KGI Asia Commentary

Hang Seng Index rose 229 points on Wednesday

The Hang Seng Index rose 229 points or 1.1% to 22,072 on Wednesday. HSTECH rose 153 points or 3.4% to 4,695 and HSCEI rose 135 points or 1.8% to 7,560. Daily market turnover was HK$155.5bn.

Dow ends flat as Fed hikes rates

U.S. stocks edged higher on Wednesday as investors shrugged off the Fed’s quarter-point rate hike and turned to comments from Fed Chairman Jerome Powell’s acknowledgment of falling inflation. The S&P 500 rose 1.05% to close at 4,119.21, reversing an earlier loss of nearly 1%. The Nasdaq Composite gained 2% to close at 11,816.32, boosted by gains in the chipmaker after AMD reported strong results. Elsewhere, Meta rose sharply in after-hours trading after the company reported quarterly profit that topped expectations and unveiled a $40 billion share buyback program. But shares of social media company Snap fell 10% after it reported mixed quarterly results as revenue fell short of Wall Street expectations on weakness in its advertising business and it did not provide guidance for the future.

The US released numbers of economic data. ADP private sector job growth slowed sharply to a two-year low of 106,000 in January, a two-year low from 253,000 in December last year, well below expectations of 180,000, due to the weather. On the other hand, the Job Openings and Turnover Survey (JOLTS) released by the US Department of Labor showed that job vacancies rose to 1.1012 million in December from 10.44 million in November, higher than the expected 10.3 million. The ISM manufacturing index fell for five consecutive months in January to 47.4, the lowest level since May 2020, worse than expected.

As widely expected, the Fed raised interest rates by 25 basis points

Consistent with market expectations, the Federal Reserve raised the federal funds rate by 0.25 percentage points. That brings the Fed's target range to 4.5%-4.75%, the highest level since October 2007. This is the eighth rate hike starting in March 2022. Ahead of Powell's speech, the market was looking for signs that the Fed would end raising interest rates soon, but the statement did not send such a signal. Stocks initially fell following the news, with the Dow Jones Industrial Average plunging more than 300 points at one point. However, during Powell's press conference, markets rallied after he acknowledged that a "disinflationary process" had begun. The major indexes finally turned stronger as market commentary focused on Powell's upbeat comments on progress in the fight against inflation. In fact, the statement changed parts in its description of the factors that will determine the path of future policy. Officials said they would base their decision on the "extent" of future rate hikes on factors including the impact of rate hikes so far, the lag in which policy has had an impact, and developments in financial conditions and the economy. Earlier, the Fed said in a statement that it would use these factors to determine the "pace" of future rate hikes, which could mean that the committee believes that rate hikes will end somewhere, or at least continue to raise rates modestly.

Hong Kong Stock Connect had a net outflow of HK$2.03bn on Wednesday, of which Meituan (3690) had the largest net inflow, reaching HK$0.73bn; followed by Sensetime (20). Tencent (700) recorded the largest net outflow at HK$0.61bn, followed by CCB (939).