KGI Asia Commentary

Hang Seng Index rose 23 points on Wednesday

The Hang Seng Index rose 23 points or 0.1% to 19,172 on Wednesday. HSTECH rose 29 points or 0.8% to 4,001 and HSCEI rose 16 points or 0.3% to 6,521. Daily market turnover was HK$79.31bn.

U.S. Treasury yields fall despite Powell's hawkish tone, big tech stocks climb

The Dow slipped on Wednesday, but gains in big tech stocks capped losses across Wall Street as U.S. Treasury yields slipped, even as Federal Reserve Chairman Jerome Powell insisted further rate hikes were still possible after pausing last month. The Dow Jones Industrial Average fell 0.2%, or 78 points, the Nasdaq rose 0.3%, and the S&P 500 was flat. Google led the tech sector higher, rising more than 1%. However, semiconductor stocks held back gains in tech stocks, with shares of Nvidia Corp falling on concerns about the impact of new U.S. restrictions on exports of artificial intelligence chips to China. Micron Technology reported better-than-expected quarterly results and positive guidance after the close, saying the trough in memory was nearing its bottom. Shares of Tesla rose more than 2% on optimism that the electric carmaker's price cuts in China boosted demand and pushed sales in the April-June quarter to record levels. Cruise stocks entered rally mode, with Carnival Corporation continuing to rise after the company reported a smaller-than-expected loss and a positive outlook as the company continues its recovery from the pandemic. Royal Caribbean Cruises Ltd and Norwegian Cruise Line also jumped. In other earnings, shares of General Mills fell more than 5% after the maker of cereal, pet food and Pillsbury dough reported weaker-than-expected quarterly results.

Powell mentions possibility of rate hike in back-to-back meetings

Powell noted that a strong labor market continues to drive consumer spending, which accounts for about two-thirds of economic growth. Monetary policy was not restrictive enough, he said, and he did not rule out raising interest rates at successive meetings. We believe there’s more restriction coming,” Powell told a monetary policy meeting in Portugal. “What’s really driving it ... is a very strong labor market.” The comments reiterated positions taken by Powell and other policymakers at their June meeting, when they said a half-percentage-point increase in interest rates was likely by the end of 2023. “I wouldn’t take, you know, moving at consecutive meetings off the table,” he said. Asked about the strain on the banking sector, Powell said March led to the closure of Silicon Valley Bank and two other financial institutions. The issue was indeed a factor considered at the last meeting. While Powell has repeatedly stressed that he sees overall health in the U.S. banking sector as solid, he said the Fed needs to be mindful that there may be some issues with credit supply. Recent surveys have shown that lending standards have generally tightened and demand for loans has fallen. “Bank credit availability and credit can move down a little bit with a bit of a lag. So we’re watching carefully to see whether that does appear,” he said.

Hong Kong Stock Connect had a net outflow of HK$7.30bn on Wednesday, of which Tracker Fund (2800) had the largest net inflow, reaching HK$4.21bn; followed by HSCEI ETF (2828). China Unicom (762) recorded the largest net outflow at HK$0.19bn, followed by ICBC (1398).