2025-12-22 08:05

Key takeaways A weak USD is likely to persist into 2026, providing temporary support for the EUR and GBP. With the ECB expected to maintain its policy rate in 2026, the EUR will be largely shaped by external and fiscal factors. The BoE’s ongoing easing cycle may still weigh on the GBP, particularly against currencies likely to see rate increases. Assuming global economic growth remains steady, the Federal Reserve (Fed) is in no rush to hike rates, and US financial conditions remain accommodative, the USD will likely stick to a softer trajectory in 2026. In this environment, the EUR and GBP may benefit from broad-based USD weakness over the coming months, but this relative strength is unlikely to persist for the entire year. The European Central Bank (ECB) held its key deposit rate at 2% on 18 December, in line with market expectations (Chart 1). The ECB’s updated forecasts were hawkish, with growth projections raised to 1.2% for 2026 and 1.4% for 2027 (from its September forecasts of 1.0% and 1.3%, respectively) and only limited inflation undershooting for the next two years expected. This makes further rate cuts unlikely. However, ECB President Christine Lagarde did not support expectations of a rate hike as early as next year, emphasising that all options remain open. Our economists expect the ECB to maintain its current policy stance through 2026, with a possible rate increase in 2027. Given this policy stability, developments in other major economies are likely to have a greater influence on the EUR’s direction. The EUR may also face headwinds if regional fiscal measures fall short of expectations or if external conditions become less supportive. This chart shows the ECB’s deposit facility rate. Source: Bloomberg, HSBC Market data as of 18 December 2025. Source: Bloomberg, HSBC forecasts Regarding the GBP, the Bank of England (BoE) cut its policy rate by 25bp to 3.75% on 18 December, marking the sixth cut in the current easing cycle. This widely expected decision was closely contested, with a 5-4 vote split. Megan Greene, Clare Lombardelli, Catherine Mann, and Huw Pill dissented in favour of hold. The meeting’s tone was rather hawkish, as the guidance indicated that “judgements around further policy easing will become a closer call.” As the BoE is likely to continue to lower rates in 2026 (Chart 2), the GBP will probably underperform against other G10 currencies whose policy rates are already at neutral levels or are set to rise, such as the AUD and NZD. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/eur-and-gbp-ecb-on-hold-and-boe-cut-rates/

2025-12-16 12:01

Key takeaways China’s Central Economic Work Conference identified boosting domestic demand as a priority for next year. Policymakers signalled stronger property support, focusing on supply adjustments and affordable housing. Anti-involution efforts may pick up in 2026, while the 15th Five-Year Plan will be boosted by tech and infrastructure. China data review (November 2025) Retail sales recorded their slowest growth of the year in November, rising by 1.3% y-o-y. Consumer confidence remained muted, particularly regarding employment prospects, while the deeper drag in the property sector may have also contributed. Further, base effects from last year’s consumer goods trade-in programmes have affected some categories, e.g., home appliances and autos. Fixed Asset Investment weakness continued, falling 12% y-o-y in November, on par with last month’s reading. The key deterioration was in the property sector, which saw a record fall in property investment (-30% y-o-y), though some moderation in the decline for the manufacturing sector helped a touch. Infrastructure investment fell slightly faster than last month at about 10%. Industrial Production proved resilient in November, up 4.8% y-o-y, thanks to robust growth in exports, and high-tech (+8.4%) and equipment (+7.7%) manufacturing. Still, there are reasons for caution, as manufacturing investment fell 4.5% y-o-y, likely influenced by the anti-involution campaign; e.g., electrical machinery and ferrous metals grew at their slowest pace since September 2024. CPI picked up 0.7% y-o-y in November, its highest level since March 2024, mainly supported by higher food prices. Core CPI also rose, 1.2% y-o-y, boosted by rising prices of gold-related products, which were up 58.4% y-o-y. Meanwhile, PPI fell 2.2% y-o-y as sectors relating to property and infrastructure saw their prices underperform, likely owing to recent slowdowns in investment. Exports rebounded to 5.9% y-o-y in November following a contraction in October. This turnaround was mainly due to a low base and easing of trade tensions, which gave high-tech exports and those to the EU a lift. Imports also grew by 1.9% y-o-y, supported by strong demand for high-tech goods and copper, reflecting ongoing investment in technology and innovation. China’s Central Economic Work Conference 2025: Key Takeaways China’s Central Economic Work Conference (CEWC), held on 10–11 December, reviewed the year’s economic performance and set priorities for 2026. The conference emphasized progrowth strategies, focusing on high-quality development through consumption, technology, and green initiatives, aiming to ensure a strong start to the 15th Five-Year Plan. Strategic Priorities The CEWC provided clarity on several points not addressed in the December Politburo meeting. Notably, the main priority for 2026 will be on strengthening domestic demand through increased consumption and investment, supported by new policy financing tools and urbanisation projects. The urgency around stabilising the property sector was more pronounced, reflecting recent market declines. Additionally, the anti-involution campaign was referenced, signalling the potential introduction of targeted policies to address supply demand imbalances. Fiscal and Monetary Policy The conference reaffirmed a proactive fiscal approach, maintaining a fiscal deficit target of 4% of GDP and supplementing this with special government bonds. Fiscal reforms will focus on improving local tax systems and restructuring local government debt, including accelerated settlement of overdue payments to enterprises. On the monetary front, the People’s Bank of China will likely keep using interest rate and reserve requirement ratio cuts, as well as structural policy instruments and government bond purchases to support growth and price recovery. Consumption and Social Measures The primary focus identified by the CEWC is to stimulate domestic demand via consumption and investment. The rollout of the “special action plan to boost consumption” suggests further policy initiatives are forthcoming. Strengthening household incomes is expected to play a key role in restoring consumer confidence. Other structural measures – such as expanding social safety nets by extending employment insurance to gig workers and improving access to healthcare – can also help to unlock consumption. With over 240 million gig workers in China (NBS, 2024), expanding coverage for this group should reduce precautionary savings. The CEWC has also highlighted the need to “unleash the potential of services consumption”, recognising that China’s services consumption as a share of GDP remains below that of many developed economies. Next year’s policies may include expanded support for the services sector, such as targeted consumption subsidies. Investment in infrastructure and urbanisation are needed to complement rising consumption. As the 15th Five-Year Plan commences, a wave of new projects is anticipated, supported by the recent introduction of innovative financial policy tools. In October, RMB500bn in new financing instruments was issued, fully allocated across thousands of projects, potentially underpinning total investment of approximately RMB7trn. Property Sector Stabilisation On the property front, the CEWC emphasised the importance of stabilising the property market through city-specific policies by controlling new supply, reducing inventory and optimise housing mix, as well as converting existing commercial housing into affordable housing. This suggests a stronger stance than we expected. If the government were to make larger interventions – such as using central government funds to segregate housing assets from banks’ balance sheets and digest housing stock – this can more effectively stabilize the sector. Market Reforms and Green Transition While anti-involution measures have received less attention recently, the CEWC reaffirmed their importance. Plans include establishing a unified national market to facilitate the free movement of production factors and reduce local protectionism, thereby promoting fair competition. The green transition remains a priority, with accelerated energy efficiency and carbon reduction initiatives, and the expansion of the national carbon emissions trading market to cover major industries by 2027, in line with 2030/2060 carbon neutrality targets. Technology and Opening Up The CEWC also highlighted continued focus on technology development, with investment in education, research, and innovation centres, alongside the rapid adoption of advanced technologies, such as AI. Despite prioritising domestic demand, China will maintain its commitment to opening up and reform, supporting economic rebalancing through increased imports and expanded overseas investment, e.g., the Belt and Road Initiative and bilateral trade and investment agreements. Source: LSEG Eikon *Past performance is not an indication of future returns. Source: LSEG Eikon. As of 12 Dec 2025, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/chinas-central-economic-work-conference-2025/

2025-12-15 08:05

Key takeaways USD weakness has been evident across the G10 space so far in December, with the SEK leading the gains. The SEK is supported by positive European sentiment and an expansionary Swedish budget. The AUD, NZD, and CAD benefit from a halt in central bank easing, with their outlook likely shaped by external factors. So far in December, the SEK has led G10 currency gains this month, followed by the AUD, NZD, and CAD (see the chart below). This trend reflects broad USD weakness across the G10 space (see FX Viewpoint Flash: USD: Fed’s third 25bp cut, with neutral guidance for details). Note: Data as of 11 December 2025 (19:00 HKT). Source: Bloomberg, HSBC The SEK’s gains are supported by positive European risk sentiment and expectations of improved Swedish growth, underpinned by an expansionary SEK80bn budget. For the AUD, NZD, and CAD, the likely conclusion of their respective central banks’ easing cycles has been a key factor in their relative strength. The Reserve Bank of Australia (RBA) maintained its policy rate at 3.6% on 9 December, with the governor noting that the board discussed “what might have to happen for rates to rise”. Our economists anticipate rate hikes beginning by 3Q26, although markets are already pricing in c40bp of increases by end-2026 (Bloomberg, 11 December). Near-term AUD performance is likely to be driven by external sentiment. Similarly, the Bank of Canada (BoC) held rates steady at 2.25% on 10 December. While markets expect a 25bp rate hike in October (Bloomberg, 11 December), our economists’ central case is for the BoC to remain on hold through 2026 and 2027, citing downside growth risks. The CAD’s short-term trajectory remains closely tied to US economic developments and ongoing uncertainty around US tariff policy, which could present upside risks for USD-CAD in 2026, in our view. For the NZD, the anticipated end of the Reserve Bank of New Zealand’s (RBNZ) easing cycle is expected to provide support into 2026. Domestic fundamentals are improving, with the current account deficit narrowing, the budget deficit contained, and economic activity stabilising. Considering also a potential RBNZ ratehike cycle starting in 2H26, we see scope for the NZD to outperform the EUR, GBP, and CAD next year. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/g10-fx-when-the-usd-weakens/

2025-12-12 07:04

Key takeaways The Fed delivered a 0.25% rate cut as expected, lowering the target range to 3.50–3.75%. It also introduced reserve-management purchases of short-term instruments, which will begin with roughly USD40bn in Treasury bills but they are not QE (quantitative easing) and carry no implications for the policy stance. The ‘DOTS’ chart with Fed members’ views of the future rate path was little changed, with continued wide dispersion in views. We continue to expect the policy rate to remain unchanged through 2026–27, with meaningful two-sided risks as the economy transitions into 2026. The economic projections show stronger growth and lower inflation, with a notable mechanical rebound in 2026 GDP following the shutdown. The policy rate cut is accretive to corporate earnings and should help keep valuations in check. Technology, AI, and productivity-linked sectors stand to benefit from lower real yields and improving macro conditions. The cut is also positive for rate-sensitive sectors and companies benefitting from AI-driven investment and the ongoing US re-industrialisation trend. Even if the Fed does not cut any further and P/E multiples stagnate, equities can do well as the underlying economy remains robust with corporate earnings projected to grow by roughly 14.5% in 2026. For fixed income, the Fed’s monitoring of inflation and the continued decline in inflation expectations provide a supportive backdrop, while the USD could see short-term downside before a more lasting base is formed during Q1 2026. 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/fed-likely-moving-to-a-hold-after-its-december-cut-as-fomc-is-split/

2025-12-11 12:01

Key takeaways The Fed delivered a 25bp cut, with neutral guidance; our economists expect the Fed to be on hold in 2026 and 2027. The Fed will start buying USD40bn of Treasury bills per month from 12 December. The USD may weaken further before stabilising in early 2026, in our view. As anticipated, the Federal Open Market Committee (FOMC) implemented a third consecutive 25bp rate cut at its 9-10 December meeting, lowering the federal funds target range to 3.50-3.75%. The decision passed by a 9-3 vote, with dissent from two regional Fed presidents − Austan Goolsbee (Chicago) and Jeff Schmid (Kansas City) − who preferred to maintain current rates, and Governor Stephen Miran, who advocated for a larger 50bp cut. Initial USD weakness reflected the absence of hawkish signals. The updated “dot plot” revealed a wide range of views among all 19 FOMC members, with the median interest rate projection for 2026 indicating only one further 25bp cut, compared to market expectations of two. It is worth noting that the significant dispersion of rate forecasts for 2026 (2.125% to 3.875%) highlights a lack of consensus on the pace of easing. Source: Federal Reserve Forward guidance remained unchanged, suggesting policymakers are not yet prepared to signal an end to the easing cycle. Additionally, the Fed announced USD40bn in monthly Treasury bill purchases from 12 December, to “maintain an ample supply of reserves on an ongoing basis”. While not a policy shift, this move contributes to a more dovish overall tone. Fed Chair Jerome Powell reiterated a neutral stance, noting that the current rate is within the estimated neutral range and that the Fed is positioned to observe economic developments. This approach contrasts with market pricing for two rate cuts in 2026, which the USD saw a brief rebound, but the USD Dollar Index (DXY) declined further to c98.5 (Bloomberg, 12 December). The Fed is in “wait and see” mode, so policy and the USD is data dependent. Our economists expect rates to remain unchanged through 2026 and 2027, though risks persist. We still believe the DXY may see more downside before a more lasting base is formed during 1Q26. Historically, the USD tends to weaken when the Fed cuts rates outside of recessionary periods. Besides, market expectations for further rate cuts in 2026 may increase with a new Fed Chair. Concerns over Fed independence could further contribute to USD weakness. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-feds-third-25bp-cut-with-neutral-guidance/

2025-12-10 12:01

Key takeaways Clean energy sectors, particularly solar, wind, and nuclear, have underpinned strong performance in climate-related equities in 2025. While US outflows dominate, there is evidence of rotation into Europe and Asia, with Switzerland and mainland China reporting net inflows. Solar and energy storage emerge as most attractive themes within the climate change space. After a slow start to the year, global climate stocks – particularly in the solar, wind and nuclear sectors – have made a strong comeback, outperforming global equities year-to-date. Looking forward, HSBC Global Investment Research identifies solar and energy storage as the most compelling opportunities within the climate change space. Solar energy continues to lead the global clean energy transition, supported by falling costs, favourable policy frameworks, and rapid technological progress. Meanwhile, energy storage is becoming increasingly critical for reducing emissions across both the transport and power industries. Did you know? Global climate stocks have outpaced global equities (FTSE All World) by over 11 percentage points year-to-date (as of 16 October 2025) Solar capacity additions reached c550GW in 2024, marking a 30% growth from 2023 levels China accounted for 97% of global solar wafer production, 87% of solar cells, and 78% of solar modules, as of 2024 The International Solar Alliance is working to mobilise USD1trn in solar energy investments by 2030 Global energy storage battery demand needs to jump 6x by 2030 to meet the IEA’s net-zero scenario Over the past five years, nearly 20% of energy related funding went towards energy storage and batteries related start-ups Sources: IEA – Global Energy Review 2025 – License: CC by 4.0; HSBC Global Investment Research Climate stocks outperformance Global climate stocks in the HSBC Global Investment Research (HSBC Research) proprietary HSBC Climate Solutions Database (HCSD) saw a strong price performance in the third quarter of this year and have outperformed the global equity benchmark (FTSE All World Index) by 11.4 percentage points in 2025, as of 16 October. This follows the steady outperformance of climate stocks over the past few years, including a 15.4 percentage point gain in 2024. Climate stocks have outperformed global equities year-to-date Source: FTSE Russell, LSEG Datastream, HSBC as at 16 October 2025 Recent surge is driven by pure-play climate stocks Source: FTSE Russell, LSEG Datastream, HSBC as at 16 October 2025 Broad-based outperformance HSBC Research’s analysis of climate stocks by region and sector suggests that the recent price outperformance is broad-based, marking a notable turnaround from the challenging outlook earlier in the year. Political backlash, deteriorating sentiment attached to sustainable investing, and concerns associated with greenwashing and regulatory changes had an adverse impact on the performance of climate stocks in the HCSD in the first few months of 2025. While many of these issues persist, the strong relative performance of climate stocks since early July aligns with a slight reduction in uncertainty, particularly related to the US climate policy, partly alleviated by the One Big Beautiful Bill. Pure-plays lead Drilling down further, pure-play climate stocks – those generating more than half of their revenues from climate-related activities, have delivered the strongest returns this year, approximately around 35%. This likely reflects investors’ preference for pure-play stocks, while expanding their exposure to the universe of clean-tech companies. Importantly, companies with less than 50% climate revenue exposure have also outperformed the global equity benchmark in 2025. This ongoing trend reinforces the consistent outperformance of climate stocks over the past decade, despite facing various market Asia-Pacific ahead Analysis of regional price performance of stocks in the HCSD shows Asia-Pacific leading with a 34% year-to-date return. While climate stocks in North America and Europe have lagged HCSD stocks in aggregate, they have still outperformed the global equity benchmark. Historically, Asia-Pacific climate stocks have delivered stronger returns than other regions, driven by a robust economic growth and increased investment in clean technologies. Notably, the region represents over half of all climate stocks in the HCSD and remains a significant contributor to global climate company revenues. Sustainable funds: US drives equity outflows Sustainable equity funds have experienced net outflows of USD 57 billion year-to-date—the first recorded outflows since 2020. The US market is the primary contributor, accounting for USD 43.5 billion of these outflows as of 10 October this year. This trend is largely attributed to political backlash, waning investor sentiment towards sustainable investing, and concerns over greenwashing and regulatory changes. First instance of outflows from sustainable equity funds since 2020 Source: Morningstar, HSBC as at 10 October 2025 (using weekly data) Nonetheless, sustainable funds’ asset under management continues to rise Source: Morningstar, HSBC as at 10 October 2025 In contrast, sustainable bond funds have maintained strong momentum in 2025, attracting USD 57 billion in inflows, representing over 6% of all global bond fund inflows. Despite the outflows from equity sustainable funds, assets under management (AUM) for both equity and bond sustainable funds have increased, reflecting robust price performance and supporting observations of strong returns in global climate stocks. Notably, since 2021, the long-term growth in AUM for sustainable equity and bond funds has been higher than all-equity and all-bond funds, respectively. Across major markets, the US remains a significant drag, with year-to-date outflows intensifying in recent months—rising from approximately USD 16 billion at the end of the last quarter to around USD 43 billion currently across both equity and bond sustainable funds. These outflows, exceeding 10% of AUM in both categories, highlight a deteriorating outlook for sustainable investments in the US. The early termination and phase-down of Inflation Reduction Act tax credits for renewables and transport, as legislated in the One Big Beautiful Bill, have further dampened sentiment. While US outflows dominate, there is evidence of rotation into Europe and Asia, with Switzerland and mainland China reporting net inflows. Climate themes to watch HSBC Research applied their quantitative framework to the HCSD, identifying solar and energy storage as the most attractive themes within their climate change space. We examine the underlying fundamentals supporting these sectors. Solar Solar energy continues to lead global clean-energy growth, supported by falling costs, strong policies and rapid technology gains. Investments in solar photovoltaic technology (cells that convert sunlight into electricity) are expected to surpass USD450bn in 2025, outpacing all other renewable energy sources, according to IEA World Energy Investment 2025 estimates. Global renewable energy pledges and policies are driving the growth of renewables and solar power. These include plans to triple renewable energy generation capacity to at least 11TW by 2030 (COP28); end a reliance on fossil fuels (REPowerEU); mobilize USD1trn in solar energy investments by 2030 (International Solar Alliance), and numerous supportive national policies and targets set by countries such as China, India, UAE, South Africa and Brazil. Furthermore, to align with the IEA net-zero scenario, solar generation needs to reach approximately 9,200TWh by 2030, requiring an annual average growth rate of around 28% from 2024 levels. Advanced manufacturing capabilities, a reduction in polysilicon prices, and growing economies of scale have resulted in the significant fall in solar cell prices over the last decade, making them more competitive relative to fossil-fuels powered energy generation. The cost of solar energy has become substantially lower than both gas, coal, and other renewable energy sources except wind. Moreover, the BNEF expects the cost to fall further by 31% over the next decade, potentially making it an attractive long-term energy investment. Emerging economies are forecasted to add c78% of the global net solar capacity additions by 2030, which is principally driven by China. Indeed, China has emerged as a global centre for the solar energy investment and supply chain, with the country adding almost two-thirds of all new renewable capacity globally in 2024. Solar power plant capacity trend and forecast Source: IRENA, BNEF*, HSBC *BNEF forecast based on COP28’s tripling renewable energy capacity by 2030 Global Levelized cost of solar energy is expected to fall 31% by 2035 Source: BNEF, HSBC Energy storage Reducing emissions from the transport and power sectors, which together represent approximately two-thirds of global emissions, is key to hitting net-zero goals. Energy storage systems play a pivotal role in improving the efficiency and reliability of clean transport and renewable power sources. According to the IEA’s net-zero emissions scenario for 2050, increased adoption of electric vehicles could reduce oil demand by 8 million barrels per day by 2030, with battery solutions being central to this transition. In the electricity sector, battery storage solutions enhance the efficiency of power systems by storing excess energy during periods of low demand and releasing it when demand is high. This minimises losses and supports the integration of renewables into the grid. To align with the IEA’s net-zero scenario, global annual demand for energy storage batteries must increase sixfold to reach 6TWh by 2030. Of this demand, 90% is projected to come from batteries for electric and hybrid vehicles, with the remaining 10% from other energy storage applications. Additionally, the global energy battery systems market is expected to quadruple, reaching USD 500 billion by 2030, up from USD 120 billion in 2023. Battery Price Decline Accelerates EV and Energy Transition The clean transport and energy sectors now account for over 90% of global annual demand for lithium-ion batteries—a figure set to rise as falling battery prices drive broader adoption of electric vehicles, as well as utility-scale and residential solar solutions. Battery costs have dropped significantly, from USD 1,400/KWh in 2010 to below USD 115/KWh in 2024. Continued innovation and higher-density battery production are expected to reduce average global prices to under USD 100/KWh within the next few years, further supporting the energy transition. Conclusion Clean energy sectors—particularly solar, wind, and nuclear—have underpinned strong performance in climate-related equities in 2025. At the same time, outflows from US sustainable equity funds have increased, with Switzerland and China emerging as leading recipients. Analysis from HSBC Research highlights solar and energy storage as the most promising themes within the climate change investment landscape. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/investing-in-climate-change/