2026-02-03 12:02

Key takeaways In the FY26-27 Union Budget, the government guided towards a slower pace of fiscal consolidation, and continued its thrust on capex and slightly higher-than-expected borrowing. The Reserve Bank of India (RBI) is unlikely to cut interest rates at the upcoming Monetary Policy Committee (MPC) meeting on 6 February, given that inflation seems to be trending higher towards its target range. The Budget was largely mixed for Indian equities. Commitment to fiscal consolidation and the announcement of taxation of buybacks at the capital gains tax rate are structural drivers. The hike in the Securities Transaction Tax (STT) is likely to be a negative for equities. We favour domestically oriented sectors, including consumer discretionary, financials and industrials. Indian local currency bonds continue to offer attractive absolute and relative yields, as well as diversification benefits due to their lower correlation with global bonds. 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/union-budget-provides-a-supportive-backdrop-for-long-term-growth/

2026-02-02 12:02

Key takeaways The USD is the worst-performing G10 currency so far this year, closely followed by the CAD. Structural issues are likely to keep the USD under pressure over the near term, in our view. USD-CAD may drop with broad USD weakness, though trade uncertainty could drive it up. Year-to-date, the USD has been the weakest G10 currency, with the CAD close behind (Bloomberg, 29 January). While the CAD has strengthened against the USD − reflecting movements in the broader USD Index and a reduction in net short positions (Chart 1) − it remains the laggard within the G10 group (Chart 2). This is mainly due to uncertainty around US-Canada trade relations, especially the upcoming US-Mexico-Canada Agreement (USMCA) review. The Bank of Canada highlighted these concerns at its 28 January meeting, where the policy rate was kept at 2.25%, in line with expectations. Given these uncertainties, we maintain a cautious outlook for the CAD in 2026, despite robust domestic data that would usually support a stronger currency. Over the near term, USD-CAD could drop further, reflecting broad USD weakness, though trade uncertainty may present upward risk. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Turning to the USD, its near-term direction appears to be shaped more by structural concerns than by immediate monetary policy decisions. The Federal Reserve (Fed) kept interest rates unchanged at its 27-28 January meeting, with two members dissenting (see FX Viewpoint Flash – USD: Fed pauses; headwinds remain, 29 January 2026). Although markets still anticipate two 25bp rate cuts from the Fed this year, expectations for any easing at the next two meetings (17-18 March and 28-29 April) remain low (Bloomberg, 29 January). The USD is likely to remain under downward pressure over the near term, primarily due to structural factors, such as concerns about Fed independence, the possibility of abrupt shifts in US policy, and speculation around joint US-Japan FX intervention (FX Viewpoint Flash – JPY: Intervention speculation, 26 January 2026). Some market participants characterise this trend as “USD debasement” or a “de-dollarisation” trade − a view based on expectations of a long-term decline in the USD’s purchasing power, driven by unpredictable policy decisions, persistently large fiscal deficits, and growing US isolation (Bloomberg, 29 January). https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-and-cad-continued-underperformance/

2026-01-30 12:02

Key takeaways Geopolitical tensions have increased market volatility, with recent developments around Greenland and Iran adding to the complexity. However, we anticipate that any sell-off will be less severe than that of last April. Our investment strategy aims to capture the broadening opportunities driven by AI-led innovation while navigating geopolitical uncertainties through multi-asset diversification, including increased exposure to alternatives and gold. While we remain positive on global and US stocks and continue to position in Asia for geographical diversification, we have adjusted our equity allocation by upgrading Materials across regions and underweighting Europe ex-UK stocks after taking profits on European peripheral markets. UK Gilts have performed well since the Autumn Budget and benefit from favourable tailwinds, supporting our upgrade to overweight, and aligning with our investment grade credit positioning. We also upgrade Japanese government bonds to neutral following the recent sell-off. Asia’s growth drivers remain robust, underpinned by resilient domestic demand and strong AI-related exposure, along with solid upstream industrial activity. Fiscal stimulus, supportive monetary measures and investment boosts outlined in China’s 15th Five-Year Plan provide a positive backdrop for the equity market. Hong Kong benefits from an improving property market outlook and strong capital inflows. Japan’s expansionary policy and solid earnings growth, South Korea’s rising memory-chip cycle, and Singapore’s safe-haven appeal add to Asia’s allure for investors. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/diversifying-further-amid-evolving-geopolitical-risks/

2026-01-30 12:02

Key takeaways The FOMC left rates unchanged and did not shift its stance despite two dissenting votes. Fed Chair Powell stuck to previous data dependent guidance; our economists expect rates to remain steady. The USD is likely to face near-term pressure from structural concerns, rather than monetary policy changes. Following a series of 25bp rate reductions at the Federal Open Market Committee (FOMC) meetings in September, October, and December last year, the Committee voted by a margin of 10 to 2 to maintain the federal funds target range at 3.50- 3.75% during its 27-28 January meeting, in line with market expectations. The forward guidance portion of the policy statement was little changed. The two dissenting votes came from Fed Governors Stephen Miran and Christopher Waller, both of whom advocated for a further 25bp cut. Notably, Governor Miran, who had previously pushed for larger 50bp cuts, moderated his position, while Governor Michelle Bowman − who has previously indicated that rates have room to fall (The Wall Street Journal, 16 January) − did not dissent on this occasion. It is important to note that two dissenting votes fall well short of the consensus required for additional easing in future meetings. Fed Chair Jerome Powell emphasised that these dissenting views represented a minority, highlighting “broad support” within the FOMC − including non-voting members − for holding rates steady. The FOMC comprises 19 policymakers in total (12 voters and 7 non-voters), with voting rights rotating annually. For markets, Fed Chair Powell’s press conference offered the prospect of two main strands of inquiry – guidance around the likely policy path and Fed independence. On the latter, Chair Powell basically said he had nothing to say on the topic, leaving markets to interpret the policy guidance. The overall tone was relatively hawkish, with no indication of imminent further easing. Powell reiterated that no decisions had been made regarding future meetings, noting that the US economy is growing at a solid pace, the unemployment rate is broadly stable, and inflation remains somewhat elevated (Bloomberg, 29 January). He also noted that both upside risks to inflation and downside risks to employment had “diminished a bit”. This position allowed the USD to remain steady, supported by US Treasury Secretary Bessent’s earlier comments that the US “has a strong dollar policy”, and the Treasury is “absolutely not” intervening in the currency market (Bloomberg, 29 January). Fed Chair Powell’s remarks were consistent with a wait-and-see approach regarding future rate changes. Our economists’ view remains that the FOMC will keep rates steady through 2026 and 2027, though as always there will be important double-sided risks to this outlook to consider as the US economy evolves. Market expectations, however, also remain largely unchanged, with two additional rate cuts still anticipated later this year (Bloomberg, 29 January). In summary, we expect the USD to face ongoing downward pressure in the near term, driven primarily by structural concerns, such as questions around Fed independence and potential FX intervention to weaken the USD against the JPY, rather than the immediate trajectory of US monetary policy. While Fed Chair Powell did not address these structural issues in his latest remarks, they remain relevant for market sentiment. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-fed-pauses-headwinds-remain/

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/