Hong Kong shares slumped hard for the second straight day as inflation concerns continued. The Hang Seng index crashed by more than 1.40% and reached a low of h$20,820, which was the lowest point since June 16th. Other Chinese indices like the Shanghai and China A50 also tumbled.
Why is the HSI index falling?
The Hang Seng index crashed hard for the second straight day as investors reacted to the strong jobs numbers published in the United States on Friday. The data showed that the country’s unemployment rate remained unchanged at 3. 6% in June of this year as the economy added over 372k jobs.
While these numbers were good, they also implied that the Federal Reserve will continue hiking interest rates in the coming months. The baseline is that the Fed will hike by 0.75% in July followed by 0.50% in September. As such, the inflation data scheduled for Wednesday this week will likely not have an impact on the Fed.
The actions of the Fed are important for Hong Kong shares because of the HKD peg. Hong Kong’s “central bank” usually follows the actions of the Fed. As such, it has already hiked interest rates by 150 basis points this year.