Hong Kong Rallies on China Stimulus Hopes

Equities

In Asian markets, the Hang Seng index emerged as a frontrunner, spurred by Beijing's stimulus measures and policy easing in response to the liquidation of China Evergrande. This uplift in Asian stocks is a noteworthy turnaround, given the recent lows experienced by these markets. Meanwhile, in the US, the S&P 500's recent decline halted its streak of record highs, signalling potential volatility ahead, particularly as major tech firms prepare to announce their earnings. This scenario sets a cautious tone for investors.

In the US, the focus will be on the tech giants – Alphabet, Microsoft, Meta and Apple – as their financial results could set the direction for market sentiment. Given their significant market capitalisation, these companies' performances are crucial indicators of the broader market health. Furthermore, Tesla's recent decline and Nvidia's gains exemplify the divergent paths within the tech sector, underscoring the importance of individual company performances in shaping market trends.

Forex

The dollar is holding steady, a reflection of investors' cautious approach amidst a week filled with critical economic data and the Federal Reserve's policy meeting.

The euro and the British pound are also under scrutiny, following the ECB's decision to maintain high interest rates and ahead of the Bank of England's impending policy announcement on Thursday. Traders are weighing the likelihood of rate cuts against more robust economic data, which will significantly influence major currency pairs, including the GBPUSD and EURUSD.

As financial markets brace for the upcoming Federal Reserve policy meeting, investors are closely monitoring the potential impact on the US economy and global financial markets. There's a growing reassessment of earlier expectations for aggressive rate cuts. The Fed, which surprised markets with a dovish tilt in December, is now facing a critical decision point. Investors have shifted their expectations for the Fed's first rate cut, moving it from March to May, with the markets pricing in a total of 135 basis points in cuts by year end, a reduction from previous estimates.

Elsewhere

The US bond market demands some attention, with the US Treasury's forthcoming funding and auction size announcements poised to influence bond yields.