KGI Asia Commentary

HSI fell 41 points on Tuesday

The Hang Seng Index fell 41 points or 0.2% to 19,073 on Tuesday. HSTECH fell 22 points or 0.6% to 4,041 and HSCEI fell 20 points or 0.3% to 6,741. Daily market turnover was HK$143.0bn.

Nasdaq hits record high, cooling inflation boosts hopes of rate cut

Three major indexes hit record highs on Wednesday as CPI cooled more than expected after three consecutive months of unexpected gains, boosting expectations for faster interest rate hikes and sending U.S. Treasury yields sharply lower. The Dow Jones Industrial Average rose 349 points, or 0.9%, the S&P 500 rose 1.2%, and the Nasdaq Composite rose 1.4%. Big tech and chip stocks including Apple, Google, META and Nvidia led the market higher. Nvidia showed signs that demand for its existing chips has not been affected before the release of the next generation Blackwell GPUs. To recap, U.S. producer price index (PPI) was released on Tuesday. The PPI rose 0.5% month-on-month in April, higher than expected, mainly due to rising service costs, indicating lingering inflationary pressures at the beginning of the second quarter. That was higher than the 0.3% forecast by economists and higher than the downwardly revised -0.1% in March. Federal Reserve Chairman Jerome Powell reiterated on Tuesday that inflation is falling more slowly than expected, which could keep interest rates high for an extended period of time. “We did not expect this to be a smooth road.  But these [inflation readings] were higher than I think anybody expected,” Powell said in Amsterdam.  “What that has told us is that we’ll need to be patient and let restrictive policy do its work.” Elsewhere on the economic front, retail sales were unchanged in April, missing market expectations for a 0.4% increase.

CPI rose than expected in April

CPI rose less than expected in April, suggesting that inflation resumed its downward trend at the beginning of the second quarter, boosting financial market expectations for an interest rate cut in September. The BLS said on Wednesday that CPI rose 0.3% last month, following a 0.4% rise in March and February. On an annual basis, CPI rose by 3.4% after rising by 3.5% in March. Economists had previously predicted that the CPI would rise 0.4% mom and 3.4% yoy. Core CPI, which excludes volatile food and energy prices, rose 0.3% from March, while on an annual basis it fell to 3.6% from 3.8% in March. Traders see a 50.5% chance that the U.S. central bank will start cutting rates in September, according to the CME FedWatch Tool.

Hong Kong Stock Connect had a net outflow of HK0.1bn on Tuesday, of which BOC (3988) had the largest net inflow, reaching HK$0.7n; followed by Xiaomi (1810). CNOOC (883) recorded the largest net outflow at HK$0.8bn, followed by HSBC (5).