and the Jackson Hole Symposium.

The NASDAQ tumbled by 1.87% on Thursday, with the S&P 500 and the Dow ending the day down 1.35% and 1.08%, respectively.

Fed Chair Powell Speech and China in Focus

Economic indicators from Australia will draw interest this morning, with July retail sales numbers in focus. A larger-than-expected increase in retail sales could put the RBA in the spotlight. Investors expect the RBA to stand pat in September after the disappointing employment figures.

While we expect ASX 200 sensitivity to the numbers, the Asian markets will consider the Fed Chair Powell speech and the US equity market gains. Powell left the option for further rate hikes on the table. However, hopes of softer wage growth and inflationary pressures limited the impact on the US equity markets.

The Dow and the NASDAQ Composite Index gained 0.73% and 0.94%, respectively, with the S&P 500 rising by 0.67%. While the US gains should provide support, China will remain a consideration. China Evergrande Group (HK: 3333) will be a focal point following news of the company meeting its resumption guidance and applying to resume trading today.

This morning, the Asian futures point to a bullish open. Dovish BoJ Governor Ueda comments from the Jackson Hole Symposium should offer Nikkei support.

ASX 200

The ASX 200 saw red on Fed monetary policy anxiety, falling 0.93%. The big four banks and mining stocks joined a tech stock rout.

On Friday, The Commonwealth Bank of Australia (CBA) and The National Australia Bank (NAB) saw losses of 1.03% and 1.76%, respectively. ANZ Group (ANZ) and Westpac Banking Corp (WBC) fell by 0.90% and 0.51%, respectively.

Mining stocks also saw red. Rio Tinto (RIO) and BHP Group Ltd (BHP) ended the day down 0.85% and 1.74%, respectively. Newcrest Mining (NCM) and Fortescue Metals Group (FMG) saw more modest losses of 0.74% and 0.62%, respectively.

Fortescue Metals Group will be in focus today, with full-year earnings results in the spotlight.

Oil stocks struggled over demand concerns. Woodside Energy Group (WDS) and Santos Ltd (STO) fell by 1.34% and 1.15%, respectively.

Hang Seng Index

The Hang Seng Index fell by 1.40%, ending a three-day winning streak, as investors dumped tech stocks ahead of the Powell speech.

The main Index components contributed to the HSI losses. Alibaba Group Holding Ltd (HK:9988) and Tencent Holdings Ltd (HK:0700) ended the day down 2.29% and 1.60%, respectively.

Bank stocks had a mixed session. HSBC Holdings PLC and China Construction Bank (HK: 0939) saw losses of 0.76% and 0.24%, respectively. The Industrial and Commercial Bank of China (HK:1398) bucked the trend, gaining 0.29%.

Nikkei 225

(For reference purposes only)

The Nikkei 225 tumbled 2.05%, with the China ban on imports of seafood from Japan and fear of a more hawkish Fed weighing. A stronger USD/JPY provided no comfort on Friday.

Banks ended the week with losses. Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group declined by 0.34% and 0.39%, respectively.

Tokyo Electron Limited (8035) and SoftBank Group Corp. (9984) reversed gains from Thursday, sliding by 5.93% and 3.05%, respectively. AI and chip-related stocks were among the worst performers.

However, Fast Retailing Co (9983) fell by 3.04% on the news of China banning seafood imports from Japan. Retailers exposed to China are at risk of further action from Beijing after the Japanese government released contaminated water into the sea. The firm has over 900 Uniqlo stores in China.

KDDI Corp. (9433) and Sony Corp. (6758) fell by 1.07% and 1.29%, respectively.

Check out our economic calendar for economic events.