KGI Asia Commentary

HSI fell 246 points on Tuesday

The Hang Seng Index fell 246 points or 1.3% to 19,431 on Tuesday. HSTECH fell 51 points or 1.3% to 3,852 and HSCEI fell 90 points or 1.3% to 6,603. Daily market turnover was HK$86.3bn.

Wall Street ends lower as uncertainty persists

The S&P 500 fell 1.12% to close at 4,145.58 and the Nasdaq Composite lost 1.26% to close at 12,560.25. The Dow Jones Industrial Average fell 231.07 points, or 0.69%, to 33,055.51. Technology stocks were among the worst performers of the day, with Apple, Alphabet and Microsoft leading losses, pressured by surging U.S. Treasury yields. Elsewhere, Apple shares fell 1.5% after announcing a multibillion-dollar chip production deal with Broadcom. Broadcom shares rose 1.2%. Shares of retailers were broadly lower, though Lowe's Companies Inc closed up nearly 1.6% after reporting first-quarter results that topped estimates, but lowered its full-year forecast on weaker consumers and lower lumber prices. Casino stocks Caesars, MGM and Wynn were all down more than 5% in the final hour before the close on Tuesday. Bloomberg reported Monday morning, citing a senior health official, that China could peak at 65 million infections per week during the next wave of the outbreak in late June. Regional bank shares rose from the previous day, boosted by a 7% rise in PacWest Bancorp shares. The U.S. bank announced earlier this week that it would sell $2.6 billion in loans to bolster its finances. The central bank's “liquidity backstop should be available whenever" as long as banks need it, Dallas Fed President Logan said on Tuesday. A day earlier, St. Louis Fed President James Bullard said he expected two rate hikes would be needed to curb inflation. Elsewhere, the energy sector was the only sector to gain ground, with Saudi Arabia's energy minister warning speculators against shorting oil, sparking the prospect of further production cuts, sending oil prices up 1%. On the economic front, service sector activity rose more than expected in April to a 12-month high, likely pushing up inflation.

Debt Ceiling discussions have not made new progress

Lawmakers in the U.S. Congress have yet to reach an agreement on how to raise the U.S. government's debt ceiling after another round of negotiations. With just days left until June 1, U.S. Treasury Secretary Janet Yellen warned that the U.S. may not be able to repay its debt. Both Biden and McCarthy, however, were optimistic about reaching a deal to avoid default.

Hong Kong Stock Connect had a net inflow of HK$5.05bn on Tuesday, of which Tracker Fund (2800) had the largest net inflow, reaching HK$2.1bn; followed by HSCEI ETF  (2828). CCB (939) recorded the largest net outflow at HK$0.36bn, followed by SMIC (981).