18th September 2023 – (Hong Kong) Asian shares kicked off the week with caution amidst a series of central bank meetings, including the Federal Reserve and the Bank of Japan, stirring global interest rate concerns.
Early on Monday, S&P 500 futures and Nasdaq futures witnessed a modest 0.2% increase in Asia.
While MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1% after registering a 1.2% gain last week, Japan’s Nikkei remained closed due to a public holiday.
Meanwhile, the decline in Hong Kong stocks has narrowed, with the Hang Seng Index (HSI) currently at 18,094 points, down 87 points. The Hang Seng China Enterprises Index (HSCEI) has fallen 29 points, reaching 6,280 points, while the Hang Seng Tech Index (HSTECH) is at 4,057 points, down 20 points. At 9.40am, the decline in Hong Kong stocks expanded to over 200 points, and the HSI fell below the 18,000-point mark. The latest HSI stands at 17,961 points, up 221 points, while the HSCEI dropped 83 points to 6,225 points. The HSTECH fell 57 points to 4,020 points. Alibaba (9988) previously fell below HK$85, and the latest trading price is HK$85.2, down 1.2%. Tencent (0700) is down 0.6%, Meituan (3690) is down 2%, and Xiaomi (1810) is down 2%.
Recent developments in Asia have shown signs of improvement, with Beijing announcing additional policy support and better-than-expected Chinese data, indicating that the world’s second-largest economy may have overcome the worst of its slowdown.
However, the property sector continues to face challenges, with fears of its impact spreading to the financial system. Troubled Chinese trust firm, Zhongrong International Trust Co, recently announced its inability to make timely payments on certain trust products.
This week, the global spotlight will be on central banks as five of the top ten most heavily traded currencies, including the US Federal Reserve, hold rate-setting meetings. Additionally, numerous emerging market central banks will meet during this period.
Market expectations are already factoring in a pause from the Federal Reserve on Wednesday, making the focus shift towards updated economic projections and interest rate forecasts. Investors are also keen to hear Chair Jerome Powell’s remarks about the future. Analysts predict approximately 80 basis points of cuts in the coming year.
Chris Weston, head of research at Pepperstone, stated, “In theory, the FOMC meeting should be a low-volatility affair, but it is a risk that needs to be managed. We should see the median projection for the 2023 fed funds rate remaining at 5.6%, offering the bank the flexibility to hike again in November, should the data warrant it.”
Weston also noted that if the Fed revises its rate projections for 2024 upward, it could result in the pricing out of rate cuts, leading to renewed interest in the US dollar and a downward pressure on shares.
On Thursday, the Bank of England is expected to raise interest rates for the 15th time, pushing benchmark borrowing costs to 5.5%. Meanwhile, Sweden’s Riksbank is anticipated to hike rates by 25 basis points to 4%.
Friday’s key risk event is the Bank of Japan’s meeting. Market participants are looking for any indications that the BOJ might accelerate its departure from ultra-loose monetary policy, following recent comments by Governor Kazuo Ueda that caused yields to surge.
Last Friday, Wall Street suffered significant losses due to U.S. industrial labor disputes affecting auto shares and chipmakers, along with concerns about weak consumer demand. Additionally, rising Treasury yields added pressure on megacap growth companies such as Amazon.
Cash Treasuries were not traded in Asia due to Tokyo’s closure. On Friday, Treasury yields ticked higher, with the two-year yield surpassing the 5% threshold as futures priced in higher rates ahead of the Fed’s policy meeting.
In the currency markets, the U.S. dollar maintained its strength near a six-month high of 105.23 against a basket of major currencies.
The euro managed a slight recovery of 0.1% to $1.0068 during early Asian trading, following a slump to a 3.5-month low of $1.0629 last week after the European Central Bank hinted that its rate hikes might be coming to an end.
Oil prices saw an increase on Monday after reaching 10-month highs last Friday, fueling inflationary pressures. Brent crude futures rose 0.1% to $94.01 per barrel, while US West Texas Intermediate crude futures climbed 0.2% to $90.97.
