Labor market contraction raises expectations of interest rate cuts, with Stock Connect recording a net inflow of HKD 2.3 billion on Wednesday

Market Commentary

Before the U.S. stock market opened on Wednesday, payroll processor ADP reported an unexpected decline of 32,000 in private sector employment for November, while economists had previously expected an increase of 40,000. The disappointing data, indicating a contraction in the labor market, led traders to increase expectations for a Fed rate cut at next week's monetary policy meeting. According to the CME FedWatch tool, the market now sees an 89% chance of a Fed rate cut next Wednesday, far higher than the probability predicted in mid-November. Investors expect that a lower interest rate environment will stimulate loan growth and boost the U.S. economy, driving financial stocks higher on Wednesday.

Southbound Stock Connect recorded a net inflow of HK$2.3 billion on Wednesday, with Xiaomi Group (01810.HK) seeing the largest net inflow at HK$870 million, followed by Alibaba (09988.HK). On the other hand, Tencent Holdings (00700.HK) recorded the largest net outflow at HK$730 million, followed by SMIC (00981.HK).

Source: KGI Securities