2025-04-23 12:02

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/usd-s-safe-haven-brand-in-doubt/

2025-04-22 12:01

Key takeaways US tariffs and heightened uncertainty look set to deliver a significant blow to global growth through various channels. US inflation is likely to rise, but lower energy prices, stronger FX, and China trade diversion could lower inflation elsewhere. We recently lowered our global GDP growth forecasts to 2.3% for both 2025 and 2026. The pace of US policy shifts since the ‘Liberation Day’ announcements has been dramatic. The reciprocal tariffs, related financial market turmoil, the US’s rapid Uturn, and a doubling down on mainland China tariffs will undoubtedly weigh on trade flows, investment plans, and broader activity. And for many economies the impact is likely to be substantial. Relative winners and losers The tariff turmoil is bad news for the global economy but there will still be relative winners and losers. Countries with lower exposure to US imports of tariffed items, particularly if also set to benefit from China and EU fiscal stimulus, will be more immune, and vice versa. Others could gain by supplying goods currently sourced from China, if US trade actions make them prohibitively expensive. Vietnam, Mexico, Thailand, and India are top of that list, if they can avoid large tariffs themselves. Meanwhile, economies like Brazil could benefit if China sources more agricultural products from outside the US. Note: Mexico and Canada are exempt from the baseline 10% tariff. Source: IMF DOTS The biggest uncertainty effects may be in the US itself. At a minimum, there will be enormous disruptions to supply chains for a vast array of small and large US companies. The tariffs might slow imports and push up prices for companies and consumers. US profit margins are likely to be squeezed. And companies reliant on foreign components could be less competitive in international markets and consumer goods prices will rise. Sector-specific vulnerabilities As well as overall dependence, product mix of trade flows will also determine the direct impact. Some products are exempt from the 10% baseline reciprocal tariffs – either because they fit into the categories of energy and critical minerals, or because the US can’t easily source them domestically – for example zinc, tin, and other base metals. Products that face higher tariffs include autos, steel, and aluminium (already in place), and, potentially, pharmaceuticals and semiconductors. US-China breakdown The main area of bilateral trade with the US that looks set to plummet is between the US and China. However, the world’s two largest economies are less reliant on each other than in the past: just over 13% of US imports are from mainland China and less than 15% of mainland China’s exports go to the US. On the other side of the relationship, only c7% of US exports go to mainland China and only c6% of mainland China’s imports are from the US (Chart 2). Inflationary impact The path for inflation is uncertain, but tariffs are likely to mean US goods prices are higher, even if much of the tariff impact weighs more on US growth. That risk is clearly being reflected in consumer surveys, with inflation expectations rising (Chart 3). Elsewhere, weaker growth, lower oil and gas prices, and recent currency appreciation point to lower inflation. Trade diversion may also mean a near-term disinflationary impulse as goods intended for the US market are re-routed: just how much depends on how many more trade actions are taken by other countries vis-a-vis China. Source: Macrobond Source: Macrobond Our forecasts We recently lowered our global GDP growth forecasts to 2.3% (from 2.5%) for 2025 and to 2.3% (from 2.7%) for 2026. Our forecasts for nearly every economy have been lowered, even Canada and Mexico, which were not hit by additional tariffs in April, in response to the deteriorating outlook for US growth. There has been a more diverse impact on our inflation and monetary policy forecasts. Although we have lowered our US growth forecast materially to 1% 4Q/4Q in 2025, the deteriorating growth-inflation trade-off means we have not changed our long-held Federal Funds view of no more than 75bp of rate cuts in 2025-26. We expect stronger policy responses elsewhere, including more from the European Central Bank and many emerging economies, even though we are not expecting aggressive rate cuts. It is not just monetary policy that could soften the blow from trade uncertainty, which is already spurring fiscal, deregulatory, and structural measures from Europe to Asia. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 20 December 2024. 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/tariff-risks-weighing-on-global-growth/

2025-04-22 08:05

Key takeaways Escalating tariff tensions between China and the US pose heightened risks to economic growth… …but may also prompt more support for consumption, along with additional monetary and fiscal easing. With larger-than-expected external shocks, China will need to act decisively and quickly to support domestic demand. China data review (March, Q1 2025) GDP growth rose 5.4% y-o-y in Q1 with upside surprises in March’s industrial production and retail sales pointing to stronger domestic activity ahead of the recent tariff escalations. Accelerated policy support, backed by fiscal spending, alongside some improvement in consumer sentiment have likely helped, though the property sector remained a weak point. Meanwhile, frontloading of exports ahead of tariff uncertainty also provided a cushion. Industrial production was up 7.7% y-o-y in March, boosted by the strongerthan-expected exports activity from frontloading and supply chain rejigging. The ongoing domestic policy push to promote equipment upgrading, technology and Artificial Intelligence development will also remain key for supporting the manufacturing sector; equipment and Hi-Tech manufacturing production rose 10.9% and 9.7% y-o-y in Q1, respectively. Retail sales rose by 5.9% y-o-y in March, driven by increased purchases from the trade-in programmes, which have been effective in lifting sales in home appliances (up 35% y-o-y), communications goods (29% y-o-y) and autos (5.5% y-o-y). While overall autos sales were more muted compared to the other categories, this is partly due to ongoing price cuts as a result of competition. Electric Vehicle sales on the other hand have been performing strongly. Headline CPI stayed in contraction, falling by 0.1% y-o-y in March, owing to weaker food prices and softer global crude oil prices weighing down energy costs. However, Core CPI rebounded to 0.5% y-o-y supported by a modest rebound in services. Meanwhile, PPI saw a deeper fall of 2.5% y-o-y due to lower global commodity prices, overcapacity concerns and ongoing pressures in the property sector. Exports saw a broad-based increase in March, up 12.4% y-o-y, as companies sought to frontload shipments ahead of potentially higher tariffs being imposed. Meanwhile, imports continued to stay low, falling by 4.3% y-o-y, due in part to weaker global commodity prices for iron ore and crude oil which weighed on imports value. While frontloading has provided some cushion and the recent pauses in some tariffs can also help, external headwinds have clearly risen. More domestic support to counter tariffs Trade tensions continue to climb. In the recent round of escalations, President Trump sharply raised tariffs on Chinese goods to 145% (effective as of 9 April), prompting countermeasures from China which raised reciprocal tariffs on US goods to 125% (effective as of 12 April). But this may be the upper limit for tariff actions. Alongside China’s tariff announcement, it stated that it will not respond to further US tariff hikes (MOFCOM, 11 April). Meanwhile, the recent US electronics exemptions mean Chinese goods in these categories (RMB102bn or c23% of US imports from China) only face 20% tariffs, as opposed to 145%, although the exemption may only be temporary. To mitigate tariff impacts, China is strengthening diplomatic engagement globally. For example, it recently signed 45 bilateral cooperation agreements with Vietnam across areas including Artificial Intelligence, agriculture and sport (Xinhua, 14 April), while China’s Commerce Minister has held discussions with the EU, ASEAN, G20, BRICS, and Saudi Arabia on countering US tariffs. More domestic policy support Policymakers may need to provide more domestic support for economic growth to counter tariffs, including more fiscal and monetary easing, and expanded policies for consumption. Premier Li Qiang conducted a field survey in Beijing on 15 April and stressed the importance of stimulating inner circulation and boosting consumption to counter external headwinds (Stcn, 15 April). Expanded consumer goods trade-ins: These initiatives have seen robust participation since their launch last year, with over 100mn home appliance trade-ins completed (People’s Daily, 12 April). Funding has doubled this year (to RMB300bn) and more product categories are expected to be added. Guangzhou has said that residents from Hong Kong, Macau, Taiwan, and foreigners with permanent residence are eligible for trade-in subsidies (Securities Times, 12 April). Boosting service consumption: Last week, China unveiled plans to support consumption in health and sports (Xinhua, 11 April). Local governments, including Hohhot, have introduced childcare subsidy policies, with more expected to join. Two dairy producers have also launched subsidy programmes worth RMB2.8bn in April (Xinhua, 11 April). And a "Shop in China" campaign will promote consumption nationwide focusing on goods, dining, and cultural tourism (Xinhua, 14 April). Other measures in the pipeline: Policies to raise household incomes, expand public services based on residency, and stabilise property – a key drag on household wealth and consumer confidence – are accelerating. Property saw renewed pressure in the first 14 days of April, as new home sales in 30 major cities fell 11% y-o-y, underscoring the need for intensified policy support, including from local government funds and potential direct central government funding. Source: Wind, HSBC Source: Wind, HSBC Exporters selling locally: The Ministry of Commerce has pledged to help exporters boost domestic sales, by helping with market access, distribution channels, financial services and logistics (Xinhua, 11 April). The ministry has convened discussions with industry associations, retailers, and logistics firms, with many announcing that they would help exporters go domestic through increasing purchases. Among them, JD.com pledged RMB200bn for the cause (Cailianshe, 11 April). Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 15 April 2025, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/more-domestic-support-to-counter-tariffs/

2025-04-17 12:01

Key takeaways US equity markets sold off after Fed Chair Jerome Powell indicated no “Fed put” despite slower US growth outlook and market volatility triggered by tariff uncertainty. Powell reiterated the wait-and-see approach, as he expected inflation to rise and the labour market to come under pressure due to higher tariffs. We now project US GDP growth to slow to 1.6% for 2025 (down from 1.9% previously) and 1.3% for 2026 (down from 1.8% previously). On the inflation front, we have raised US CPI forecasts to 2.9% in 2025 and 3.1% in 2026. We continue to see potential headwinds from fiscal tightening and downward revisions to 2025 earnings as tariff uncertainty persists. In this challenging environment, we maintain a defensive strategy with a strong focus on multi-asset diversification, active management and long-term structural themes to mitigate market volatility. What happened? US equity markets sold off after Fed Chair Jerome Powell indicated no “Fed put” despite slower US growth outlook and market volatility triggered by tariff uncertainty. In his speech delivered at the Economic Club of Chicago, Powell cautioned that tariff-induced price rises may end up becoming more persistent, and the labour market conditions could come under pressure. In response to a media question about the “Fed put” to support financial markets, Powell said “no” to dismiss market expectations of immediate central bank intervention to boost the equity markets. Powell pushed back against any idea of disorderly market behaviour or anything that would need the central bank to step in right now. He said the financial markets remained orderly and functioning well, citing abundant reserves and healthy liquidity conditions. He reconfirmed policymakers are in no hurry to change the central bank's benchmark policy rate and said the Fed remained well positioned to wait for greater clarity before considering any policy adjustments. Regarding the tariff impact on inflation, Powell said the level of the tariff increases announced so far was significantly larger than anticipated, adding that the inflationary effects could also be more persistent. Powell noted both survey- and market-based measures of near-term inflation expectations have moved up significantly, but longer-term inflation expectations appear to remain well anchored, as market-based break evens continue to run close to 2%. Powell emphasised the need to prevent tariffs from triggering a persistent rise in inflation, ensuring that a one-time price increase does not become an ongoing inflation problem. We think this is good news for the bond market. Both the markets and the Fed expect lower rates and weaker growth by the end of 2025. The Fed’s own median projections expect two 0.25% rate cuts by end-2025. Traders are just taking that impulse further, as they brace for the possibility that the economic hit of tariffs will slow economic activity beyond policymakers’ predictions. Higher tariffs and increased global trade frictions will result in slower global growth and higher inflation in the US. We have downgraded US and global growth forecasts for both 2025 and 2026 to reflect the negative impact of tariff escalation and growing policy uncertainty under the new US administration. In the US, we have cut GDP growth forecasts to 1.6% from 1.9% for 2025 and to 1.3% from 1.8% for 2026. Our lower US growth forecasts have factored in the impact of tariffs and the policy uncertainty emanating from Washington. But we do not expect the US economy to slide into a recession as we expect the Fed to start cutting policy rate in June. On the inflation front, we have raised US CPI forecasts to 2.9% in 2025 and 3.1% in 2026. Investment implications We continue to see potential headwinds from fiscal tightening and downward revisions to 2025 earnings as tariff uncertainty persists. In this challenging environment, we maintain a defensive strategy with strong focus on multi-asset diversification, active management and long-term structural themes to mitigate market volatility. We continue to look for short-term USD weakness and US equity market underperformance compared to Europe and Asia. As investors rotate away from USD assets, we are bearish on USD. Gold should continue to benefit. On the equity front, we maintain a neutral stance and continue to take a defensive sector stance in the West and focus on quality and large caps. We think rotation flows will support German and Eurozone stocks and have upgraded Europe ex-UK equities to overweight. We maintain our overweight on Asia ex-Japan equities despite very high two-way US-China tariffs. Chinese equities only derive 3% of earnings from US exports and we expect more domestic stimulus. We further intensify our focus on domestically oriented companies. We have downgraded Japanese stocks to neutral due to the country’s high exposure to US exports and the strong JPY. HSBC’s new macroeconomic forecasts Source: HSBC Global Research forecasts, HSBC Global Private Banking and Wealth as at 17 April 2025. Forecasts are subject to change. On fixed income, US Treasuries have temporary lost their appeal as a safe haven, especially longer-dated bonds, but they represent some value for long-term investors. The first signs of an economically damaging slowdown in global trade are already emerging and the Fed may be forced to acknowledge the risk to growth and employment. We believe this should support DM government bonds and we focus on 7-10-year maturities. We favour UK gilts, Eurozone sovereign, Eurozone and UK IG bonds. We remain neutral on DM and EM credit as credit spreads may remain choppy with some potential for overshooting. Despite our new forecasts for weaker US growth, we do not expect any shift in Fed policy. The financial markets should not expect a “Fed put” to come to the rescue amid market volatility. We continue to expect the Fed to deliver three rate cuts this year, beginning in June. The three rate cuts would be 0.25% in each quarter, leaving the Fed funds rate at 3.75% by year-end. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/powell-signals-no-fed-put-despite-slower-growth-and-market-volatility/

2025-04-14 12:01

Key takeaways Ongoing US policy uncertainty has created a bifurcated USD, leading us to rethink our USD framework… …which now consists of cyclical, political, and structural drivers… …and sees the DXY facing some downward pressures. Our trifactor framework, resting on US growth vis-à-vis the rest of the world, relative yields and risk appetite, which has helped us decide whether the USD will strengthen or not, is not working (the right pie in Chart 1). Currently, USD yields are still higher than for other currencies, along with slowing global growth and intensifying risk aversion, but the USD has been weakening. We notice that there is a bifurcated USD whereby it is struggling versus other core G10 currencies (i.e., EUR, JPY, and CHF) but coping versus many smaller G10 and emerging market ones. This points to the risk aversion channel via US policy uncertainty dominating (Chart 2). Source: HSBC Global FX Research Source: Bloomberg, HSBC Most recently, US President Donald Trump’s decision on 9 April to limit reciprocal tariffs to 10% for 90 days to allow for negotiations provoked a big reaction in equity markets globally, but the impact on FX has been more modest and short-lived. A blanket import tariff of 10% is still significant, while the 100%+ tariffs between China and US are stratospheric. Negotiations may offer an escape, but it is worth noting that the phase 1 trade deal between the US and China came 21 months after US President Trump first raised tariffs. Now the US is also trying to negotiate with 70+ trading partners in 90 days. The clock is ticking. All this led us to circle back to another framework to think about the USD, which we used in US President Trump’s first year in 2017. It was helpful to assess the USD against its cyclical, political, and structural drivers (see the left pie in Chart 1). Back then, the USD struggled as global growth was accelerating, US policy uncertainty lingered, and questions about the USD’s structural outlook surfaced amid Trump’s tax cut proposals. In some ways, history is rhyming. Currently, the USD’s cyclical backdrop is less supportive in isolation, but the global outlook argues against being overly negative on the currency. US policy uncertainty is high and is weighing on the US Dollar Index (DXY) via risk aversion. There are questions about its structural properties. After considering the US current account position, fiscal risks and holdings of US securities, we think that the structural discussion around the USD is louder, and the tail risk is higher. Putting these together tells us that the DXY will likely be in a softer position over the coming quarters. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-to-soften-in-the-quarters-ahead/

2025-04-14 12:01

Key takeaways The US has announced a 10% baseline tariff effective from 5 April, along with individual reciprocal tariffs of up to 49% on some economies from 9 April. US tariffs are rising in a way that FX markets deem to be a concern. With US tariff plans known, the FX focus will likely switch to retaliation measures by others and how the US and global economy evolves. In the lead up to, and on, 2 April 2025, i.e., “Liberation Day”, US President Donald Trump announced the US will: (1) implement a 10% baseline tariff on all imports effective from 5 April, (2) subsequently implement higher individual reciprocal duties on partners the US has the largest trade deficits with (see the table below) effective from 9 April, and (3) impose a 25% tariff on imports of automobiles effective from 3 April, along with a 25% tariff on imports of autos parts that will take effect by 3 May. For Canada and Mexico, the White House said that existing fentanyl/migration International Emergency Economic Powers Act (IEEPA) orders remain in effect and are unaffected by the latest announcements. United States–Mexico–Canada Agreement (USMCA) compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff. Source: The White House As for FX markets, we believe there was truly little priced into exchange rates given the range of outcomes and how the US Dollar Index (DXY) was largely moving in line with its yield differential (Chart 1, overleaf). The DXY dropped by c0.7% to 103.1 (Bloomberg, 3 April 2025 at 9:45am HKT) and we believe the main FX driver is likely to come through the risk channel (Chart 2, overleaf). In a “risk off” environment, “safe haven” currencies are likely to outperform “risk on” currencies. Source: Bloomberg, HSBC Note: Correlation is computed based on weekly changes in the period from 2014 to 2025. Source: Bloomberg, HSBC One important issue for the broad USD, which could take a few weeks, if not longer, to decipher, relates to US and global growth. The path of each will determine whether the USD can strengthen further, becomes bifurcated or stages a continued fall across the board. So, we need to be mindful of currencies that are more closely linked to the US economy (Chart 3), and how others could perform as the market anticipates the path for global growth. Relative performance may also hinge on how (or if) countries retaliate, how long it takes to negotiate an exit from US tariffs, and how their economy is placed to weather the tariff damage in the meantime. Source: Bloomberg, HSBC The tariff plan announced for Asia is also arguably more punitive than expected − all except Singapore face more than 10% reciprocal tariffs, ranging from 24% to 46%. We expect Asian currencies to come under depreciation pressure as a result. USD-CNY fixing rate is relatively steady at 7.1889 today, and as the trading is allowed within 2% of the fixing rate, the trading band range is 7.0451 to 7.3327 (Bloomberg, 3 April 2025). We believe the Chinese authorities have their own motivations for keeping USD-RMB reasonably stable, but some moderate and gradual adjustment may still be warranted to alleviate the impact on exporters. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/fx-liberation-day-10-baseline-tariff-and-more/