KGI Asia Commentary

HSI rose 147 points on Tuesday

The Hang Seng Index rose 147 points or 0.8% to 17,664 on Tuesday. HSTECH rose 49 points or 1.3% to 3,874 and HSCEI rose 54 points or 0.9% to 6,052. Daily market turnover was HK$79.6bn.

Dow adds more than 100 points, as falling Treasury yields lift stocks

The Dow closed higher on Tuesday as latest comments from Federal Reserve officials suggesting another pause in interest rate hikes next month kept U.S. Treasury yields in check. The Dow Jones Industrial Average rose 134.65 points, or 0.40%, to close at 33,739.30 points. The S&P 500 rose 0.52% to close at 4,358.24 points. The Nasdaq index, which is dominated by technology stocks, rose 0.58% to close at 13562.84 points. The 10-year U.S. Treasury yield fell nearly 13 basis points to around 4.65% as investors sought safe assets amid the conflict. Yields and prices move in opposite directions. U.S. bond markets were closed Monday for Columbus Day. But the move reflects the U.S. bond market’s first reaction to the conflict between Israel and Hamas. Investors are temporarily ignoring geopolitical risks arising from the war between Israel and Hamas, benefiting from a stronger-than-expected September non-farm payrolls report on Friday and optimism ahead of a series of third-quarter earnings reports this week. After PepsiCo announced its quarterly financial results, the company's stock price rose nearly 2%. Bank stocks rose as JPMorgan and other Wall Street banks officially begin reporting quarterly earnings reports on Friday. Sentiment in banks has also been boosted by the unwinding of the inverted yield curve, as rising long-term rates boost banks' lending operations as they tend to borrow short-term and make longer-term loans.

Bostic doesn’t think the Fed needs to raise interest rates

Atlanta Fed President Raphel Bostic increased expectations that the Fed will keep interest rates unchanged next month. "I actually don't think we need to increase rates anymore" to get too-high inflation back down to the Fed's 2% goal," Bostic told the American Bankers Association on Tuesday. Policy is sufficiently restrictive, and "a lot" of the impact of the Fed's rate hikes so far is clearly yet to come, he said. But he added that there was also a lot of momentum in the economy, which could "sop up" some of the impact of policy tightening and allow the economy to slow down without falling into recession. The Israeli-Palestinian conflict that broke out over the weekend has created uncertainty for the U.S. and global economies, Bostic said, noting that it will lead to a rethinking of markets and investments.

Hong Kong Stock Connect had a net inflow of HK$6.2bn on Tuesday, of which Tracker Fund (2800) had the largest net inflow, reaching HK$4.3bn; followed by Meituan (3690). Tracker Fund (2800) recorded the largest net outflow at HK$0.9bn, followed by China Mobile (941).