2026-01-29 12:01

Key takeaways As expected, the FOMC decided to keep the federal funds target range steady at 3.50-3.75% in January, following a sequence of rate cuts at the September, October and December policy meetings last year. While the Fed didn’t ease at this meeting, the 10-2 vote split, with two FOMC voters favouring a 0.25% rate cut, indicates a modest bias towards less restrictive rate policy within the Fed. Although the latest FOMC dot plot implies roughly one 0.25% cut in 2026 and another in 2027, we maintain our view that there will be no further rate cuts through 2026 and 2027, with double-sided risks to this outlook as the economy evolves. Chair Powell noted that the growth outlook has improved since the last FOMC meeting and reiterated that inflation remains above the Fed’s target, with tariffs likely to result in a one-time price increase. We continue to overweight investment grade credit, where we still see opportunities for investors to capture solid yields. For equity investors, robust economic growth and strong corporate earnings continue to be supportive. Combined with the ongoing tech revolution led by AI, this backdrop underpins our bullish view on global equities, with an overweight stance on US stocks. We expect the USD to remain under selling pressure in the coming weeks, mostly on structural concerns. Please refer to the full report for details about the event and our investment view. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/policy-on-hold-as-the-fed-signals-patience/

2026-01-29 08:06

Key takeaways The EU-India FTA has been announced, bringing together two large regions with complementary trade baskets and large potential to integrate. For both sides, the trade deal will likely bring diversification benefits beyond goods trade. The aim is to double bilateral trade in five years; sectors to benefit include textiles, jewellery, and engineering goods for India, automobiles and defence for the EU. After a two-decade long negotiation, India and the EU have finally sealed a Free Trade Agreement (FTA). The implementation is likely in 2027, following legal vetting and EU parliamentary approval. This is amongst the larger global trade deals recently negotiated. India and the EU combined account for around 25% of global GDP, and the deal is billed as the largest ever made by both sides. The potential for growth is substantial, given the trade in this region is only 0.6% of global trade. The benefits could eventually go beyond goods trade, including larger FDI flows, more services trade, and strategic diversification. The FTA is described as the “mother of all deals” – which is balanced, yet ambitious and mutually beneficial for both parties.In FY25, India-EU goods trade was almost USD140bn. Details show that the India-EU trade is built on complementary value chains. The EU sells capital goods and industrial inputs to India (such as high-end machinery, electronic components, aircraft, and medical devices). India sells labour-intensive and consumer-focused goods to the EU (such as smartphones, garments, footwear, pharmaceuticals, auto parts, and diamonds, though fuel tops the list). As per the press release, the trade agreement aims to liberalise 92-97% of tariff lines. Officials hope the deal will double bilateral trade within five years. In detail, several sectors are to be liberalised, while respecting red lines on both sides: Labour-intensive exports like textiles, leather, marine products, gems and jewellery are set to gain from preferential access and tariff elimination. India to cut import duties on automobiles from 110% to as low as 10% (quota of 250k). Indian-made automobiles to get access to the EU market. Tariffs on the EU’s export of wine to be cut from 150% to 75% (and eventually reduced to 20%). Both sides to get preferential access to each other’s agricultural markets, while safeguarding sensitive sectors (e.g. dairy for India and chicken/beef for the EU). Services trade is likely to benefit from preferential access (e.g. in financial services). Labour may benefit from easier mobility norms. Investment may get a boost from supply chain integration and deeper partnerships (for instance, in defence) 0.6% of global trade EU-India trade remains limited, with room to grow For India, just when it was needed Meaningful unrealised potential. As a block, the EU is India’s largest trading partner. In FY25, India exported USD76bn of goods to the EU and bought USD61bn of goods from the EU. Prior to this trade deal, the ITC export potential map showed that c50% of India’s export potential to the EU remains untapped. As per ITC, large gains are possible across several sectors – machinery, jewellery, electronics, pharmaceutical components, and textiles. c50% of India’s export potential to the EU remains unrealised Substitute for US exports. The 50% tariff imposed by the US on India’s exports has led to efforts by Indian exporters to look for new destinations. Interestingly, India’s exports in value terms to the EU (USD76bn in FY25) and the US (USD87bn) are in the same broad range, and the products traded are also similar (see exhibit 5, barring the large fuel exports to the EU). From that perspective, the EU could be a region that India wants to focus on, to redirect some of its exports. Indeed, labour intensive sectors, such as textiles and gems and jewellery, were most at risk with the US tariffs (see exhibit 6). These may now benefit from tariff elimination in the India-EU trade deal. In the medium term, gains could be larger and beyond goods trade, spilling over into FDI flows (India currently gets 16% of its FDI from the EU), and more integration in services trade (c20% of India’s IT exports currently go to the EU). External reforms strengthen. This trade deal follows other recent external sector reforms. India signed several trade deals last year, including deals with the EU, New Zealand, and Oman. It is opening up more sectors for FDI (e.g. FDI limits in insurance have been raised from 74% to 100%). And it is lowering tariffs on imported intermediate inputs (we expect more on this in the 1 Feb budget). As we have previously described,these steps should help grow India’s manufacturing sector, which has been a laggard, especially when compared with India’s services exports. For the EU, a deal with trade but also strategic implications From the EU’s point of view, the deal also represents an opportunity to improve its access to a large market (1.4 billion people) that is still relatively closed. Today, India represents only 0.8% of the EU’s exports in goods, versus 3.6% for mainland China for example. Given the focus on cars in the deal, there is potential to increase the share of India in EU exports in machinery and transport equipment (1.1% versus 4.9% for mainland China), a sector that represents the largest part of EU exports to India (see Exhibit 7). There could also be an opportunity for the European defence industry, given the willingness to strengthen defence ties via the EU-India Security and Defence Partnership. The trade deal could especially benefit Germany, France, and Italy as they are the EU countries that export the most to India in absolute terms (with respectively 35%, 15%, and 11% of EU exports to India, see Exhibit 8). In relative terms, India represents the higher share of total exports for France (1.4%), Belgium (1.3%), Germany (1.2%),and Finland (1.1%). Beyond trade, the deal also has strategic implications for the EU as it allows to strengthen the diplomatic and defence ties with a key strategic partner in Asia. It also supports diversification away from China and the US, extending the push seen with the recent EU-Mercosur deal. Risks: That said, EU farmers may protest against agricultural imports from India. The FTA still needs to be approved by the European Parliament (EP), which would take at least a year. Recently, the European Court did not approve the EU-Mercosur deal, which now awaits judgement by the EP. Secondly, the EU’s carbon border levy could blunt some tariff gains for India, especially for sectors such as steel, although today’s press release mentions some flexibility has been secured. Either way, key sectors like pharma and textiles are relatively less carbon intensive. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/finally-done-meaningful-benefits-to-come/

2026-01-27 07:04

Key takeaways USD-JPY fell sharply amid possible US-Japan joint FX intervention. History shows coordinated FX intervention can be impactful, though not a guaranteed solution. Japan faces fiscal consolidation challenges, with FX intervention and policy changes under consideration. USD-JPY experienced a sharp decline late Friday during the US trading session, following reports that the New York Federal Reserve (Fed), on behalf of the US Treasury, conducted rate checks (The New York Times, 23 January). This move came after an earlier surge in USD-JPY during the Bank of Japan (BoJ) Governor Ueda’s press conference, and subsequent remarks from Finance Minister Katayama highlighting the Japanese government’s heightened vigilance over FX market developments (Bloomberg, 23 January). Given how the Japanese and US authorities have already emphasised their shared concerns about the JPY a couple of weeks ago (Bloomberg, 13 January; US Treasury’s readout on 14 January), this recent rate check suggests joint intervention is possible over the near term. Source: Bloomberg, HSBC Historical precedent suggests that coordinated FX intervention between Japan and the US, such as the impactful action on 17 June 1998, tends to be more effective than unilateral measures. On that occasion, both parties sold modest amounts of USD (USD0.8bn by the US and USD1.7bn by Japan), resulting in a 6% move in USD-JPY, with no further intervention for an extended period. However, frequent joint interventions over May 1989-April 1990 (where the US sold USD12bn and Japan sold USD22bn in total over numerous occasions) did not provide a lasting solution, indicating that US involvement is not necessarily a game-changer or a panacea for the JPY’s weakness. Currently, a risk premium is evident for the JPY, as reflected by the divergence between USD-JPY and yield differentials. Market concerns regarding Japan’s fiscal sustainability have intensified amid inflation and political shifts. With general elections on 8 February and ongoing discussions around consumption tax relief, concrete strategies to address fiscal gaps remain under debate. While fiscal dominance is not inevitable, restoring credibility will require time and further action from Japanese authorities. Meanwhile, FX intervention and measures to encourage domestic investment over foreign assets may provide support for the JPY. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-intervention-speculation/

2026-01-26 08:04

Key takeaways The JPY has stayed weak amid domestic political uncertainty. “Risk-on” G10 currencies have outperformed, supported by global risk appetite and easing trade tensions. Domestic drivers are supporting AUD and NZD strength. The JPY has kicked off 2026 on a weak note (Chart 1), with attention on the snap election set for 8 February (Bloomberg, 19 January). Political uncertainty in Japan has pushed USD-JPY away from the usual yield differential trends (Chart 2), signalling a growing risk premium for the JPY. With market nerves unlikely to settle over the near term, JPY weakness looks set to persist. However, Japan’s Ministry of Finance may intervene if USD-JPY rises further. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, “risk-on” currencies − AUD, NZD, NOK, and SEK – have outperformed other G10 currencies year-to-date, each posting notable gains against the USD (see Chart 1). Their outperformance appears to be somewhat supported by a favourable global risk environment, with international equities (excluding the US) outperforming the S&P 500 Index (Bloomberg, 22 January). Additionally, market sentiment might have improved following the recent easing of tensions surrounding US-EU trade issues related to Greenland. Recent developments have highlighted the potential for rapid shifts in US policy, with periods of escalation followed by sudden reversals. This volatility has weighed on the USD, as well as US equities and bonds − a combination referred to as the “Triple Threat”. These developments warrant close monitoring (see “FX Viewpoint Flash” USD: The “Triple Threat” reminder, 21 January for further details). On the domestic front, several factors are supporting the AUD and NZD. Our economists expect both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) to deliver two rate hikes in 2026, with the RBA anticipated to begin tightening on 3 February. Markets currently price in a c60% chance of this move (Bloomberg, 22 January), suggesting further potential for rates-driven AUD strength. While New Zealand’s rate hikes may come later, its economic recovery is gaining momentum, aided by supportive fiscal policy ahead of the general election on 7 November (ABC news, 21 January). All this could present upside risks for the NZD over the coming months. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/g10-currencies-leaders-and-laggards/

2026-01-22 07:04

Key takeaways The “Triple Threat” occurred on 20 January, marking the first simultaneous move in months across USD, equities, and yields. This rare combination may indicate reduced confidence in the US and present challenges to traditional portfolio diversification. If it persists for consecutive days, it could signal deeper structural concerns, which warrant close monitoring. On 20 January, we observed a rare market event: the USD weakened, US equities (S&P 500 Index) declined, and US Treasury yields rose − a combination we refer to as the “Triple Threat”. This was the first instance of such a pattern since the aftermath of “Liberation Day” in April last year. Under typical market conditions, rising Treasury yields are associated with stronger growth expectations or higher inflation, which generally support equity markets. Conversely, when both equities and bond yields fall, it usually signals a deterioration in risk appetite, with the USD often strengthening as investors seek safety. The distinguishing feature of the recent “Triple Threat” is the simultaneous weakness in the USD. A declining US Dollar Index (DXY) alongside rising Treasury yields suggests that nominal yields are not sufficiently attractive to draw in capital. This may reflect concerns about real returns, policy uncertainty, or doubts regarding the sustainability of US fiscal and monetary frameworks. Rather than indicating healthy global risk appetite, USD weakness in this context points to reduced confidence in the US. From a portfolio perspective, this scenario challenges traditional diversification strategies, as both risk assets and defensive holdings like the USD can experience drawdowns at the same time. This shift in correlations raises important considerations for portfolio construction and risk management. Historically, “Triple Threat” has been relatively infrequent. Since 2000, it has occurred on 455 out of 6,797 trading days (around 6.7%), with a maximum run of three consecutive days. Looking further back to the early 1970s, the longest stretch was four days. In summary, the “Triple Threat” serves as a signal of underlying structural concerns in the market, rather than typical cyclical fluctuations. If this pattern persists for consecutive days or over the coming days, it may warrant closer attention and a reassessment of market positioning. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-the-triple-threat-reminder/

2026-01-20 12:01

Key takeaways An investment rebound is around the corner, supported by the new wave of government funding and projects. “DeepSeek moments” likely to emerge in other sectors, thanks to China’s continued focus on innovation. Reflation and housing market expectations, on the other hand, depend on policy intensity and implementation. China data review (December, Q4 & full year 2025) China’s GDP grew 5.0% in 2025, meeting the government’s target of “around 5%”. However, GDP growth ended the year softer, rising 4.5% y-o-y in Q4, affected, in part, by a high base. The underlying data showed pressures have grown on the domestic economy with investment spending falling 3.8% for 2025 while ongoing resilience in trade helped keep industry production buoyant. Fixed asset investment (FAI) contracted by 3.8% in 2025, marking the sharpest decline in decades. The weakness remained broad-based, with significant falls in December across property (-36% y-o-y), manufacturing (-11%) and infrastructure (-10%). Insufficient “seed capital” likely hit infrastructure, while tariff uncertainties and weak business confidence weighed on manufacturing. Retail sales grew by 3.7% in 2025, slightly above the 3.5% recorded in 2024. However, growth softened to 0.9% y-o-y in December, due in part to a high base from trade-in subsidies in certain products. The breakdown for December shows positive impact of these consumer goods trade-in subsidies, with communications equipment sales rising by 21% y-o-y. Exports closed the year on a strong note, rising by 6.6% y-o-y in December. The trend of trade restructuring continued as exports to the US fell faster, while those to other markets like EU and ASEAN sustained double digit growth. Meanwhile, imports grew 5.7% y-o-y in December supported mostly by hightech products (+13.5%) and infrastructure-linked commodities, e.g., copper. CPI was up 0.8% y-o-y in December amidst stable core CPI (+1.2% y-o-y) and rising food prices (+1.1%), particular for vegetables (+18.2% y-o-y). On the producer front, PPI recorded a narrower y-o-y decline of 1.9% supported by rising prices of non-ferrous metals manufacturing (+10.8% y-o-y), especially copper, which hit a new record high in December. Five key China macro themes for 2026 China’s 15th Five-Year Plan launches this year, setting the strategic direction for the country through to 2030. The main framework was shared after the Fourth Plenum on 23 October 2025, with further details expected at the annual policy meetings in March. We detail our top five macro themes to watch out for in the year of the horse. 1. We expect a rebound in fixed asset investment Entering 2026, new government funding and project approvals should boost infrastructure and manufacturing investment. Faster government payments of overdue obligations will ease liquidity pressures and support business confidence, while a more stable US-China trade relationship may further encourage capital expenditure. 2. Innovation to drive growth Following China’s DeepSeek moments in Generative AI and biotech, further breakthroughs are likely. The government’s latest Five-Year Plan puts strong emphasis on modernising the industrial system and driving innovation, building on years of investment and talent development. Multinationals are also increasing investment to leverage China’s expanding role as an innovation hub. 3. From exporting goods to exporting production capacity China’s exports have shown unexpected resilience, with the goods trade surplus climbing to a record high of USD1.2trn in 2025, driven by competitive pricing, strong performance, and reliability. However, Chinese manufacturers are increasingly pursuing overseas direct investment (ODI) to optimise supply chains and manage trade uncertainties. This trend is in its early stages. While outbound direct investment may partially substitute goods exports, it is likely to boost service exports. Source: CEIC, OECD, HSBC Source: CEIC, HSBC 4. Reflation hopes While some remain sceptical about the impact of the anti-involution campaign, it is a key element of China’s push for a unified national market. New regulations targeting local protectionism and promoting fair competition are being introduced, and their effectiveness will influence the pace of industry consolidation. 5. Housing stabilisation The ball is in the government’s court. Now in its fifth year, the housing correction faces renewed pressures. Recent calls for action in official channels have raised expectations of stronger intervention. One feasible approach is an asset management company model, which could safeguard financial stability, while using the acquired homes for social housing to support urbanisation. Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 19 Jan 2026, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/five-key-china-macro-themes-for-2026/