2025-08-11 12:01

Key takeaways As expected, the BoE delivered a 25bp cut in August… …but dissents and an upward inflation forecast revision made it feel like a hawkish cut, sending the GBP higher. The Autumn Budget is likely to stand as a major risk for the GBP via fiscal, monetary and political channels. On 7 August, the Bank of England (BoE) cut its policy rate by 25bp to 4.0%, which was the fifth cut in the current easing cycle, as widely expected. The overall tone of the BoE meeting was rather hawkish, given the dissents within the Monetary Policy Committee (MPC) and an upward inflation forecast revision. The rate cut decision was made after a second vote, as the first round was a 4-4-1 deadlock, with four members (Catherine Mann and Huw Pill, as in May, plus Megan Greene and Clare Lombardelli) preferring a hold and one member (Alan Taylor) voting for a 50bp reduction. This showed what a tight call the decision proved to be, and there is a risk of a slowdown in the pace of easing from here. Beyond the bullish knee-jerk reaction to the vote split, the GBP should also look towards the medium-term forecast for inflation. The BoE raised its near-term inflation forecast to 4.0% in September (from 3.7% previously) and its two- and three-year ahead inflation forecasts to 2.0% (from 1.9% previously). This may once again indicate that the BoE will not be in a rush to ease policy again soon. Source: Bloomberg, HSBC Source: Bloomberg, HSBC The GBP spiked higher against both the USD and the EUR, as markets have pared expectations for a November rate cut. The rates market now sees only c35% for this to happen, down from a c80% likelihood ahead of the meeting (Bloomberg, 8 August 2025). Nevertheless, our economists’ base case is that more evidence of disinflation against the backdrop of a weakening labour market will come through, allowing the BoE to reduce its policy rate at a continued 25bp-per-quarter pace, until it gets to 3.0% in Q3 2026. Meanwhile, the UK’s public finance situation has deteriorated since March. As the Autumn Budget (around late October or early November) approaches, the GBP is likely to face downside risks. The possibility of tax hikes could alter the outlook for inflation and unemployment and, thereby, the BoE’s easing path. It could also stir up political uncertainty if the Chancellor’s tax and spending decisions deepen divisions within the Labour party. As such, the GBP is likely to weaken against the EUR, but not by much against the USD, which is still weighed down by US policy uncertainty. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gbp-the-boes-hawkish-cut/

2025-08-11 08:04

Key takeaways Investors have been fixated on the US growth over the past decade – and potentially overlooking the power of dividends. There’s currently an abnormally wide dividend yield gap between US and non-US markets. Emerging market stocks have outperformed their developed market peers in 2025 – with the respective MSCI indices delivering net USD returns of 17% versus 11%. The Bank of England delivered a hawkish cut at its August meeting, with four of the nine MPC members voting for unchanged policy. The split highlights the difficulties facing the BoE, but this may prove to be a side-show relative to the decisions facing the government. Chart of the week – Turning tides? There has been a trend in recent years for global stock markets to turn volatile in early August. It happened again recently, with a pick-up in trade policy uncertainty coinciding with weak US labour data, sending stocks lower. But this summer, US markets have rebounded at near-record speeds. Q2 earnings are beating expectations, and technology stocks are driving the market. Prices are within touching distance of all-time highs. But is it really all good news? Well, the undercurrents could point to choppier waters ahead. The previous week’s disappointing payrolls print came with marked downward revisions for previous months, and the latest numbers could be slimmed down too. Meanwhile, the economic activity is slowing. With the tariff deadline passed, imports to the US will now see average tariffs of 19% – far higher than it had been expected. And beneath the surface, corporate profits face headwinds. Higher tariffs mean consumer sectors in particular, face a tricky trade-off between hiking prices and losing customers. Yet, above the surface, it’s calm. Aside from previous week’s brief dip, stock volatility has generally fallen, credit spreads are close to decade lows, and analysts actually nudged up their profit forecasts for S&P 500 firms in July. In part, lower bond yields are helping. Short term US yields have dropped to 3.7% and long bond yields to 4.2%. That lower cost of capital means investors can live with skinny credit spreads and higher PE multiples. Likewise, a weaker dollar also helps – both as a terms-of-trade profits booster for larger companies exporting from the US, and for foreign investors looking to buy in. Market Spotlight Climate control A recent academic paper from some multi-asset analysts explore how asset returns respond to climate risk – both from physical climate events and heightened media attention – and what that means for multi-asset portfolio construction. Using a novel “extreme weather index” (based on temperature, wind, and precipitation data) and a complementary news-based climate concern index, the study quantifies the climate sensitivity – or “beta” – of a broad range of asset classes, from equities and bonds to commodities, real estate, and infrastructure. A key takeaway is that climate risk should be treated as an asset allocation issue, not just a security selection problem. Bonds generally showed low or even negative sensitivity to climate shocks, while equities, commodities, and property had stronger positive betas. Portfolios tilted towards these climate-sensitive assets delivered stronger performance during periods of climate stress – though often at the cost of higher volatility and tracking error. The study demonstrates that diversifying across asset classes and adjusting within them (such as using green bonds or climate-tilted equities), can help investors hedge better against climate-related risks without sacrificing long-term portfolio resilience. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg. Data as at 7.30am UK time 08 August 2025. Lens on… Dividends matter Investors have been fixated on the US growth over the past decade – and potentially overlooking the power of dividends. Dividends matter because they make up a significant portion of longer run returns. A Yale academic study* showed that between 1926 and 2000 dividends made up about 60% of total returns (after inflation). Dividend payments also tend to be more dependable than earnings. While profits can be prone to wild swings, especially in downturns, dividends are relatively more stable. In Europe, for instance, history shows that on average since 1970, falling earnings have only resulted in dividends being cut by one-quarter respectively – that includes the drastic cuts during the Financial Crisis. That’s because company management are wary of changing dividend policies designed to weather setbacks. There is currently an abnormally wide dividend yield gap between US and non-US markets. The US yield is about 1.3% (MSCI), with US tech stocks offering only 0.6%. That compares to 3.1% for Europe ex-UK and 3.5% for the UK. These could provide an opportune entry point for long-term investors. Go your own way Emerging market stocks have outperformed their developed market peers in 2025 – with the respective MSCI indices delivering net USD returns of 17% versus 11%. That’s been driven by a sense of fading US exceptionalism – with a weaker dollar and cooling growth spurring investors to look beyond the US. The appeal of potentially cheaper EM valuations has also helped, as well as signs of stabilisation in China, where a policy put is supporting confidence. But while EMs have outperformed as a whole, local idiosyncrasies mean they shouldn’t be treated as a single bloc. Correlations between EM stock returns show that some key countries don’t tend to perform the same. China and India are a good example. The return correlation between them is only very weakly positive (at just 0.1). That’s reflected in their diverging performance this year, with China leading the EM rally, and India lagging it, further reversing a trend seen between 2021 and 2023. Deficit dilemma The Bank of England delivered a hawkish cut at its August meeting, with four of the nine MPC members voting for unchanged policy. The split highlights the difficulties facing the BoE, but this may prove to be a side-show relative to the decisions facing the government. The UK faces a fiscal “black hole” of GBP50bn, according to the policy wonks at the NIESR think tank. If right, the Chancellor faces some tough choices in the Autumn budget. Poor productivity growth, rising debt interest payments, a burgeoning social benefits bill, and increasing defence spending all present challenges. With political constraints limiting the scope for spending cuts, the onus is on higher taxes to rein in the budget deficit. But tax rises can weigh on already-soft growth, presenting the risk of a “doom loop”. Investors are giving the UK government the benefit of the doubt, but the “kindness of strangers” may have its limits, particularly if the economy is hit by further negative shocks. A weak USD masks some of the UK-related concerns, but GBP/EUR has been under pressure this year despite a more dovish ECB. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg, *Ibbotson, Chen, “Stock Market Returns in the Long Run” (2002). Data as at 7.30am UK time 08 August 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 08 August 2025. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Market review Risk sentiment was little changed last week as investors absorbed news on US trade deals ahead of the 1st August deadline, and assessed the global monetary outlook following key central banks’ policy meetings. The US dollar strengthened, while US Treasury yields remained range-bound, and European yields slightly declined. Euro credit spreads tightened, whereas US high-yield spreads widened modestly. In equity markets, US stocks mostly declined: the S&P 500 traded lower, with the small-cap Russell 2000 experiencing sharper losses, but Nasdaq edged up, supported by some tech firms’ positive Q2 results. European stock markets were mixed, with German DAX and French CAC lagging. Japan's Nikkei 225 and other Asian equities broadly fell amid weaker regional currencies. In commodities, oil gained ground amid ongoing geopolitical concerns, while gold and copper prices were lower. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/turning-tides/

2025-08-07 12:02

Key takeaways President Trump recently announced the decision to impose an additional 25% tariff on Indian goods due to India’s purchase of crude oil from Russia. The additional tariffs, which would take the total tariffs on Indian goods to 50%, would be effective from 28 August, giving both countries time to negotiate. If implemented, the additional tariffs would dent India’s exports and GDP growth. From a policy perspective, India has the ability to use both monetary and fiscal policy to support growth. We expect the Reserve Bank of India (RBI) to cut rates by 0.25% in Q4, but don’t rule out further cuts should headwinds to growth intensify. India’s fiscal consolidation over the past few years should allow the government with room to increase spending to boost growth, if required. We maintain our overweight on Indian equities, supported by robust macro fundamentals, structural reform momentum and resilient domestic demand. However, we acknowledge that the situation remains fluid given recent tariff developments and escalating trade tensions. We are watching for signals across financial conditions, earnings and sentiment. 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/us-doubles-tariffs-on-india-to-50-percent/

2025-08-06 12:01

Key takeaways The US has made bilateral deals with a number of countries, resulting in some clarity on trade policies. But higher tariffs may result in lower growth and higher US inflation, as indicated in recent surveys and data prints. Wobbles have started to show in the US labour market, while other global data is holding up for now. 2025 has been a rollercoaster ride, with US tariffs and geopolitical risks dominating the headlines. The past few weeks have been no different, with numerous trade deals signed between the US and the EU, Japan, Indonesia, Vietnam, Korea, and the Philippines amongst others, whilst negotiations with mainland China continue. Tariff challenges We’ve seen the new, higher, tariff rates – varying between 10%-41% with effect from 7 August – which are set to impact both global trade and the US economy in the coming months. Some of the lower reciprocal rates came on the back of hefty concessions while some smaller nations have seen their rates rise (chart 1). Global trade data remain almost impossible to interpret in real time, with trade flows being distorted to get ahead of tariff increases as US firms try to minimise the import duties. Source: The White House. Note: Tariff rate for Canada are fentanyl based. USMCA exemptions still apply. Labour market cracks We’ve also seen signs of wobbles in the US labour market – with payrolls data seeing sharply negative backward revisions and weak jobs growth over the past few months. There are also growing signs of cost pressures starting to seep into the system – with business surveys and the hard CPI data showing tariff inflation in pockets of the goods sector. But with data releases over the next few months set to stay messy around the 1 August tariff deadline, central bankers in the US and elsewhere are working out how to react. GDP payback Q2 GDP growth across the world showcased this perfectly, with many economies seeing the payback from Q1 – either from a drop in US goods imports lifting growth in the US (chart 2) or other economies seeing their exports drop back and weigh on their own GDP growth rates (chart 3). With more downside risks to global trade in the coming months, it’s important to look at the underlying consumption and investment data across the world now – and these look broadly healthy outside of the US. Source: Macrobond Source: BLS Inflation easing Outside of the US the inflation picture looks much better. Surveys suggest cost pressures are receding, energy prices are down and central banks across Europe, Asia and Latin America have been cutting rates, and many have the scope to continue. The combination of better inflation data and lower interest rates is, so far, seemingly acting as a buffer to the uncertainty created on the tariff front. Source: Macrobond Source: Macrobond Markets holding up Due to the broadly better growth data, markets continue to take the choppy economic data in their stride, with equity markets reaching new highs. For now, it’s still a case of looking across the data as a whole and appreciating the challenges that each data point poses. And the global economy is, for now, holding up better than might have been expected given the uncertainties out there. Source: Bloomberg, HSBC ⬆ Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus Source: LSEG Eikon, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/resilient-despite-tariff-challenges/

2025-08-04 08:05

Key takeaways The BoJ kept rates steady in July, as expected. BoJ Governor provided no hints over the timing of a future rate hike, emphasising the need to examine more future data. The JPY weakened past 150 per USD; further weakness seems likely over the near term. On 31 July, the Bank of Japan (BoJ) kept its policy rate unchanged at 0.5%, in line with market expectations. In the latest quarterly outlook report, the BoJ slightly nudged up its GDP growth forecast for FY2025 and substantially raised its FY2025 inflation forecasts (Table 1). However, BoJ Governor Kazuo Ueda during his press conference gave no indications that the BoJ is ready to hike rates soon, despite the recent reduction of tariff uncertainty. In particular, he downplayed the FY2025 inflation forecast upgrade and said that it was due to food and supply-side factors, which monetary policy should not respond to, while the underlying inflation trend is still below 2%. He also stressed the need to examine more future data on tariff impact, wage growth, and cost pass-through. He even made a passing remark on the JPY, to say that it is not deviating much from the BoJ’s view. In our economists’ view, the BoJ’s upward revisions to inflation and growth should support the case for a 25bp rate hike in October, but the BoJ may wait for the US Federal Reserve (Fed) to move first before embarking on the next step of policy normalisation. *Figures represent the medians of the BoJ’s board members' forecasts for the fiscal years 2025, 2026 and 2027. Source: Bloomberg, HSBC Source: Bloomberg, HSBC USD-JPY rose steadily higher, following the BoJ meeting. The JPY was the worstperforming G10 currency in July, losing c4.5 % against the USD (Bloomberg, 31 July 2025). We expect the JPY to weaken further in the near term for two key reasons: USD-JPY is sensitive to the risks of a hawkish Fed (please read “USD: The Fed remains patient on rate cuts”), strong US data and a dovish BoJ (as discussed above) – all of which materialised to some degree in recent days. USD-JPY is following long-term Japanese government bond (JGB) yield lately (Chart 2). This means Japan’s ruling Liberal Democratic Party (LDP) leadership uncertainty and fiscal risks would be negative for the JPY. If Japanese leaders were to be more pro-easing (both fiscal and monetary), the JPY may come under pressure. The risks of FX intervention loom larger above 152 on USD-JPY. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-a-still-dovish-boj/

2025-08-04 07:04

Key takeaways The US has announced trade agreements with 69 countries, but only seven countries have established trade frameworks. The global baseline tariff for any imports into the US is set at 10%, with reciprocal rates ranging from 10% to 41% and a new 40% duty on transhipments. Uncertainty about trade has diminished, but several key deadlines remain, such as the 12 August deadline for a trade agreement between the US and China, and a slew of section 232 investigations that could mean elevated tariffs on sectors such as pharmaceuticals and semiconductors. While tariffs may slow growth and pressure margins, secular trends (including the technology revolution, reshoring of jobs and reindustrialisation), continue to support US economic resilience. We maintain our US equity overweight as earnings growth remains strong, while we tap into powerful long-term themes with our overweight in Technology, Communications and Industrials. We remain neutral overall on fixed income but continue to tactically add high quality bonds for income and stability, using an active management approach to find selective opportunities. As for the US dollar, we foresee a side-ways move, albeit with volatility due to the busy news flow and the tug-of-war between positive and negative forces. 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/us-tariffs-despite-recent-announcements-much-uncertainty-remains/