Global markets have seen significant shifts as the United States and the European Union announced a framework trade agreement, sparking optimism across Asian markets, including Hong Kong. The agreement includes a 15% tariff on most EU imports to the US, with expectations of tariff relief for European automakers within weeks. This development coincides with Hang Seng Company preparing to announce the results of its second-quarter index review, which will take effect on September 8, 2025.

In parallel, China has unveiled plans to launch a 500 billion yuan 'quasi-fiscal' tool to support emerging industries and infrastructure, including the digital economy, artificial intelligence, and green energy. In the US, the Federal Reserve faces scrutiny as the Department of Justice plans to investigate Fed Governor Lisa Cook, potentially impacting the balance within the board. Weekly initial jobless claims also exceeded expectations, signaling a potential softening in the labor market.

Global markets are keenly watching Fed Chair Powell's speech at the annual Jackson Hole Global Central Banking Symposium today, which is expected to provide guidance on future monetary policy. Major US stock indexes collectively closed lower on Thursday, weighed down by concerns over Powell's potentially hawkish remarks and disappointing quarterly results from Walmart.

Market Signals

US-EU Trade Deal Impact: The agreement has eased global trade tensions, resulting in a broad rally across Asian markets, with Hong Kong's Hang Seng Index reaching a three-year high.
Sector Boost: Hong Kong's financial services sector, along with tech stocks like AIA Group and HKEX, have shown increased activity due to easing trade tensions and improved economic activity.
Global Market Performance: Major US stock indexes (Dow, Nasdaq, S&P 500) closed lower. Large tech stocks like Tesla, Meta, Amazon, Apple, Nvidia, and Microsoft continued their decline. In contrast, popular China concept stocks like XPeng and Nio rose significantly.
Southbound Fund Inflows: There has been a continued record-breaking surge in southbound fund net purchases of Hong Kong stocks, indicating strong demand from mainland investors (approx. HKD 7.461 billion net inflow).
Company Performance: Major companies including Sinopec and Kuaishou announced their half-yearly results. Kuaishou showed increased revenue and profit, while Sinopec reported a decrease in revenue and net profit. Bilibili returned to profit in Q2 from a loss.

Winners & Losers

Winners: Hong Kong equities overall, companies with US/EU exposure, and mainland investors benefiting from southbound fund flows. Hong Kong's financial services and technology sectors are particularly benefiting from improved market sentiment.Losers: Companies heavily reliant on sectors facing high tariffs or those with significant exposure to disrupted supply chains if they cannot adapt quickly.Supply Chain Implications: The US-EU deal, with its 15% tariff on most EU exports, will reshape some aspects of transatlantic trade, requiring companies to re-evaluate their logistics strategies.

Action Timeline

Immediate: Monitor the Hang Seng Index review results today (August 22), which will impact short-term trading. Follow Fed Chair Powell's speech at Jackson Hole.
Short-term: Evaluate investment opportunities in Hong Kong equities, especially in sectors benefiting from improved trade relations and economic recovery. Be prepared to adapt to potential shifts in trade flows.
Long-term: Understand the structural changes in global trade and the impact of China's 'quasi-fiscal' tools on emerging industries.

Risk Assessment

Regulatory Risks: The full details of the US-EU trade deal are still pending, which could introduce unforeseen complications.
Market Volatility: Markets remain sensitive to trade negotiations and economic data; unexpected developments in US-China talks or other global events could lead to volatility.
Geopolitical Tensions: Despite easing trade tensions, broader geopolitical risks, such as the Russia-Ukraine situation (as hinted by Trump), can still influence market sentiment.
US Political Risks: The investigation into Fed Governor Cook adds a layer of political uncertainty to US monetary policy.

Key Indicators

US-EU Trade Deal: A strong signal of easing global trade tensions, prompting a broad market rally.
Hang Seng Index Review: A crucial event that can create short-term trading opportunities through changes in index components.
China's 'Quasi-Fiscal' Tools: A significant 500 billion yuan investment in emerging industries and infrastructure signals policy-driven growth trends.
US Jobless Claims: Exceeding expectations suggests potential softening in the labor market, which could influence Fed monetary policy decisions.
Powell's Jackson Hole Speech: Will be closely watched for signals on the interest rate path.

Regional Perspective

USA: Focus is on the trade deal with the EU and its impact on domestic industries, labor market data (jobless claims), political scrutiny on the Federal Reserve, and Powell's upcoming speech. Developments concerning Lisa Cook could alter the Fed board's composition.European Union: Benefits from potential auto tariff relief, boosting a vital export sector.China/Hong Kong: Hong Kong benefits from strong mainland investment inflows and a general improvement in regional market sentiment. China's 500 billion yuan 'quasi-fiscal' tools highlight a policy-driven growth strategy focused on innovation and infrastructure, creating unique investment opportunities. The Hang Seng Index review is a key local event impacting investor strategies.

Immediate Implications

Hang Seng Index review results today (August 22) will affect index constituents.
Fed Chair Powell's speech tonight (22:00 EDT) will set the market tone.
Companies need to assess their supply chain resilience and leverage potential new trade flows.
Developments in the investigation into Fed Governor Cook will be crucial to follow for the Fed board's political stability.

What to Watch

Hang Seng Index review results (August 22 announcement, September 8 effective).
US-China trade talks developments, especially regarding an extension of the tariff truce.
Upcoming economic data releases from China, such as official PMI figures for July, for further insight into mainland's economic health.
Any updates on the investigation into Fed Governor Cook and its impact on the Fed board's composition.
Further details on the implementation of China's 'quasi-fiscal' tools and how they will support targeted industries.

Analysis

The achievement of a US-EU trade framework agreement, coupled with optimism on US-China trade talks, signals a period of easing global trade tensions. While this boosts overall market sentiment, particularly in Asia, domestic developments like the Hang Seng Index review in Hong Kong and China's 'quasi-fiscal' tools present specific investment opportunities. However, investors should remain cautious due to volatility risks from monetary policies (Powell's speech), geopolitical tensions (Russia/Ukraine), and political developments (Cook investigation). Hong Kong remains a vital hub, benefiting from mainland capital flows, while China's domestic policies represent significant growth drivers for targeted industries.