Hang Seng Index and ASX 200 Rally on Stimulus Bets, RBA Easing Signals

Wall Street Slips as Debt Downgrade and Stagflation Worries Grip Markets

Wall Street lost ground on Tuesday, May 20, as rising stagflation fears and mounting concerns over US fiscal sustainability weighed on sentiment. The S&P 500 snapped a six-day winning streak, falling 0.39%, while the Nasdaq Composite Index and Dow shed 0.38% and 0.27%, respectively. Market jitters followed Moody’s downgrade of the US sovereign credit rating and fresh Fed warnings on inflation and labor market weakness.

Richmond Fed President Tom Barkin warned about rising prices and a weaker labor market, fueling stagflation fears, stating:

“On balance, tariffs are likely to dampen economic activity and lead to some further softening of the labor market. Tariffs are also likely to have direct one-off effects on the prices of imported final goods, indirect effects on the prices of domestically produced goods and services, and possibly second-round effects on inflation.”

Hang Seng Index Advances on Stimulus Bets

Asian equities had a mixed start to the Wednesday, May 21, session. The Hang Seng Index rose 0.47% in early trading, with investors betting on further policy support from Beijing. On May 20, the People’s Bank of China cut the 1-year and 5-year loan prime rates by 10 basis points to 3% and 3.5%, respectively. The policy easing could boost credit demand and consumption, potentially bolstering China’s economy amid ongoing US-China tensions.

Tech stocks extended gains, with the Hang Seng Tech Index up 0.29%. Alibaba (9988) rose 1.15%, while EV markets Li Auto (02015) and BYD (01211) climbed 2.79% and 3.64%, respectively.

Mainland China’s equity markets also climbed higher, with the CSI 300 and Shanghai Composite up 0.54% and 0.88%, respectively.

Nikkei 225 Dips on Yen Strength

Japan’s Nikkei 225 slipped 0.11% on Wednesday morning, pressured by a stronger Yen. The USD/JPY pair fell 0.31% to 144.052 after reports of Israel planning a strike on Iranian nuclear sites drove demand for safe-haven assets, including the Yen and gold.

Sony Corp. (6758) dropped 1.46%, while Softbank Group (9984) and Tokyo Electron (8035) posted losses of 0.62% and 0.02%, respectively.

Early in the session, trade data from Japan signaled weakening demand for Japanese goods, further weighing on export-linked stocks.

ASX 200 Gains on RBA Rate Cut Bets

Australia’s ASX 200 advanced 0.71% after Tuesday’s RBA interest rate cut. AMP Head of Investment Strategy and Chief Economist remarked on the RBA’s policy outlook, stating:

“RBA monetary policy is “somewhat less restrictive” but the cash rate is still above the avg of the RBAs estimates of neutral (~ 2.8% in this chart). With trimmed mean infl expected to be around target & policy still tight further cuts are likely. We expect the next cut in Aug.”

The S&P/ASX All Technology Index rose 0.85%. Banking and gold stocks contributed to the gains, with Northern Star Resources rallying 3.22% after gold rallied 1.86% overnight on safe-haven demand.

Outlook: Trade, Stimulus, and Geopolitics in Focus

Markets remain highly sensitive to trade developments. Renewed US-China tensions could dampen risk appetite, while easing friction may lift sentiment.

Investors should also monitor news from the Middle East, along with any new stimulus measures from Beijing and further central bank cues. Additional policy easing could support demand for risk assets.

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