2025-10-15 08:05

Key takeaways US-China trade relations suddenly deteriorated over the weekend… …weighing on Asian currencies, in particular the KRW. China’s FX policy remains steady, with the USD-CNY fixing rate hovering at c7.10, despite the tariffs threat. US-China trade tensions are taking a turn for the worse and are a reminder of the post ‘Liberation Day’ (2 April) blues. This is the latest in a series of US trade-related headwinds for Asian currencies in recent months – a rough doubling of ‘reciprocal’ tariffs compared to earlier for most economies, secondary tariffs for India, and disagreements over the USD350bn investment plan with Korea. But US-China trade tensions have the most potential for broader spillovers, seeing risk aversion in global markets. Apart from trade issues, Asian currencies have also been weighed down by a combination of low domestic yields, unexpected monetary easing, and idiosyncratic political unrest in some places. The immediate underperformers are those currencies which have a stronger link with foreign equity flows, like the KRW due to the sell-off in equities. In contrast, low-yield currencies, like the SGD and RMB, are holding up better for now. Source: Bloomberg, HSBC The USD-CNY fixing rate was at 7.1007 today (13 October), the lowest level since US elections last November. This indicates a steady FX policy, despite the tariffs threat. Ahead of the fourth plenum (20-23 October), the Chinese authorities are probably prioritising domestic market stability. That being said, the low-probability but high-impact risk is that we could see another round of tit-for-tat tariffs (not merely threats), like what happened in early April. Back then, the USD-CNY fixing rate increased from 7.17 to nearly 7.21, with the spot rate moving near the ceiling of the USD-CNY trading band. But on a positive note, US President Trump softened his tone this morning, with Vice President JD Vance casting it all as an ongoing negotiation (Bloomberg, 13 October 2025). https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/rmb-tariffs-again/

2025-10-14 12:02

Key takeaways Inflation came in at a multi-year low of 1.5% y-o-y as food prices slipped into deflation; a c50% y-o-y rise in gold prices kept core inflation elevated. The underlying inflation momentum is likely to remain subdued over the next few months, thanks to a strong cereal production, well stocked granaries, lower oil prices,and cheaper exports from China. We expect the RBI to cut policy rates by 25bp in 4Q as growth may see renewed weakness due to weaker new export orders and slower fiscal impulse in 2HFY26. September CPI inflation came in at 1.5% y-o-y, the lowest since June 2017, in line with market expectations. Sequential momentum slowed to 0.2% m-o-m sa (vs 0.5% last month). Excluding vegetables, headline inflation came in at 3.6% y-o-y (vs 3.7% previously). Average inflation for 3Q came in at 1.7%, slightly below the RBI’s forecast of 1.8%. Food prices slipped into the red on an annual basis. In sequential terms, too, food prices deflated 0.3% m-o-m sa (vs +0.7% in August). Recall, excessive rains in August had caused a sharp rise in vegetable prices. This appears to have reversed as vegetable prices are back in deflation. Apart from that, heavyweight cereals (weight: 9.7%) and pulses, alsoremained in sequential contraction. Gold prices keep core inflation high. Recall, gold has a weight of 1.1% in the CPI basket, and was up 47% y-o-y in September. It alone contributed c50bp of the rise in headline CPI. Our preferred definition of core (excluding food, energy, housing,and gold) has been steady at 3.2% y-o-y in 3Q25. Sequential momentum, too, remains under the long-term average. That being said, the uptick in personal care items (excluding gold) is worth noting (+0.7% m-o-m sa). Hopefully, a pick up in the pass-through of GST rate cuts will soften its momentum. October’s inflation print is trending below 1%, even lower than September’s low reading of 1.5%. Vegetable prices during the first 10 days of October have eased in the range of 3-5%. Strong cereal production and well stocked granaries are likely to help keep a lid on food inflation over the near term. And it is not just easing food prices, the high base of last year is likely to keep CPI inflation soft over the next few months. Global oil prices have been low, too, notwithstanding the volatility. Weaker growth, and cheaper exports from China arelikely to ensure inflation remains soft. To sum it all up, we are not too concernedabout the underlying inflation momentum. Growth may see renewed weakness.The PMI index for September showed a fall in new export orders,which was being offset by new domestic orders. But this could change post Diwali when domestic orders slow. Government spending, particularly capex, which has been growing 43%y-o-y y-t-d (April-August) may also begin to slow in 2HFY26 to settle close to the budgeted growth of 10%. The single deflator boost, too, may begin to fade by the end of the year. We believe that if the 50% tariff sticks until the end of the year, the RBI will cut rates by 25bp in December, taking the repo rate to 5.25%. And we may also see a fiscal package for exporters around then, along with more economic reforms. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/low-and-behold/

2025-10-13 12:02

Key takeaways Gold hits new highs despite a stronger USD. The rally could continue into 2026… …but may ebb later when the Fed’s easing cycle ends alongside lower physical demand and greater supply. On 8 October, gold smashed above USD4,000 an ounce for the first time, bolstered by uncertainties (Chart 1), like the ongoing US government shutdown, renewed tariff concerns, and growing political uncertainty in France. Markets are also becoming more concerned over fiscal challenges not just in the US but also in other economies, such as France, the UK, and Japan, all of which likely contributed to the price of gold moving higher. Perhaps, the “fear of missing out” (FOMO) can explain a good portion of the recent gold rally, in our precious metal analyst’s view. It is worth noting that gold has been rallying alongside a stronger (not weaker) USD, with the US Dollar Index (DXY) rising to a two-month high (Bloomberg, 9 October). The two generally move inversely. The fact that gold can rally in the face of a stronger USD could be a sign of risk aversion, driving demand for “safe haven” assets, whether for hedging or diversification. This is unusual, but it did happen during the Global Financial Crisis (Chart 2), for example. Note: Geopolitical Risk Index (GRI) is compiled by Fed economists Dario Caldara and Matteo Iacoviello, while US Economic Policy Uncertainty Index (EPUI) based on newspaper archives from Access World New's NewsBank service, is developed by Baker, Bloom and Davis. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Our precious metal analyst thinks that gold could trend higher over the near term and such a rally can continue into 2026, supported by hedging and diversification demand against a backdrop of elevated geopolitics, trade, and fiscal risks. Nevertheless, global central banks, in light of an increase in the percentage of gold in their foreign reserves as a result of the gold rally, may feel less compelled to add to gold reserves. High gold prices are also encouraging gold supply (via mining and recycling) but curbing physical demand (in particular jewellery demand). Other potential factors that could curb the gold rally include a soaring USD that drives portfolio flows away from gold, an equity market correction that invokes gold selling to cover margin and raise cash, a rise in longer-end US yields, which increases the opportunity cost of holding gold, the Federal Reserve’s (Fed) rate cutting cycle that pauses or even ends, and a drop in uncertainties. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gold-smashed-through-usd4000-oz/

2025-10-13 07:04

Key takeaways While some investors have been worrying about the sharp rally in AI and tech stocks, the US announcement of an additional 100% tariff on Chinese goods and export controls on ‘any and all critical software’ from 1 November provided a good excuse for profit taking. The political uncertainty could extend the volatility in the coming weeks. We think the surprise effect is now much less than around Liberation Day – the market impact should therefore also be less pronounced (implied volatility is less than half the April level). Markets should be further supported by the US Q3 earnings season, where we expect to see positive surprises, and by the October Fed rate cut. In the short term, volatility needs to be managed and our overweight positions on gold and investment grade bonds should continue to benefit. Given our confidence in US economic growth, earnings expansion, AI innovation and Fed cuts, we remain overweight on US equities and would take any pronounced tactical market pullback as a longer-term buying opportunity. 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/what-is-causing-the-current-market-volatility-and-how-far-can-it-go/

2025-10-10 07:04

Key takeaways Weakness across a broad range of indicators in September… …as existing challenges combine with near-term uncertainty. Lack of disinflation to put the BoE’s interest rate cuts on hold until Spring 2026. Source: HSBC September was a challenging month for the UK economy. Economic activity took a disappointing turn with the composite output PMI falling into contractionary territory, for its second time this year. Moreover, despite an overall pick-up in the PMIs in the third quarter relative to Q2, official data for July showed zero growth on the month. Businesses are operating in a challenging environment with tailwinds now meeting headwinds. It’s perhaps no surprise, then, that business confidence has fallen back, and spend and investment decisions appear to be in ‘wait-and-see’ mode, possibly until after the Autumn Budget when the Chancellor is expected to tighten policy by cGBP30bn by 2029/30 (FT, 2 October 2025). Similarly, consumer confidence was weak with households nervous about the past and future ‘economic situation’. Disinflationary forces have taken a break Meanwhile, price growth likely peaked in September – we forecast a 4.2% y-o-y CPI rate – up from 3.8% reported in August. In particular, food price growth was at its highest since January 2024 while the moderation in services price growth has stalled in recent months. Both are of concern due to their knock-on impact into inflation expectations and broader wage and price setting behaviour. Indeed with medium-term inflation expectations at 4% and real incomes, at best, on par with three years ago, there is a risk that a degree of ‘real wage resistance’ becomes evident in 2026, whereby households aim to offset the recent rise in the cost of living. That upside risk to inflation is possible against a backdrop of a stabilisation in labour demand. Notwithstanding elevated unit labour cost growth, outright falls in headcount appear to have been concentrated in sectors most exposed to higher labour costs while overall employment is just 0.4% lower than October 2024. Positively, the absence of outright labour market weakness puts the UK in a good position for a potential pick-up in activity, if near-term risks subside. However, we expect employment growth to remain soft while improved labour supply pushes the unemployment rate higher; helping to moderate wage growth and return inflation to target in 2027. In policy terms, we expect Bank Rate to be held at 4.00% until the Spring, when the BoE should have greater certainty that these risks have subsided and further disinflation is evident. From April 2026, we expect rate cuts to resume their “gradual and careful” path of one-cut-per-quarter. Source: Macrobond, ONS, HSBC calculations Source: Macrobond, HMRC Source: Macrobond, Bloomberg, HSBC calculations https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/are-we-at-peak-UK-pessimism-yet/

2025-10-09 07:04

Key takeaways New tariffs on pharma, lumber, furniture, and kitchen cabinets are set to weigh on eurozone exports. US labour market has weakened, and inflationary pressures are building; economic data elsewhere remains resilient. We recently raised our global GDP growth forecasts to 2.6% in 2025 and 2.5% in 2026 given strong Q2 economic data. The global economic outlook continues to be dominated by trade-related uncertainties. After the much-discussed reciprocal tariffs took effect in early August, clearly impacting global trade flows, sector-specific tariffs are now grabbing the headlines. New tariff hit Over the past two weeks, the Trump administration has announced a 100% tariff on branded and patented pharmaceutical products, unless drug manufacturers relocate production to the US. In addition, a 10% tariff will be applied to softwood timber and lumber imports, and a 25% on kitchen cabinets, and upholstered wood furniture starting 14 October. These duties will, however, be capped at 15% for imports from the EU and Japan. Tariffs on films produced overseas have also been mooted. The EU is likely to be strongly affected by the pharma tariffs, even if they end up being capped at 15% as anticipated by the European Commission - imports from Ireland have already been frontloaded earlier this year. Switzerland and Singapore will also be substantially impacted. Meanwhile, Vietnam is the top import source for furniture and household fittings, and so could see some impact if trade flows dip. Source: Macrobond Source: BLS Higher US inflation While these tariffs are causing turbulence in global trade flows, the US is already experiencing an uptick in inflation, particularly in core goods. Products like headphones, motor vehicles and parts, and strikingly, bananas, are already seeing a surge in prices. However, headline CPI and PPI figures are masking these underlying pressures, as lower rental and energy prices continue to offset much of the tariff-driven impact. Source: Macrobond Source: Macrobond Weaker US jobs market Due to the government shutdown in the US, we’re entering a bit of a data vacuum at a crucial time. The US labour market is showing clear signs of cooling, and private sector data and surveys will be given even more importance until we get the next sets of official payrolls and inflation data. The Federal Reserve has already delivered a 25bp rate cut at its September meeting and we expect an additional two 25bp rate cuts this year. Resilient global data Outside the US, economic data continues to prove resilient, even if we find little reason to get too excited about a rapid pick up in domestic demand. Despite falling inflation and interest rates in most economies, we expect consumption to mostly remain subdued, with a few key exceptions. We forecast global consumption growth to moderate from 2.6% in 2025 to 2.4% in 2026. Uncertainty is clearly playing a role here and is also impacting investment across the world. So, while resilience has been a key topic in 2025, it’s hard to get too carried away. Our GDP growth forecasts We recently revised up our global GDP growth forecasts a touch, reflecting stronger than expected growth in many countries in Q2 rather than an improving outlook. The biggest upgrades are to India, parts of ASEAN and Mexico. Still, we see global GDP growth slowing from 2.8% in 2024 to 2.6% in 2025 and 2.5% in 2026. We have also introduced our 2027 forecasts which show an ongoing expansion at a trend rate of growth that is a little lower than the pre-pandemic rate for most countries, reflecting more trade friction, slower labour force growth and high government debt stocks weighing on growth. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 8 July 2025. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics 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/new-tariffs-take-effect/