KGI Asia Commentary

2024.06.06 09:47

Hang Seng Index fell 19 points on Wednesday

Hong Kong stocks were volatile on Wednesday. After opening 45 points higher, the Hang Seng Index rose 280 points, but then turned down at market close. It fell 19 points, or 0.1%, to close at 18,424 points for the whole day; the HSI fell 11 points, or 0.2%, to close at 6,542 points ; The Hang Seng Technology Index rose 11 points, or 0.3%, to close at 3,807 points. The total daily turnover of the market was HK$115.63 billion. Meituan (3690) is about to announce its quarterly results, and its share price fell 0.8%. Oil stocks generally fell, with PetroChina (0857) and CNOOC (0883) falling 2% and 1.7% respectively.

ADP is lower than expected and revised down the previous value

U.S. stocks closed higher on Wednesday. The Dow Jones index rose 96.04 points, or 0.25%, to 38,807.33 points; the Nasdaq index rose 330.86 points, or 1.96%, to 17,187.90 points; the S&P 500 index rose 62.69 points, or 1.18%, reported 5,354.03 points. In terms of individual stocks, NVIDIA's stock price reached a new high. The stock price exceeded US$1,200 per share, corresponding to a market value of more than US$3 trillion. It surpassed Apple and became the second largest company in the US stock market by market value, just behind the size of Microsoft. Wall Street's current highest target price for NVIDIA is $1,500.

One of the reasons for the rise in the overall index and stock prices may be that market expectations for interest rate cuts have once again increased after the release of yesterday's economic data. Yesterday, the United States released ADP data for May. Private sector employment increased by 152,000, which was lower than the expected 175,000. The previous value was revised down to 188,000. The data mainly reflects the current cooling of the private job market, and the downward revision of the previous value also strengthens this view. The moderate cooling of the labor market reduces the chance of a further rebound in subsequent inflation, which is conducive to the Federal Reserve speeding up the interest rate reduction adjustment period.

U.S. labor market cools, market expectations for interest rate cuts revive

On the premise that the ADP data were lower than expected and lower than the previous value, it conformed to the recent cooling trend of the labor market and opened up space for the market to cut interest rates this year. According to FedWatch Tool data, markets are betting that the Federal Reserve will cut interest rates by about 50 basis points before the end of this year. As for the chance of a 25-bp rate cut in September, it has risen to 58% from 42.1% a week ago, reflecting that the market is gradually strengthening the expectations of the interest rate cut.

The net inflow of Southbound Trading on Wednesday was HK$7.74 billion, of which Tencent (700) had the largest inflow, reaching HK$1.1 billion; followed by China Mobile (941). PetroChina (857) recorded the largest net outflow of HK$347 million; followed by Industrial and Commercial Bank of China (1398).

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SPDR GOLD TRUST
02840

Gold ETFs were our key recommendation at the end of last year, and we continue to maintain a positive outlook on gold. Previously, the Federal Reserve kept interest rates within the target range of 5.25%-5.50%, in line with market expectations. During the press conference, Fed Chairman Jerome Powell ruled out the possibility of resuming rate hikes. Subsequently, the core Personal Consumption Expenditures (Core PCE) price index, a key inflation indicator favored by the Fed, showed that its month-on-month increase slowed from 0.3% in March to 0.2% in April, marking the slowest pace this year. The Fed's stance was less hawkish than anticipated, and with the inflation data meeting expectations, the market now sees more than a 50% chance of a rate cut in September. Given the inverse relationship between interest rates and gold prices, gold can be accumulated gradually. Target price: $1800.

Wen Kit Kenny is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to:https://apps.sfc.hk/publicregWeb/indi/AJF244/details). He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.

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