KGI Asia Commentary

2024.07.16 09:47

Hang Seng Index fell 277 points on Monday

HSI dropped 277 pts or 1.5% to 18,015. HSTI dropped 109 pts or 2.9% to 3,672. HSCEI fell 110 pts or 1.7% to 6,421. Market turnover reached $91.1 billion.

Powell acknowledges progress on inflation, Dow closes at record high

The Dow closed at a record high on Monday as Federal Reserve Chairman Jerome Powell said recent inflation data had bolstered market confidence and bets on a rate cut in September increased. The Dow Jones Industrial Average rose 210 points to close at 40211.72 points, an increase of 0.5%, setting a record high. The S&P 500 rose 0.3% and the Nasdaq gained 0.4%. On Saturday, Republican presidential candidate Trump suffered an assassination attempt at a campaign rally in Pennsylvania. Early reactions to the attack appeared to indicate an improvement in his chances of winning the 2024 presidential election, which could lead to tougher trade policies and loosening regulations on issues ranging from climate change to cryptocurrencies. Trump Media and Technology Group surged 33% in recent trading after the attack as Trump survived an assassination attempt, boosting his chances of winning the presidential race. Goldman Sachs shares rose more than 2% after the firm reported second-quarter profit more than doubled, helped by rising bond underwriting fees and a strong performance in its fixed-income trading business. BlackRock reported assets under management hit a record $10.65 trillion in the second quarter as the value of client assets continued to rise and investors poured money into the company's ETFs, pushing the company's shares up 0.60%. Bank of America and Morgan Stanley will report earnings on Tuesday, chip manufacturing giant ASML will report on Wednesday, and technology giant Netflix will report on Thursday.

Powell says recent data bolsters Fed's confidence in inflation

Federal Reserve Chairman Jerome Powell was tightlipped on Monday on when the Fed might start cutting interest rates, but the chairman was more focused on the labor market. In addition, Powell said that recent inflation data have strengthened the Fed's confidence in curbing inflation, suggesting that the Fed is moving towards cutting interest rates. “The second quarter, actually, we did make some more progress. We’ve now had three better readings ... and if you average them, that’s a pretty good pace," Powell said at the Economic Club of Washington D.C.

Hong Kong Stock Connect had a net inflow of HK4.87bn on Monday, of which Tracker Fund (2800) had the largest net inflow, reaching HK$1.19bn; followed by HSCEI ETF (2828). China Hongqiao (1378) recorded the largest net outflow at HK$0.37bn, followed by CNOOC (883).

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SPDR Gold
02840

The US Consumer Price Index (CPI) in June rose 3.0% year-over-year, lower than the previous month's 3.3% and the expected 3.1%. On a monthly basis, inflation declined 0.1%, the first decline since the pandemic. Excluding energy and food prices, core CPI rose 3.3%, lower than the previous month and the expected 3.4%, in line with the Fed's indication that "inflation is progressing towards the target". The easing of inflation has made the market more optimistic about rate cuts. The CME Group's Fed Watch tool indicates that the probability of a 25-basis point rate cut in September has risen to >90%; the probability of totaling 50 basis points by the end of the year has also increased to >50%. Gold does not provide income, so the risk-free rate becomes the opportunity cost of holding gold. The price of gold is negatively correlated with real interest rates; historically, when interest rates rise, gold prices fall. The Eurozone has already started cutting rates, and we expect the US to follow suit this year. Falling Treasury yields is likely to support gold prices. Additionally, ongoing global risk events and concerns about the US fiscal situation may enhance gold's role as a safe haven. Moreover, central banks worldwide increasing their gold reserves further boosts demand. Investors bullish on gold may consider allocating to gold ETFs such as SPDR Gold Shares. 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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