Bank of China (Hong Kong) Ltd expects the US Federal Reserve to cut interest rates twice this year, totaling 50 basis points, with cuts likely in September and December.
At a news conference on Monday, BOCHK cited a weakening US job market as a potential catalyst for the Fed to accelerate its rate-cutting cycle.
Ding Meng, a senior economist at BOCHK, said he expects interest rate cuts to be made as “a cautious and defensive approach”, rather than in response to any economic crisis.
“If we define a recession as two consecutive months of negative quarter-on-quarter GDP growth, I don’t think the US economy will slip into a recession too quickly,” he said.
ALSO READ: US unemployment rate ticks up, strengthening case for rate cut
“The recent pullback in US stocks, including the plunge in leading technology stocks, is a shift toward a normal pace after the market set excessively high expectations for them,” Ding said.
The gloomy outlook for the US job market stoked fears of a recession in the US economy among investors. A job market report released last week showed the US unemployment rate rising to its highest level in nearly three years.
The Hong Kong stock market benchmark — the Hang Seng Index — had fallen by 1.46 percent to 16,698.36 at the close of Monday. The Hang Seng Tech Index had dropped by 1.36 percent and the Shanghai Composite Index had slipped by 1.54 percent.
The decline came against the backdrop of an Asian stock market rout, with Japan’s equity gauge suffering its biggest-ever daily loss.
ALSO READ: Top Fed officials say they are 'closer' to cutting interest rates
Amy Cheung, head of the wealth strategy and insights division of BOCHK, said, “If the Hang Seng Index can hold above 16,000 points, there is a possibility that after the US interest rate cut, market sentiment may improve, and the index may test the highs of around 18,300 points seen in March and April.”
She said she expects the utilities and telecommunications sectors to perform well.
Gold prices, which have been acting as a hedge against the US dollar, are on an upward trend, according to Cheung. “Before the interest rate cut, the spot gold price may look at $2,500 per ounce.”
Ding also noted that the strong Hong Kong dollar pegged to the greenback has weighed on consumers’ appetite in Hong Kong’s retail sector.
READ MORE: Global central banks recalibrate as the big policy easing of 2024 fizzles
“The city’s tourism sector saw a growing number of visitors. Meanwhile, its consumer price index has remained stable, and the value of merchandise trade continues to increase,” Ding said.
These factors may provide some support to Hong Kong’s weak consumption, he added.
