2026-06-25 12:01

Key takeaways ASEAN’s economies are facing multiple shocks, from a brewing El Niño to US tariff uncertainty… …yet activity is set to prove surprisingly resilient, supported in parts of the region by surging demand for AI hardware. Rising price pressures are posing a risk, as do growing budget deficits, but growth should continue to trot along. Indonesia’s economic performance remains stronger that market sentiment suggests, with a policy pivot underway to strengthen confidence. Thailand has seen investment bounce of late, but the lift in growth may not prove durable. Malaysia is riding the AI wave, but a possible election could sap reform efforts. The Philippines suffers from a surge in prices and fiscal inaction, even if its fundamentals remain solid. Vietnam harbours ambitions for more, even if growth is already at an impressive pace given energy and tariff headwinds. Singapore remains its resilient self, chugging along with relative ease, and taking a growing share of the AI boom. Economy profiles Key upcoming events Source: LSEG Eikon, HSBC Indonesia Market strain, policy pivot There is much attention on Indonesia lately. Across the major asset classes - equities, bonds and FX - Indonesia has underperformed the broad Emerging Markets (EM) index YTD. A cursory glance suggests that even though markets have not performed too well, the economy is chugging along fine. GDP rose 5.6% in the quarter ending March, higher than the 5.1% growth in 2025. And even though inflation has risen, it remains well within the 2.5-3.5% range. A deeper review, however, suggests that the economy has started to gradually reflect the impact of the energy shock, and markets may be partly reflecting that. On growth, the latest readings show a fall in retail spending, consumer sentiment and export orders. There has been a significant amount of frontloading in fiscal expenditure, and belts may need to tighten in subsequent months to meet the 3% fiscal cap. We forecast GDP to grow 4.7% y-o-y in 2026 (versus 5.1% in 2025). PMI input prices have risen quickly and are gradually pushing up output prices. We forecast inflation to average 3.5% in 2026 (versus 1.9% in 2025). The latest trade data shows a fall in the monthly surplus, with export volumes falling even as import volumes shot up. Meanwhile capital inflows remain sluggish, weighing on the exchange rate. Supply shocks such as rising energy costs and adverse weather are always tricky to deal with because they come with trade-off. Generally, inflation rises and growth falls during these shocks. Often, policymakers have to choose between the two. Some observers may see the Indonesian rupiah (IDR) as the primary challenge to address. The underlying driver of the IDR’s depreciation seems to be the balance of payments, which is likely to post its second negative annual reading in 2026. It’s tempting to argue that Indonesia does not face a current account problem, given the modest shortfall of -0.1% of GDP in 2025, and that the bigger concern is weak capital inflows, which came in at -0.3% of GDP in 2025. But, in practice, these two factors are interlinked. A low current account deficit can reflect subdued investment demand. Indeed, we find that corporates are cash rich but reluctant to invest. And weak investment and growth prospects can hurt capital inflows. Indonesia’s persistent negative output gap Source: CEIC, HSBC Price pressures are rising Source: CEIC, HSBC Malaysia Resilience is a virtue Until the Middle East conflict, the Malaysian economy was in a “Goldilocks” stage, with strong growth and stable inflation. But the conflict increases the possibility of downside risks to growth and upside risks to inflation, even if Malaysia has demonstrated more resilience than regional peers, as it is not only a net energy exporter, but also a key beneficiary of the sustained AI cycle. This is not to say that Malaysia will be insulated from the energy shock, but the impact should be smaller than for other economies, which are heavily dependent on energy imports from the Gulf. Malaysia has made a strong start to the year, with GDP up 5.4% y-o-y in 1Q26. While construction cooled from double-digit to single-digit growth, the sustained strength in manufacturing and services has more than offset the moderation. Exports remain strong, thanks to the ongoing AI-driven tech cycle. On a 3-month moving average basis, Malaysia’s electronics exports surged to 30% y-o-y. Elsewhere, inflation has been well-behaved for a sustained period of time, averaging only 1.7% y-o-y in the first four months of 2026. This gives Malaysia one of the lowest inflation prints in ASEAN, significantly lower than peers like the Philippines and Vietnam. In the face of elevated energy prices, it is not hard to understand why: Malaysia is blessed with the region’s lowest petrol prices. Using the most common RON95 price as a gauge, Malaysia’s RON95 remains at MYR1.99/l (USD0.5/l), 1/10 of that in Hong Kong, 1/5 of Singapore, 1/3 of Thailand and 1/2 of Vietnam. However, this is primarily due to heavy subsidies: RON95 at the market rate, or the unsubsidised rate, is twice that of the subsidised price. This comes with significant fiscal costs. The monthly subsidy bill for energy has risen tenfold from MYR700m to MYR7bn due to the conflict. The hefty subsidies raise questions on what comes next for the RON95 policy, as it imposes huge pressures on Malaysia’s fiscal coffers. But the timing of any potential adjustments is also tricky, as the general election is approaching fast. Overall, we maintain our GDP growth forecasts at 4.5% for 2026 and 4.7% for 2027. Bank Negara Malaysia (BNM) is one of the few Asian central banks to raise its 2026 growth forecast range, increasing it from 4-4.5% to 4-5%. On inflation, we recently revised upwards our inflation forecast to 2.5% (from 2.1%) for 2026, and to 2.7% (from 2.3%) for 2027. However, we do not believe the price pressures are significant enough to prompt BNM to hike. We keep our long-held view that BNM will likely stay on hold in our forecast horizon throughout 2027. Malaysia has been benefitting handsomely from the sustained AI-driven tech cycle Source: CEIC, HSBC Its petrol subsidy skyrocketed ten-fold to MYR7bn per month after the conflict Source: Malaysia MoF, HSBC Philippines Hanging in there Stagflation appears to be emerging in the Philippines. For one, growth continues to sour. In 1Q26, growth came in at 2.8% y-o-y, stumbling to its slowest pace since 2009, excluding the COVID-19 pandemic. The culprits of the slowdown remain the same: public capital disbursements continue to fall at a significant rate while the uncertainty around public spending has led to households and businesses pulling back on their expenditures. Savings are up, and investment is down. Understandably so – households can weather tough times by putting aside a larger portion of their incomes during good times. That good time was 2025, when wages grew 7% on average while inflation was only 1.7%. However, instead of enjoying the increase in purchasing power by spending more, households chose to save. The share of households reporting that they were able to save before the energy shock in March 2026 was even higher than pre-pandemic levels, with the more vulnerable, low-income households leading the increase. Unfortunately, this slowdown in demand has already spilled over to the labour market. The unemployment rate in the Philippines has risen above 5%. And soon, households and small businesses may need to dip into the savings they have recently accumulated. This is because prices continue to rise amid slow growth. Currently at 6.8% y-o-y, headline inflation in the Philippines is the highest in the ASEAN region. The surge in energy prices has already spilled over into core CPI, with core inflation accelerating above the central bank’s 2-4% target band. However, the outlook is set to become tougher, with price pressures on food − due to higher fertilizer prices and El Niño − expected to intensify in the coming months. We expect growth to come in well below potential in 2026 and 2027, at 3.4% and 4.8%, respectively. But the Philippines is hanging in there. Once the energy shock normalises, financial markets in the Philippines are likely to recover quickly. This is because the fiscal response has remained prudent, as officials opted for targeted welfare measures. In addition, a healthy degree of “demand destruction” should eventually come to the fore. Without controls, energy prices in the Philippines have reflected the true scarcity of commodities. Growth may be below potential, but once the dust settles, public debt and the current account is likely to remain manageable and resilient. With construction demand falling, the labour market has tightened… Source: CEIC, HSBC …all while inflation in the Philippines is rising across all major categories Source: Macrobond, HSBC Singapore Treading with prudence Singapore, a developed market (DM) growing like an emerging market (EM), has demonstrated impressive resilience amid the Middle East conflict. In 1Q26, GDP growth of 6% has placed it as the second-fastest growing economy in ASEAN, just after Vietnam. But beyond the strong y-o-y print, Singapore’s growth momentum was equally strong, reflecting the benefits of a diversified economy. Alas, manufacturing momentum declined in 1Q, but it was more of a healthy pull-down from previous sustained manufacturing strength, supported by the AI-driven tech upcycle. In fact, based on high frequency indicators, the electronics trade remains exceptionally strong. On a three-month moving average basis in April, electronics non-oil domestic exports (NODX) accelerated to over 60% y-o-y, pushing headline NODX close to 15% y-o-y. But it’s not only about AI. Singapore’s resilience comes from its broad-based growth. For one, the construction sector saw growth of over 11% y-o-y in 1Q, reflecting Singapore’s push for large-scale public infrastructure. Meanwhile, the services sector also accelerated on a y-o-y basis, benefitting from robust wholesale and retail trade as well as the finance sector. There is no time for complacency, as downside risks to growth linger, induced by the energy shock. Singapore is in a much better fiscal position than EM peers to provide much-needed relief but it takes a cautious and measured attitude. Overall, given the upside surprise in 1Q26 and the sustained AI cycle, we recently upgraded our growth forecast to 3.3% (from 2.9%) for 2026, putting it at the upper end of the government’s growth forecast range of 2-4%. We forecast 2027 growth of 2.5%. Outside of growth, inflation has been well-behaved, despite the energy shock. Core inflation, the Monetary Authority of Singapore (MAS) preferred inflation gauge, grew only 1.4% y-o-y on average in the first four months of 2026. But the impact from higher oil prices is likely to be more evident from 3Q26, as there is usually a quarter lag from global energy prices to core inflation. Thus, the inflation impact will be more evident in 2H26. We also upgraded our core inflation forecast to 2.0% (from 1.8%) but revised down our headline inflation forecast to 2.2% (from 2.4%) for 2026. No doubt, inflation has re-emerged as a priority for the MAS. Given the current inflation trajectory, the MAS is more likely to take its time to assess the inflation impact, rather than resorting to a back-to-back tightening move in July. Singapore’s electronics non-oil domestic exports (NODX) have seen a jump in growth Source: CEIC, HSBC Singapore’s core inflation momentum has been volatile, but upside risks linger Source: CEIC, HSBC Thailand Policy clockwork Thailand’s economy had some degree of momentum before fuel prices spiked on 23 March 2026, the day the government lifted its price ceilings on fuel. Growth in 1Q26 exceeded expectations, accelerating to 2.8% y-o-y despite the turmoil in the Middle East. Sectors and industries that are part of the data centre and AI supply chains were particularly buoyant. Goods exports from Thailand surged 15.5% y-o-y − the fastest since exports boomed during the COVID-19 lockdowns – with most of the outperformance seen in electronics. Thailand is a major producer of printed circuit boards and hard disk drives, two of the many types of hardware that make up the sophistication of a data centre. Private investment, too, grew by double digits as some of the digital investments committed over the past two years (most being AI-related) finally materialised. Business confidence, especially among large firms, was upbeat as Thailand garnered a renewed sense of political stability after the February 2026 general election. Private consumption also remained punchy with consumers frontloading their automobile purchases ahead of the expiry of the EV 3.0 subsidy scheme. We expect the economy to ride this momentum through fiscal policy. The government has issued a THB400bn loan decree (2.1% of GDP), half of which will be used to finance consumer subsidies. The other half will be used to finance Thailand’s energy transition. Given the size of the stimulus, we have recently revised our 2026 growth forecast to 2.2% (from 1.6%). Will the Thai economy defy the challenges brought by the Middle East conflict? There are cracks that need to be monitored. For one, manufacturers that do not benefit from the ongoing AI boom still face intense competition from Chinese imports. Private consumption should also slow once the consumer subsidies are wound up, while households continue to face liquidity constraints. As a result, businesses have found it difficult to raise the prices of the goods and services they sell despite the jump in input costs. With profit margins squeezed, there is likely to be less incentive to invest later in the year and into the next. Overall, the growth outlook has improved in 2026, but 2027 is likely to remain tough. We recently revised our 2027 growth forecast downwards to 1.7% (from 2.6%). And, given the difficulty in passing higher costs on to consumers, we expect inflation to ease back to below 2% y-o-y as early as 2Q27. Firms have found it difficult to pass the higher cost of inputs on to consumers Source: Macrobond, HSBC We expect fiscal policy to tighten in 2027 after a decade of widening deficits Note: *2026-27 are HSBC forecasts. Source: CEIC, HSBC Vietnam No room for complacency Vietnam entered 2026 on a resilient footing. Despite moderating from last year’s 8%, the country saw rather decent growth of 7.8% y-o-y in 1Q26. This easily made Vietnam sustain its position as one of Asia’s fast-growing economies. However, there is no time for complacency, as the Middle East conflict has pushed up energy prices to elevated levels. Nevertheless, a detailed look at trade data shows Vietnam’s trade resilience. Exports jumped almost 20% y-o-y YTD on average, thanks to booming electronics shipments. While Vietnam’s exposure to chips is rather limited, it has captured more market share in consumer electronics; not to mention that it has the ambition to climb up the value chain, seeing vast potential from its young, knowledge-hungry and tech-savvy workforce. Despite booming exports, Vietnam’s imports grew even more, rising 30% y-o-y YTD. This is also understandable, to an extent, as Vietnam’s manufacturing sector is rather import-intensive. However, this raises a question about its trade balance. Since December 2025, Vietnam has consistently run a trade deficit, which widened to a record level of USD5.2bn in May. We do not think Vietnam will enter a “twin deficit” situation, as the tourism receipts and secondary income will help. However, we have revised down our current account surplus forecast to 2.2% of GDP, from 6% earlier, for 2026. This could pose depreciation pressure on the Vietnamese dong, which has been holding up surprisingly well compared to others since the start of 2026. Overall, we forecast GDP growth of 6.5% for both 2026 and 2027. But downside risks are picking up, and depend on how the Middle East conflict evolves. The immediate concern for Vietnam is how to grapple with elevated oil prices. History reminds us of the acute impact of high oil prices in 2022: high oil prices pushed up Vietnam’s inflation, breaching its 4% ceiling for a little less than six months. Fast forward to today, Vietnam’s inflation rose sharply to 5.6% in May, breaching the State Bank of Vietnam (SBV)’s 4.5% inflation ceiling for the third month running. While the significant jump in petrol prices was the main culprit, it is important not to ignore the recent hike in food prices. Although Vietnam is a rice exporter, its domestic rice prices are typically influenced by international prices. Overall, we recently revised up our inflation forecast to 5.2% (from 4.6%) for 2026. Vietnam has consistently seen a trade deficit since the start of 2026 Source: CEIC, HSBC Vietnam’s inflation has breached the central bank’s 4.5% target since March Source: CEIC, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/asean-in-focus/pushing-ahead/

2026-06-18 12:01

Key takeaways In his first meeting as Fed chair, Kevin Warsh unveiled a shorter policy statement with less forward guidance on rates. Policy rates were unchanged in June, but a more divided, inflation focused FOMC prompted a hawkish market reaction. For now, the USD is likely to remain supported, and we have likely already seen the low in the USD for 2026. In his first meeting as the Federal Reserve (Fed) Chair, Kevin Warsh announced that US policy rates were left unchanged at 3.50-3.75% at the 16-17 June meeting, as widely expected. The accompanying statement was notably shorter, with an apparent emphasis on the price stability element of the dual mandate, and no retention of a bias to ease. The updated plot contained 18 projections, with Fed Chair Warsh confirming he did not add his own. Nine Federal Open Market Committee (FOMC) members see at least one hike as likely in 2026, while nine expect unchanged or lower rates, underscoring a more divided FOMC. The median projection for 2026 GDP was revised down, while inflation projections were revised notably higher. Together, this suggests a hawkish shift in views among FOMC policymakers was even more broad-based than markets had anticipated, reflecting inflation concerns. The USD strengthened, with the US Dollar Index (DXY) surpassing 100. Source: Federal Reserve Fed Chair Warsh also announced the formation of a task force to assess potential changes to Fed communications, alongside four additional task forces on other topics. He indicated work would begin “in the next couple of weeks”, with most – if not all − task forces expected to reach conclusions by year-end. Our economists’ view is that the FOMC will hold the federal funds target range steady through 2026 and 2027. In contrast, markets are fully pricing in a 25bp hike, with a 50% chance of a second 25bp hike, by end-2026 (Bloomberg, 18 June 2026). Overall, the June meeting points to a more divided FOMC than markets had anticipated, and the USD has benefited accordingly. While Fed Chair Warsh did not provide forward guidance, his press conference also offered little to suggest he will be a consistently dovish voice on the Committee. For now, rates and FX markets appear to be leaning towards the hawkish cohort, implying the USD is likely to remain supported and that we may already have seen the 2026 low in the DXY. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-stronger-amid-a-divided-fed-in-june/

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/