2025-07-07 12:02

Key takeaways Gold prices could spike higher on geopolitical events. Policy and economic uncertainty, mounting fiscal concerns, and a weaker USD should sustain gold prices at high levels… …but positive US real rates and physical market dynamics will eventually wear on gold prices. Gold hit a record high of USD3,500 per ounce on 22 April, fuelled by ‘safe haven’ demand, spurred on by geopolitical, economic, and policy uncertainties (Chart 1). The inability of gold to rise above the April high in the midst of the Israel-Iran crises is worth re-thinking whether there are sufficient risks to propel gold prices higher. The threat of an outright ‘trade war’ may have receded, as US President Trump announced a trade deal with Vietnam, the first bilateral trade deal with Asia, followed by Indonesia’s coordinating minister who said that the US and Indonesia will sign a Memorandum of Understanding (MOU) on trade and investments on 7 July (Bloomberg, 3 July). However, there is still a great deal of US policy uncertainty, with many ongoing trade discussions. In addition, global economic uncertainty also has the potential to buoy gold. Mounting US fiscal deficits – and those of other countries – have aided the gold rally and may continue to do so. In the latest Fiscal Monitor (April 2025), the International Monetary Fund (IMF) points out that global public debt could increase to 100% of GDP well before the end of the decade. These bedrock factors are likely to sustain gold at what are historically high levels, which could further encourage momentum-related demand, in our precious metals analyst’s view. 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 Going into 2H25, our framework suggests that the USD has room to weaken moderately, which may support gold prices (Chart 2). The “de-dollarization” momentum is also positive for gold. However, our precious metals analyst believes that there is a limit to how far gold prices may go. High gold prices are limiting key physical demand and could see demand from central banks moderate, while at the same time there is higher recycling supply even as mines strain to increase output. Monetary policy, should fewer rate cuts than previously expected materialise, could weigh on gold, and positive US real rates will eventually wear on gold prices. All things considered, our precious metals analyst expects gold prices to go higher over the near term, but when risks start to fade and other factors (like US real rates) become more dominant, weakness in gold prices could come later in 2H25. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gold-momentum-fading/

2025-07-07 07:04

Key takeaways After selling-off earlier this year, the US equity market is back at all-time highs. Technology stocks – which account for 35% of the MSCI US index – have driven the rally. US credit markets have staged an impressive comeback since the ‘Liberation Day’ tariffs announcement in April. The initial sell-off was in line with previous episodes over the past 10 years, but the recovery in Investment Grade has been quicker than it was after President Trump’s first round of tariffs in late 2018, the inflation shock of early 2022, and the collapse in oil prices in late 2015. After a blistering two-year rally, Indian stock markets took a breather coming into 2025, with relatively high valuations ticking down on a softer profits outlook. But price momentum picked up again in Q2. Chart of the week – US stocks rally, but what comes next? US equities hit another record high last week. All is well again in the world. But can it really be that the policy shocks of recent months are simply going to fade into the background? One important caveat is that the S&P 500 only hit a record in US dollar terms. Measured in any other major currency, it is still short of its highs seen earlier in the year. Indeed, the pace of dollar decline has picked up again recently in tandem with a jump in the S&P 500. In part, the dollar’s latest leg lower is likely a function of risk-on sentiment. But it may also reflect President Trump’s desire to announce an early replacement for Fed Chair Powell – a so called “Shadow Chair”. Combined with the President’s calls for the Fed to cut rates, this marks a further risk to US policy credibility and, potentially, faith in the dollar as the ultimate reserve currency. Looking ahead, having rallied hard, US stock markets could now be sensitive to negative news (see page 2). On top of concerns over “fiscal policy” and Fed leadership, any re-escalation of tariff tension on 9 July may reignite volatility. However, perhaps the bigger risk is that the data flow over the summer shows the economy cooling in a more decisive way. While June's headline payrolls number surprised to the upside, some other labour market indicators were soft (private payrolls and ADP employment) and consumer spending fell in May. On average, recent data have surprised to the downside. A period of below trend growth would bring with it the risk of the economy hitting its “stall speed” – historically, if US growth drops c.1.0pp below trend, it has often then dropped into a recession. After an early summer break, volatility could be on the horizon later this year. Market Spotlight Taking the credit Private credit activity cooled in early 2025 amid tough competition from the syndicated loans market and subdued conditions for mergers and acquisitions deals, driven by macro uncertainty. Yet, some private credit specialists expect further growth for the asset class as banks continue to retreat from the market and private equity (PE) firms turn to private debt funds to finance mid-market leveraged buyouts. For now, private credit managers are staying active – focusing on refinancing and add-on deals, especially in defensive sectors like healthcare and business services, where there is strong support from PE sponsors and lower default risk. For investors, the appeal of private credit lies in its potential for attractive all-in yields, stable income, and role as a portfolio diversifier given its low volatility. Private credit default rates remain low by historical standards. And while recent tariff uncertainty has impacted on borrower creditworthiness, the use of tools like payment-in-kind interest and flexible loan structures is helping borrowers navigate headwinds – as well as protect investor capital. The prospect of rate cuts in 2025 should be good for borrowers and encourage a revival in deal activity – supporting the private credit outlook. 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 04 July 2025. Lens on… Tech’s back… but risks remain After selling-off earlier this year, the US equity market is back at all-time highs. Technology stocks – which account for 35% of the MSCI US index – have driven the rally. And that’s no surprise given that, together with the communications services sector, technology accounts for over 60% of expected US profits growth in 2025. But while sentiment is now risk-on, the temptation to overweight tech (and particularly the AI theme) in portfolios demands caution. The sector saw one of the sharpest drawdowns when momentum collapsed in April – falling 26%. It reflected the sensitivity of stocks priced for perfection but suddenly faced with trade policy uncertainty – and some of those risks could still remain. Yet, price/book valuations are back at 12-month highs. In addition, while recent tech sector profits (and forecasts) have been strong, growth has been concentrated in the race for AI chips and data centre construction – where the longer-term profit model is not certain. So, for now, it could pay to take a more ‘picks and shovels’ approach to AI. Credit recovery US credit markets have staged an impressive comeback since the ‘Liberation Day’ tariffs announcement in April. The initial sell-off was in line with previous episodes over the past 10 years, but the recovery in Investment Grade has been quicker than it was after President Trump’s first round of tariffs in late 2018, the inflation shock of early 2022, and the collapse in oil prices in late 2015. The recovery in High Yield credit has been just as impressive. This has mirrored the recovery in stocks. In part, the rapid rebound has been driven by solid fundamental credit metrics, with US corporate profitability proving resilient. Strong technical support in the market has also played a part. That said, recent macro data has seen signs of weakness, with continuing jobless claims hitting a cycle high. There have also been signs of strain in recent NIPA corporate profits data, and in personal consumption in the latest US Q1 GDP data. So, some caution could be warranted. Alpha in India After a blistering two-year rally, Indian stock markets took a breather coming into 2025, with relatively high valuations ticking down on a softer profits outlook. But price momentum picked up again in Q2. And this time, India’s strong structural tailwinds are benefiting from favourable domestic macro policies and a return of foreign investor interest. Profit expectations have felt the strain from global trade and geopolitical uncertainties, weaker domestic demand, and slow credit growth. But that now appears to be stabilising. Downward profit revisions are slowing, with the cyclical outlook improving on brighter consumer sentiment, front-loaded monetary easing, fiscal policy support, and lower inflation. Profits are expected to grow by just over 10% year on year in 2025, accelerating to mid-teens in 2026. Valuations have also improved. And while trade policy remains a risk, India’s tendency to be domestically oriented could give it some protection. 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. Data as at 7.30am UK time 04 July 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 04 July 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 market sentiment improved last week following an earlier-than-usual US jobs report that beat consensus expectations and the announcement of a US-Vietnam trade deal. The US dollar continued to weaken, while US Treasury yields rose, with the yield curve flattening. UK Gilt yields also increased during a volatile week, as fiscal concerns returned to the forefront. German Bunds outperformed with yields rising marginally after an uneventful eurozone HICP flash print. In stock markets, US equities saw broad-based rallies, while European markets rose more modestly, with the DAX declining. Japan's Nikkei 225 retreated following last week’s gains. Other Asian markets traded mixed: mainland China’s Shanghai Composite rose, whereas Hong Kong’s Hang Seng led the regional losses, driven by tech shares’ weaknesses. In commodities, oil prices rose, as did gold and copper. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/us-stocks-rally-but-what-comes-next/

2025-07-04 12:02

Key takeaways On 3 July 2025, the US Congress passed the landmark One Big Beautiful Bill Act (H.R.1), a sweeping package that brings significant tax changes, new border security funding, major spending cuts, and broad policy shifts across Energy, Healthcare and more. This historic legislation reflects the current administration’s policy priorities and is already reshaping expectations for households, businesses and markets. While the bill increases the deficit and could cause some bond market nervousness, we think bond valutions adequately compensate for this risk. The rising deficit could also weigh on the USD but this should be limited if the tax cuts help economic growth. We maintain our overweight US equity positioning. This is mostly because earnings remain strong even as economic growth slows somewhat. However, the US government’s policy shifts remain a source of volatility as trade negotiations are ongoing. Tariffs are the first leg of President Trump's "three-legged" policy agenda. The second leg, which has now been concluded, includes extending the debt ceiling, cutting personal and corporate taxes, and providing fiscal stimulus. The third leg focuses on deregulation, targeting the Financial, Healthcare, Technology and Energy sectors, which could be another positive for stocks. Regardless, implementation risks remain, so we continue to focus on building resilient portfolios through diversification and a focus on quality assets. 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/big-beautiful-bill-more-fiscal-policy-clarity-but-still-waiting-results-from-tariff-agreements/

2025-07-02 12:02

Key takeaways Fiscal spotlight continues to shine bright amid policy changes. Inflation and labour market data are on track to help deliver a BoE rate cut in August. Businesses and households are under considerable pressure. Source: HSBC One year on The government has been in office for one year and while a lot has changed for the global and UK economies, the intense spotlight on UK public finances has not. The 12 June Spending Review highlighted the difficult trade-offs required against a backdrop of limited fiscal wriggle room. In order to keep commitments to boost funding for the NHS and raise defence spending to 2.6% of GDP by 2027, other departments are set to see real-term cuts from 2026-27. However, since then, spending commitments have continued to be announced. Alongside NATO allies, the UK has committed to raise defence spending to 5.0% of GDP by 2035. Within that, core defence expenditure has a 3.5% of GDP target at a cost of an additional GBP30bn a year by 2035 (chart 1), a headache for the next government. While 1.5% on “security and resilience” by 2027 would suggest that that funding will come from departmental budgets already set out at the Spending Review, rather than additional funds. Elsewhere, partial policy U-turns on welfare spending cuts and winter-fuel payments erode the small fiscal headroom ahead of the next Autumn Budget. UK economy muddles through At the latest Bank of England policy meeting in June, the committee voted to leave rates unchanged at 4.25%. The meeting minutes pointed to the need to see further progress in the disinflationary process for rate cuts to continue. Indeed, despite the recent acceleration in headline CPI to 3.4% y-o-y, it was in line with expectations and underlying inflationary pressures appear to have eased. Services inflation slowed, wage growth in April was slower than expected and labour markets continue to loosen. The rate of unemployment rose to a near four-year high in April, to 4.6%. On the activity side GDP tumbled in April following a robust Q1 that was supported by unsustainable factors. For Q2, business surveys point to a muddling through in the face of a plethora of uncertainties, subdued demand and rising input costs. For services firms, the PMIs reported the greatest margin squeeze in over two years in June (chart 2). Similarly, renewed cost pressures on household budgets see reports of cutbacks, notably in food where price growth is reaccelerating. Meanwhile, the housing market, a bellwether of consumer sentiment, is yet to find any momentum after the hike in stamp duty, prolonged recovery in household budgets, and still restrictive interest rates. House price growth slowed to 2.1% y-o-y in June from 3.5% (chart 3). Source: Macrobond, NATO, HSBC Source: Macrobond, S&P Global PMI, HSBC Source: Nationwide, Halifax, ONS, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/fiscal-challenges-still-in-the-spotlight/

2025-07-01 12:02

Key takeaways The geopolitical conflict in the Middle East has caused oil prices to spike, while gold and quality bonds held up well and became negatively correlated with equities. Despite the de-escalation of tensions, uncertainties around trade tariffs, inflation and growth still linger. It is vital to build resilient portfolios through diversification and quality assets, which has worked well in recent market volatility. US earnings growth is expected to be bolstered by continued rate cuts, AI innovation, structural trends and deregulation, benefitting Industrials, IT, Communications and Financials. We upgrade European Utilities to overweight due to improved earnings momentum, cheaper valuations and Germany’s infrastructure plan. The tech revolution and policy tailwinds are positive for Industrials, Communications, Consumer Discretionary and Financials in Asia. Following a rate cut pause in June amid tariff and policy uncertainties, the FOMC is expected to resume easing in September. Despite concerns about the US fiscal deficit, US Treasuries are still fundamentally resilient. Yet, rate volatility warrants a neutral stance for now. While the Bank of England reinforced a gradual approach to easing, we expect another 1.25% of rate cuts from this easing cycle and remain positive on UK gilts for their attractive valuations against a backdrop of slowing growth. While a potential rate hike in October is likely, JGB yields remain unattractive. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/building-multi-asset-resilience-against-geopolitical-uncertainty/

2025-07-01 08:05

Key takeaways Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-trends/g10-currencies-time-to-refocus-on-us-policy/