2026-06-18 12:01

Key takeaways FX remains driven by geopolitics and central banks’ next steps. After the ECB’s stagflation rate increase, the EUR was broadly unchanged, though downside risks are building. The BoC faces limited pressure to hike, but trade risks remain. FX is effectively caught in a spin cycle between geopolitical uncertainties and central banks’ next steps. For EUR-USD, market sentiment often matters more than interest rate differentials. At the moment, risk appetite is closely linked to events in the Middle East, which means sentiment can shift quickly and unexpectedly. EUR: ECB’s stagflation hike On 11 June, the European Central Bank (ECB) increased interest rates by 25bp, taking the deposit rate to 2.25%. As markets had already expected this move, the EUR showed little immediate reaction. The ECB’s latest economic projections suggest a more challenging outlook amid “major energy shock”, with slower growth and higher inflation − a situation often described as a stagflation dilemma. Markets are still expecting two further 25bp hikes by end-2026 (Bloomberg, 11 June). If the ECB signals fewer hikes than expected, the EUR’s support from rates may fade. As such, downside risks for EUR-USD are increasing, and the outlook will depend on both geopolitical developments and US monetary policy outlook. USD: Fed rates to remain higher for longer? In the US, market expectations have shifted away from interest rate cuts and towards the view that rates may stay higher for longer, with a meaningful possibility of further tightening. Even so, the USD has not strengthened significantly so far (Chart 1). For the USD to gain more support, markets are likely to need a clearer signal from the Federal Reserve (Fed) − particularly through its forward guidance. If the Fed provides a hawkish signal, it could be a key turning point for the USD. Source: Bloomberg, HSBC Source: Bloomberg, HSBC CAD: No urgency for rate hikes, but trade risks remain Compared with the ECB, the Bank of Canada (BoC) appears less exposed to a severe stagflation scenario. Recent data point to an improving labour market and limited evidence of broader inflation pressures. Our economists expect the BoC to hold policy steady this year. The CAD is trading somewhat stronger than rate differentials imply (Chart 2), but it remains sensitive to uncertainty around a potential review of the US-Mexico-Canada Agreement (USMCA) after July. Overall, USD-CAD is likely to edge lower in the months ahead. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-eur-and-cad-growing-risks/

2026-06-18 08:03

Key takeaways The Fed kept rates unchanged at 3.50%–3.75% in a unanimous 12–0 vote. But Kevin Warsh’s first meeting as Fed Chair delivered a clear shift in tone, with a stronger emphasis on inflation risks and less reliance on forward guidance. The FOMC is more divided than the market had anticipated, and the US dollar has risen on the resulting rate repricing. Warsh downplayed the precision of the dot plot, did not submit his own projection, and said that the 2%inflation target is not up for review until the Fed has re-established credibility in achieving it. We continue to think the FOMC will hold the federal funds target range steady through 2026 and 2027, in line with most Fed members. In spite of the mild US equity weakness overnight, we maintain our bullish view, supported by resilient consumer spending, strong corporate balance sheets and continued investment in AI and infrastructure. In fixed income, we remain focused on income over capital gains, as prospects for rate cuts have declined even further. We prefer investment grade credit and selective emerging market debt, where still-attractive yields and limited near-term spread-widening catalysts support carry opportunities. Please refer to the full report for details about the event and our investment view. “Overweight” implies a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. “Underweight” implies a negative tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. “Neutral” implies neither a particularly negative nor a positive tilt towards the asset class, within the context of a well-diversified, typically multi-asset portfolio. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/hawkish-stance-from-warshs-fomc-surprises-market/

2026-06-17 08:03

Key takeaways Migrants living in cities are expected to gain access to basic public services, making it easier for them to settle long term. A stronger safety net could lift spending by migrant workers and their families, who save c18ppt more than urban peers. That could add c0.8ppt to 1.3ppt to annual GDP by 2030 with higher consumption supporting activity and job creation. China data review (May 2026) Retail sales fell for the first time since December 2022, down 0.6% y-o-y in May, as the earlier lift from policy support faded and auto tax exemptions were withdrawn. Auto sales slid 16.1% y-o-y (the largest drag at -1.5ppt) while a high base for consumer goods trade-ins, and ongoing pressure in the property sector and labour market continued to weigh on consumer confidence. Industrial production rose 4.5% y-o-y in May, supported by robust exports, AI-related demand and ongoing industrial upgrading, with high-tech industries still leading as the main growth driver. Meanwhile, weaker performance in nonmetallic mineral products and ferrous metals production reflects the slowing momentum in infrastructure and property investment. Fixed asset investment was again the key disappointment, falling 12.5% y-o-y in May, the fastest fall since December, as all key components stayed in contraction. Property investment dropped 24.4% y-o-y as the sector remains under pressure despite recent improvements in major cities, while infrastructure investment was down 9.1% y-o-y due to slower direct fiscal support. CPI was unchanged at 1.2% y-o-y in May, with energy prices still a key driver while core CPI eased slightly to 1.1% y-o-y as food prices remained a drag (food -1.7% y-o-y, pork -16.1% y-o-y). PPI accelerated to 3.9% y-o-y in May, again driven by higher global oil prices (Brent +62% y-o-y), strong AI-related demand, anti-involution initiatives and non-ferrous metals manufacturing. Exports rose 19.4% y-o-y in May, sustaining double-digit growth, while imports were up 27.4% y-o-y, both exceeding market expectations. Strong global AI demand continued to support both flows, but a stabilising China-US trade relationship also boded well for direct exports to the US (+35.4% y-o-y). China’s manufacturing competitiveness continued to underpin exports of capital goods. China’s Urbanisation 2.0 – A boost to domestic spending China’s State Council recently outlined a new urbanisation direction designed to help rural migrants not just move to cities for work, but also to settle there long term and increase consumption. The change grants migrants access to basic public services based on their permanent residence, instead of their hukou, China’s household registration permit system. What’s changed? Six new priority areas have been set for supporting migrants: ensuring access to education for migrant children; expanding coverage of public rental housing; improving social insurance based on the place of employment; providing medical care based on residence; strengthening employment-related public services; and enhancing basic social safety nets. Collectively, these measures aim to reduce migrants’ precautionary saving and support higher consumption. Why it matters? China’s surveyed urbanisation ratio reached 67.9% in 2025 but only half of urban residents – those with hukou status – can access public services such as schools, basic pension schemes and public housing. About 131m migrant workers (c170m including family members) live in cities but save far more than their urban peers (54% vs. 36%) due to limited access to these services. We estimate that extending public service eligibility to permanent residence could unlock consumption, adding roughly 0.8-1.3ppt to annual GDP growth by 2030, while lifting investment needs and potentially creating a virtuous cycle for domestic demand. Source: Wind, HSBC Source: Wind, HSBC Estimates But integrating migrants into cities is expensive. Researchers from China’s Centre for Urban Development estimate the cost of settling one urban resident as cRMB110k (Gov.cn, 28 June 2022). A 1ppt rise (c14m people) implies cRMB1.54trn (1.1% of 2025 GDP) in extra public spending. However, not all costs are upfront: pensions (35–45% of total costs) are back-loaded, while the near-term strain is most visible in public housing and related infrastructure (12–18%). Which cities will benefit? Benefits are likely to be concentrated in net-inflow city clusters (where the jobs are), reinforcing the pull of major urban agglomerations. Inland provincial capitals, such as Hefei, Guiyang, Changsha, have seen strong inflows in recent years, reflecting a more attractive balance between job opportunities and affordability. The housing market impact will largely depend on policy support: broader access to public rental housing and provident fund coverage could support demand, but the bigger swing factor is funding. Central government funding and co-ordination will determine whether cities can scale their social housing supply. Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 15 June 2026 market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/chinas-urbanisation-a-boost-to-domestic-spending/

2026-06-10 12:01

Key takeaways The Middle East conflict is increasingly feeding through to inflation, particularly energy related components… …leading to weaker business and consumer survey data, but hard data are still holding up for now. We expect rate hikes in the eurozone, UK and Japan while the US is likely to be in wait-and-see mode. We are now more than 100 days into the US-Iran conflict, and its effects are now showing up in the inflation data. While a framework deal was agreed at the end of May for a 60-day ceasefire, to allow negotiations on Iran’s nuclear programme (BBC, 31 May 2026), air strikes between Iran and Israel continue. It is unclear at the time of writing when a final agreement will be reached. For the global economy, the key uncertainty is how quickly the Strait of Hormuz can reopen, but even if a reopening happens soon, there will still be scars through commodity markets for some time. Cost pressures Oil shipments through the Strait of Hormuz remain limited and the IEA has flagged the risk of oil inventories running out soon. That poses substantial upside risks to oil prices. In the CPI data across the world we’ve had for April and May, we can see a clear rise in energy-related components – such as retail petrol prices, air fares, and broader household energy prices – but core (non-transport) inflation has been much more subdued. In addition, the heightened risk of El Niño could add further pressure to food prices and help to keep headline inflation elevated for several more months. We continue to watch for signs of the clear cost pressure for businesses, as evident in the PMI surveys (charts 1 and 2), being passed on in more broad-based inflation. Source: S&P Global, Latest data: May 2026 Source: S&P Global, Latest data: May 2026 Meanwhile, survey indicators such as PMIs, and other business and consumer sentiment measures, point to weaker confidence, signs of front-loading, and subdued demand conditions. Robust hard data However, hard data have yet to reflect this slowdown in many countries, particularly the US, where consumption and the labour market appear resilient. Q1 GDP data across the world was reasonably strong, buoyed by a combination of consumption, and AI-related investment and exports (particularly in Korea, Taiwan, and the US). This is likely to be the calm before the storm, with the impact of the supply chain and inflation shocks from the Middle East yet to hit much of the activity data, particularly in Southeast Asia. Activity has slowed in mainland China, and weak domestic data are at odds with a rebound in exports. Still, plans to expand public services access to migrant workers should give a boost to consumption in the medium term. Source: BEA, Latest data: 2026 Q1 Source: Redbook Latest data: May 2026 Rate hikes These dynamics have complicated the policy outlook. Central banks in Australia, Norway, Indonesia, and the Philippines have already raised policy rates. We expect other major central banks, such as the European Central Bank, Bank of England, and Bank of Japan, to follow. By contrast, the US Federal Reserve is likely to remain in wait-and-see mode, with a close eye on the data. Source: Bloomberg, Latest data: 8 June 2026. Note: OIS = Overnight Index Swap Source: Bloomberg, Latest data: 8 June 2026. Note: OIS = Overnight Index Swap 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/hard-data-holding-up-for-now/

2026-06-08 12:01

Key takeaways Headline indicators evidence the UK’s relatively benign position before the latest energy supply shock… …but business surveys point to weaker demand and greater price pressures… …a combination which could leave the BoE on the sidelines, waiting for more clarity before deciding on any policy change. Sector divergence across activity indicators On the face of it, the official data over the past month has been encouraging. Growth came in stronger than expected in Q1, the rate of inflation slowed to 2.8% y-o-y in April, and labour market conditions were soft – soft enough such that the risk of persistent inflation was subsiding but not weak enough to be of major concern to activity. However, those indicators are inherently backward looking, and other than higher petrol prices putting now upward pressure on inflation, largely reflect economic conditions before the conflict in the Middle East. Timelier business surveys paint a less reassuring picture. The PMI survey in May showed a loss of activity momentum and confidence in future output, driven by a subdued services sector. Within the sector, concerns are broad based, from higher energy costs, business rates, inflation and falling demand, with the pressures most acute in hospitality. The manufacturing sector, meanwhile, was more resilient, with the output index rising to its highest since October 2024. However, that perceived momentum is likely to be short lived given that both the proportion of manufacturers accumulating inventory, and those reporting global supply chain disruption, have doubled, according to an ONS business survey. For consumers, while official pay data may overstate the current decline in real incomes (-0.5% 3m/3m). Other pay indicators point to more robust pay growth but, in any case, a likely rise in inflation over the summer will drag on household purchasing power. Moreover, subdued confidence and heightened uncertainty may leave consumers sat on the sidelines, with both the housing market and leisure travel having already seen a drop in demand. Price pressures and policy choices Alongside the troubling demand backdrop, price pressures have intensified to levels comparable to previous global price shocks (chart 2). Forty percent of firms reported a rise in the cost of inputs in April, according to an ONS survey, with 20% of firms expected to raise prices in June. Higher energy and raw material prices are compounding elevated labour costs, and with further supply disruption possible, those pressures may persist over the second half of 2026. However, realised price increases have often undershot expectations (chart 3), a possible reflection of an inability to fully pass costs on when pressures are sector agnostic and demand is weak. For the Bank of England (BoE), the current growth-inflation mix in the data supports the premise that there is not a compelling case to rush to raise interest rate. Growth is soft, and despite price pressures in the pipeline, prospective pass through to consumer prices is uncertain. Indeed, BoE Governor Andrew Bailey recently noted the trade-off that higher interest rates have on ensuring inflation falls back to 2% in the medium term, and output growth. And as such, financial markets are not entirely convinced that we will see a rate hike this side of the summer. However, the pipeline of price pressures is evident. We expect inflation to accelerate to c4%, and the risk of second-round effects from both the pass-through of higher production costs and higher wage demands will keep the BoE on high alert for some time. For now, though, with the policy rate still in restrictive territory and already tighter financial conditions, policymakers may prefer to wait and see, in the hope for greater clarity on the conflict, and to see how households and business will respond. https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/demand-weakness-price-pressures-and-policy-change/

2026-06-08 08:04

Key takeaways Middle East developments remain a key driver for FX, while US trade policy is back in focus following the USTR’s proposal. Attention is increasingly turning to the new Fed Chair’s policy stance and guidance ahead of the 16-17 FOMC meeting. Our base case continues to be a softer US dollar over the longer term, notwithstanding near-term event risk. Developments in the Middle East remain a key market focus. So far, periods of escalating tension have generally been associated with higher oil prices and a firmer US dollar, while any easing has tended to produce the opposite effect (Chart 1). At present, there is no clear assurance of a quick resolution, and ongoing supply disruptions across key commodities continue to weigh on sentiment. US trade policy is once more on the market’s radar following the 2 June announcement from the Office of the United States Trade Representative (USTR). The proposal outlines tariffs of 10-12.5% on imports from 60 economies under investigation for the alleged use of forced labour in relation to import controls. The plan includes exemptions, notably for United States-Mexico-Canada Agreement (USMCA)-compliant goods and further carve-outs may be introduced after the public consultation closes on 7 July. With the 16-17 June Federal Open Market Committee (FOMC) meeting approaching, attention is increasingly turning to how the new Chair of the Federal Reserve (Fed), Kevin Warsh, frames the policy outlook. Markets are becoming more sensitive to the risk of a more hawkish Fed, particularly given the recent run of upside surprises in US activity data. Any meaningful shift in the Fed’s tone would likely have direct implications for the USD. The last comparable episode of rapid hawkish repricing in Fed expectations − late 2024 – was accompanied by broad-based US dollar strength (Chart 2). Source: Bloomberg, HSBC Source: Bloomberg, HSBC Our base case remains that it would be surprising for the Fed to signal that it is preparing to raise interest rates, and we continue to anticipate a softer broad USD over the longer term. That being said, any indication that rate hikes are back on the table would likely warrant a more positive USD view. As such, we are approaching a critical juncture. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-at-a-crossroads/