Nikkei Rises But the Hang Seng and Most Asian Markets Fell

The Nikkei rose again on Wednesday, but stocks in other parts of Asia mostly fell amid a range of negative news.

Key factors were the lack of strong stimulus from Beijing, while markets await remarks by Federal Reserve chairman Jerome Powell.

The Nikkei 225 in Japan was up by 0.56% to 33,575.14, but the Hang Seng Index in Hong Kong slumped by nearly 2% to 19,218.35.

The Shanghai Composite index also fell 1.3% to 3,197.90, while the Kospi in Seoul dropped by 0.9% to 2,582.63.

Bangkok’s SET was down by 1.12%, while the S&P/ASX 200 in Australia slipped 0.6% to 7,505.60. In India, the Sensex was up by close to 0.3%.

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Carmakers rise after China confirms tax break for EVs

There was some positive news in China, with Beijing announcing a large incentive package to drive sales of electric vehicles (EVs) and other green cars over the next four years.

The 520-billion-yuan ($72.3 billion) package launched on Wednesday sent the shares of automakers sharply higher.

Chinese auto shares rallied after the announcement, with EV makers NIO and Xpeng rising 6.1% and 5.5% respectively, versus a 1.9% drop in Hong Kong’s benchmark index. Li Auto also surged 3.5%.

The news, which was expected after an earlier government pledge to promote the industry, comes as softening sales in the world’s biggest auto market raised concern over economic growth, which is losing momentum after a brisk start to the year.

New energy vehicles (NEVs) purchased in 2024 and 2025 will be exempted from purchase tax amounting to as much as 30,000 yuan per vehicle, with the exemption halving for purchases made in 2026 and 2027, the Ministry of Finance said in a statement.

Dollar firms as Powell set to face Congress

US markets fell on Tuesday after they reopened following the Juneteenth holiday. The S&P 500 dropped 0.5% to 4,388.71, while the Dow Jones Industrial Average fell 0.7% to 34,053.87, and the Nasdaq composite slipped 0.2%, to 13,667.29.

Fed chair Jay Powell was due to testify before Congress later today (June 21). The world’s most powerful central banker faces lawmakers in two days of testimony and will be questioned on whether rates will rise again in July and peak in a 5.5%-5.75% range as projected.

Markets have their doubts and currently imply around a 78% chance of a hike to 5.25-5.5% next month, with that likely being the end of the entire tightening cycle.

“The focus is on whether the July meeting is truly ‘live’ and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions,” Tapas Strickland, head of market economics at NAB, said.

The uncertainty nudged S&P 500 futures and Nasdaq futures down 0.1%, following a 0.2% dip in Europe’s benchmark STOXX index and a 1% fall in MSCI’s broadest index of Asia-Pacific shares outside Japan.

Yuan and yen both down against USD

The US dollar was firmer ahead of Powell’s key congressional testimony, with the dollar index up 0.1% at 102.62.

The Chinese yuan slipped 0.16% against the dollar to 0.139, while the Japanese yen won some respite as risk aversion prompted profit-taking on very crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) doggedly defended its super easy policies.

Minutes of the central bank’s last meeting showed just one of nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested it was best to wait a while.

That lack of urgency should limit any bounce in the yen and kept the dollar underpinned at 141.80 yen, only just off Tuesday’s seven-month high of 142.26.

The euro, likewise, steadied at 154.78 yen, not far from its recent peak of 155.37.

The single currency was flat on the dollar at $1.0916 , while sterling firmed slightly as hotter-than-expected inflation data raised expectations of bigger central bank rate hikes.

BoE seen raising rates

Investors have ramped up bets on the Bank of England raising rates by a hefty half a percentage point, after data showed inflation defied expectations that it would slow and held at 8.7% in May.

That pushed interest rate futures to suggest a roughly 45% chance of a punchy 50 basis point hike to the base rate, up from a 25% chance as of Tuesday.

The latest figures make British inflation the highest of any major advanced economy once again, and sent the domestically focused FTSE 250 index down 0.9% to its lowest level in 11 weeks.

Housebuilders declined 3% at one point as the prospect of more rate hikes raised fresh concerns about mortgage costs.

Rising interest rates and higher bond yields have been a burden for gold which was pinned at $1,934 an ounce, just above last week’s three-month low of $1,924.99.

Oil prices edged higher after a couple of sessions of losses, still struggling with concerns about Chinese demand absent a sizable stimulus package.

Brent added 32 cents to $76.22 a barrel, while US crude rose 35 cents to $71.54.