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/

2025-08-04 07:04

Key takeaways The Fed left rates unchanged at its July meeting, but the decision was not unanimous – for the first time in over 30 years, two members dissented, favouring a 0.25% cut. Policy uncertainty and fears over the US fiscal trajectory have prompted global investors to diversify away from US dollar-denominated assets this year. Japanese assets have been in the crosshairs of both domestic and global risks lately. While trade policy uncertainty has receded following a deal with the US, domestic politics are still a source of volatility for Japanese bonds and the yen. Chart of the week – Value in Asia Tech Last week’s deluge of economic data coincided with a peak in Q2 US profits season announcements. The key takeaway is that growth is steady despite uncertainty over policy and tariffs, and that companies are beating relatively low expectations. Another theme dominating attention is the influence of AI on both the market and macro environment. Some of the S&P 500’s Magnificent Seven technology giants have been among those reporting better-than-expected profits – and the message is that they are doubling down on AI investments. After a wobble earlier this year, renewed AI enthusiasm has helped drive a rally in US tech firms, taking the index back to all-time highs. But there are concerns. One is how quickly they can recoup the billions of dollars of capex spent on chips and data centres, even if there is already evidence of AI accelerating earnings. And from a macro perspective, there’s unease about how AI can boost flagging productivity without hurting labour markets longer-term. But this isn’t just a US market narrative. In Asia, there are expectations that AI could eventually partly reverse mainland China’s decade-long productivity decline. Mainland China is strong in AI research, and some analysts believe it could go on to lead globally in engineering optimisation, production, and widespread commercialisation. Regionally, Asian export-led economies like Taiwan and South Korea are already pivotal in global semiconductor manufacturing, and the AI boom could be a further catalyst. Like the US, AI-driven demand is contributing to strong performance in Asian markets this year, with the MSCI Asia Tech index up over 15% year-to-date. But even after this rally, the index trades on a 12m forward PE ratio of 16x, versus 29x for US Tech. As the AI theme develops, global investors should consider the potential for AI profits to broaden out to Asia, unlocking tech valuations in markets across the region. Market Spotlight Power play Recently, mainland China started work on what will eventually be the world’s largest hydropower dam in Tibet. Once complete, the RMB1.2trillion (USD170bn) project could generate up to 300 million megawatt hours of electricity every year. Given recent “anti-involution” policy signals (which aim to cap areas of industrial overcapacity) and the project’s scale, there was a pick-up in equity sectors likely to benefit from both, including energy (+6%, MSCI China, USD), industrials (+5%) and materials (+7%) – with the market up 3% overall. But longer-term, this project – which was first proposed in 2020 in China’s 14th five-year plan – is evidence of the government’s commitment to carbon neutrality. According to the International Energy Agency, China is by far the world’s largest energy investor, and accounts for nearly a third of global clean energy spending. Over time, power security – following significant expansion in power supply capacity and green energy transition – could become a competitive advantage in technological development and high-end manufacturing, where China is already focusing policy support. For instance, the growing adoption of digitalisation and AI technologies will continue to drive increased electricity demand for data storage, computing, and transmission. In the power stakes, China looks well-positioned to surge. 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. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target. Source: HSBC Asset Management, Bloomberg. Data as at 7.30am UK time 01 August 2025. Lens on… Fed holds firm The Fed left rates unchanged at its July meeting, but the decision was not unanimous – for the first time in over 30 years, two members dissented, favouring a 0.25% cut. Despite this, Chair Powell did not give any strong signals regarding a rate cut at the September meeting. The market interpreted this as mildly hawkish, reducing the probability of a September cut to less than 50%, although it still expects 3-4 rate cuts over the next 12 months. Ultimately, the Fed is going to be guided by the data and will need to exercise a lot of judgment. Inflation is set to pick up over the summer as the tariff impact feeds through, but growth and the labour market are likely to cool. History shows that periods of slower growth can quickly morph into a sharper downturn. This risk is likely to lead the Fed to cut a couple of times this year, despite rising inflation. Bonds beyond the US Policy uncertainty and fears over the US fiscal trajectory have prompted global investors to diversify away from US dollar-denominated assets this year. Renewed confidence is driving a rebound in eurozone sovereign debt inflows, with EUR120bn entering Italian bonds alone this year. Domestic and foreign investors are responding to falling policy rates, credit spread dynamics, and the ECB’s tools to manage market volatility. Meanwhile, in emerging markets, debt fundamentals have improved significantly over the past 20 years, supported by improving fiscal discipline, lower public debt ratios, and strong demographic trends. This year’s weakness in the US dollar has also been a tailwind. However, the picture across EMs is nuanced. While EM Asia, particularly China, faces widening deficits, Latin America, EM Europe, and MENA show signs of gradual fiscal improvement post-Covid. Japan’s policy tightrope Japanese assets have been in the crosshairs of both domestic and global risks lately. While trade policy uncertainty has receded following a deal with the US, domestic politics are still a source of volatility for Japanese bonds and the yen. PM Ishiba has been under pressure to resign after the defeat of his LDP party in recent Upper House elections. But there are concerns that political turmoil could result in new leadership that takes a more dovish fiscal stance, fanning worries about debt sustainability. Core inflation is running above 3% compared to a policy rate of 0.5%, implying a deeply negative real policy rate. But the path to normalisation is likely to be gradual. While the BoJ raised its inflation forecast at last week’s meeting, getting to inflation that is sustainably averaging the 2% target is fraught with challenges. And debt sustainability may factor into BoJ decision-making even if Japan’s public debt is largely domestically owned and its fiscal balance is not as wide as in global peers. Overall, policy uncertainty could perpetuate volatility in domestic assets, while a constrained BoJ means those betting on a stronger yen could be surprised. 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. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 01 August 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 01 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. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target. 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/value-in-asia-tech/

2025-08-01 12:02

Key takeaways As widely expected, the Fed left policy rates steady, though with two dissenting votes for an immediate cut. The overall guidance from the Fed suggests a patient policy, sending the DXY higher… … but the USD still faces downside from political and structural drivers, and the return of cyclical headwinds. The Federal Open Market Committee (FOMC) kept the federal funds target range steady at 4.25-4.50% for a fifth consecutive meeting in July. This came in line with market expectations. The accompanying statement had one dovish change, with the new observation that “economic activity moderated in the first half of the year”. In addition, there were two dissenting votes from the Federal Reserve (Fed) Governor Christopher Waller and Michelle Bowman who called for an immediate 25bp cut. The market impact of this dissent was modest, however, as the views are still evidently dovish outliers on the FOMC. Fed Chair Powell’s overall comments show that most of the policymakers still support a wait-and-see approach to any future rate cuts. Crucially, Chair Powell talked of the “coming months” when describing the timeframe over which the data would be analysed to decide on next steps. While this does not rule out a cut at the next meeting on 16-17 September, it did not indicate that policymakers were any closer to delivering an easing than they were at the June meeting. Our economists still expect 75bp of cumulative Fed rate cuts through this year and next, delivered in three 25bp steps: September, December, and next March. Following Chair Powell’s press conference, the US Dollar Index (DXY) surged to as high as 99.98 (Bloomberg, 31 July 2025), as markets have pared expectations for a September rate cut. Rates market now views a September cut as a 50:50 call, down from a c66% likelihood attached to this outcome ahead of the July meeting. Source: Bloomberg, HSBC Cyclical headwinds (via narrowing yield differentials) for the USD are easing for now but may return when the Fed resumes its rate-cutting cycle. Questions still remain over US trade policy, the path for the US budget deficit, and the political pressure on the Fed. The USD still faces headwinds from political and, to a lesser extent, structural drivers. All this points to a soft USD in the months ahead. Still, recent USD price action is a challenge to those who argue for persistent currency weakness that would extend into 2026 – a narrative we do not agree. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-the-fed-remains-patient-on-rate-cuts/

2025-08-01 07:04

Key takeaways The higher fiscal deficit concerns caused by the One Big Beautiful Bill, which included significant tax and spending cuts, and broad policy shifts, will likely be offset by expectations of Fed rate cuts and benign inflation. Meanwhile, solid Q2 earnings growth reinforces our US overweight positions in IT, Communications, Industrials and Financials as they benefit from the bill and structural trends. More regulatory clarity (e.g., GENIUS Act) is also a positive. Following the US-Japan trade deal, which lowered Japanese tariffs to 15%, the US and the EU also announced a 15% tariff rate on most EU goods sold to the US, plus additional investments in US energy products and military equipment. These deals have de-escalated global trade tensions substantially. We maintain a risk-on stance and mitigate uncertainty through multi-assets, including quality bonds (e.g., UK gilts) and gold. While China’s 5.2% GDP growth for Q2 has raised hopes of reaching the government’s full-year target of around 5%, economic data remain mixed. The Chinese authority has introduced supply-related measures to address the deflationary pressures caused by overcapacity in the areas of solar, steel, auto, lithium batteries, etc., which boosted market sentiment. In Asia, we remain overweight in China, India and Singapore, and neutral in Japan following the loss of its ruling coalition’s majority in both parliamentary houses. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/positive-drivers-boost-market-optimism-amid-progress-on-trade-deals/