2025-11-24 12:01
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-strength-to-diminish/
2025-11-24 12:01
Key takeaways The DXY has exceeded 100, but the USD is likely to face downward risks, in our view. These risks could arise from a potential insurance cut by the Fed in December. Fed succession discussions might influence future rate paths and even trigger independence concerns. The US Dollar Index (DXY) has recently climbed above the 100 mark (Chart 1), prompting debate on whether the USD’s decline has ended and if an upward trend is imminent. In our view, further USD softness is likely, contingent on the Federal Reserve’s (Fed) upcoming decisions and the appointment of its new Chair. For the Federal Open Market Committee’s (FOMC) rate announcement on 11 December at 03:00 HKT, markets currently price in a c40% chance of a 25bp cut (Bloomberg, 20 November), after the FOMC minutes for October suggest that “many” FOMC members are inclined to leave policy unchanged at the December meeting. Our economists slightly favour a rate cut in December, provided some labour market data shows softness. The US Bureau of Labor Statistics is scheduled to release October/November employment figures on 16 December. Should the Fed implement an insurance cut, the USD is likely to soften albeit with modest flow through. Conversely, if rates remain unchanged, the USD might spike, although the Fed is likely to indicate openness to future cuts. With a c95% chance of a January cut currently priced in (Bloomberg, 20 November), the scope for USD strength appears limited. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Looking ahead to 2026, the extent of the Fed’s rate cuts may be influenced by the selection of the next Chair. Recently, US President Trump has indicated he has identified a candidate for the Fed Chair position, and Treasury Secretary Scott Bessent, overseeing the selection process, aims to finalise it next month (Bloomberg, Fox News, 19 November). The eventual appointee is unlikely to trigger a significant hawkish market repricing (Chart 2),which may keep the USD defensive. Concerns about Fed independence may also heighten, potentially extending and exacerbating the USD’s decline into next year. That being said, once the Fed’s easing cycle ends and its incoming Chair is revealed, there is a stronger case for the USD to then bottom. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-fed-unknowns/
2025-11-20 12:01
AI transformation underpins a bull market outlook As a year of surprises draws to a close, it’s a good time to filter out the noise and refocus on the fundamental drivers of performance to position our portfolios for 2026. Recent months have provided more clarity on the tariff front, while US earnings delivery remains strong, supported by tech-led productivity gains and a robust capex cycle that’s still under-estimated by markets. However, a sharp runup in valuations, debt piles and the longest government shutdown in US history spurred some profit-taking recently. Some investors are wondering how long the bull market can last. What does this mean for the 2026 market outlook? We believe the key drivers behind our positive view are likely to persist. The rapid adoption of artificial intelligence (AI) should remain a defining theme in 2026 globally. Not only is a reversal of this trend very unlikely, but we also see opportunities widening across sectors in the AI ecosystem. Industrials and Utilities should benefit from the growing demand for digital infrastructure and electricity, while long-term structural initiatives continue to prioritise reshoring and re-industrialisation to strengthen strategic autonomy in supply chains, especially in technology and defence. According to the OECD, AI could add between 1% and 2.5% to labour productivity in the next 10 years. Unlike other regions, most of the US equity market returns have come from earnings growth rather than P/E multiple expansion. Valuations have risen, yet they’re still far below the levels of the dot-com period. And Q1 2026 earnings forecasts still look a bit conservative, creating room for positive surprises in Q1. Hence, we’re not worried about an AI bubble, but do believe that short-term market dips should be expected. Outside of the US, Asia enjoys twin tailwinds – a diverse, fast-growing AI ecosystem at attractive valuations and resilient domestic demand supported by policy measures. As far as data-centre growth capacity is concerned, Asia is expected to outpace its global peers for the period of 2025-2030. Corporate governance reforms will also help enhance return on equity (ROE) in the region. Our barbell strategy, balancing our preference between tech innovation champions and high dividend stocks or quality bonds, has been working well. These dynamics support our recent upgrade of Hong Kong, Japanese and South Korean equities to overweight, alongside the US, mainland China and Singapore. We also favour the structural and cyclical opportunities in the UAE and South Africa within the EM EMEA region. Preparing for short-term market dips amid a positive trend Nevertheless, we remain mindful of policy and macro uncertainty. The US Federal Reserve could end its rate-cutting cycle sooner than expected, and data-centre construction could face delays due to labour shortages – not to mention the potential for escalating geopolitical tensions in any region. Our analysis of different asset classes finds that there’s no silver bullet in achieving portfolio resilience under various risk scenarios. We therefore continue to diversify across assets, regions, sectors and currencies via multi-asset strategies to manage concentration and downside risks. We’ve repositioned our strategy by trimming exposure to US equities a bit, while still maintaining a positive view. We’ve added to Asia, underweighting US Consumer Staples and high yield bonds, while leaning on global investment grade and EM local currency government bonds, as well as gold, to build resilience. A growing need to diversify the diversifiers Moreover, as markets focus a lot on Fed policy, assets have become more correlated in recent months. We see value in adding alternatives as an additional layer of diversification. To provide our customers with more insights into the role of alternative assets in portfolios and the outlook for gold, we have invited our in-house experts to explore these topics in the feature articles of this publication. We hope our investment themes and the broader content in our Think Future 2026 will help you navigate the year ahead. Best wishes for a successful investment journey. https://www.hsbc.com.my/wealth/insights/market-outlook/investment-outlook/ai-transformation-underpins-a-bull-market-outlook/
2025-11-19 07:04
Key takeaways October goods trade deficit widened significantly to USD42bn, led by a jump in gold imports. Exports to the US continued to contract while exports to other destinations also lost some momentum; services exports outpaced goods exports. At this run rate, the current account deficit could more than double in FY26; eventually, rupee depreciation may act as an automatic stabiliser. India’s goods trade deficit widened in October to USD41.7bn, an all-time high, from USD32.2bn in September. Seasonal trends indicate that the trade deficit tends to widen in October due to festive demand. After seasonally adjusting, the trade deficit stood at USD33.4bn (vs USD31.1bn in September). In detail, while both rising imports and weaker exports played a role, the former dominated. Export drag continues. Exports to the US contracted in y-o-y terms for a second consecutive month (-12% in September, and -8.6% in October). The granular breakdown will be released in a few days; however, we can get a glimpse of the tariff drag in overall export numbers. Export of gems and jewellery, leather, and chemicals contracted (in line with the trends observed in September). However, exports of exempt categories like electronics continued to rise. Exports to non-US destinations lost momentum. After rising 11% y-o-y in September, it slipped back into the red, in line with the trends observed in 1H25. Some of this could reflect the heightened competition of selling to non-US destinations as many countries try to diversify exports post tariff announcements. Another could be that India is not as well integrated into global supply chains and large aggregators, which assist in rerouting and tariff optimisation. Gold imports sting. Gold prices were up 58% y-o-y in October, the Diwali month. No surprise, the gold import bill rose to USD14.7bn (USD5bn higher than in September). Core imports (non-oil, non-gold) contracted on a sequential basis following a sharp rise last month, select categories like electronics, machinery, and machine tools grew quickly. Electronic imports, in particular, may have risen on the back of GST rate cuts. India’s services exports (USD38.5bn) outpaced goods exports (USD34.4bn) in October. After a few months of weakness, services exports bounced back (averaging cUSD37.5bn in September-October vs USD33bn in the first eight months of the year). Services trade surplus was at an all-time high of cUSD20bn. Current account deficit for 4Q25 is likely to settle close to 2.7% of GDP given the USD42bn deficit in October and assuming cUSD29bn goods deficit for November-December (a scenario where demand for precious metals fades). If the trade balance continues to average cUSD29bn in 1Q26 as well, then the full-year current account deficit may more than double to 1.4% of GDP (vs 0.6% in FY25). A potential trade deal with the US in the next few months could help offset the current drag on exports and thereby, growth. This comes at a time when a trade deal with the UK has already been struck and one with the EU is in advanced discussion. Eventually, India may also want to look east, and get further integrated into supply chains, if it wants to grow as an exporter. Meanwhile, the 10%-odd depreciation in the real trade weighted exchange rate this year, could help improve export competitiveness. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/goods-weakness-services-strength/
2025-11-18 08:06
Key takeaways Chinese exports are proving competitive beyond just pricing with robust performance this year amid all the tariffs. Still, China wants to better balance imports and exports, in part by moving production overseas, closer to consumers. FDI is rebounding as some multinationals reassess their strategies from ‘China for China’ to ‘China for global’. China data review (October 2025) Retail sales eased slightly to 2.9% y-o-y in October as durable goods that benefited from trade-in subsidies weakened in October, despite the recent allocation of the last batch of trade-in subsidies. This was primarily owing to a much higher base from last year. In particular, auto sales were down 6.6% y-o-y and largely weighed on overall retail sales growth. Industrial Production (IP) slowed to 4.9% y-o-y in October, partly owning to a fall in exports. However, the NBS previously noted that some production was front-loaded before the eight-day long Golden Week holiday and therefore weighed on activity in October. By sector, weaker exports likely explained pullbacks in IP growth in electrical machinery and computer and communication. Fixed Asset Investment (FAI) fell 1.7% y-o-y in October, as investment in manufacturing (-6.7%), property (-23%) and infrastructure (-8.2%) faced more pressure. The domestic anti-involution campaign will likely remain a key nearterm drag weighing on investment appetite, which may come back only when investors see industry consolidation play out or profit margins notably improve. Exports contracted 1.1% y-o-y in October for the first time since February. While most of this slowdown is attributable to a high base, there may be some impact from the expansion of the US Bureau of Industry and Security 50% ownership entity rule and China’s export controls, including on rare earths shipments. Meanwhile, imports slowed to 1.0% y-o-y as high-tech products slowed, likely affected by trade tensions. CPI was up 0.2% y-o-y in October, after two consecutive months of contraction, helped by a continued improvement in core CPI (+1.2%). PPI also eased its decline, falling 2.1% but turned positive in m-o-m terms (+0.1%) for the first time since last November, partly helped by higher non-ferrous metals prices. Meanwhile, efforts to rectify irrational competition may have provided support. China’s trade playbook Strong exports, investing overseas, and FDI China’s exports grew by 5.3% y-o-y (in USD terms) in the first ten months. This resilience is supported by trade diversification and the pull effects from other economies’ front-loading purchases, generating demand for Chinese intermediate and capital goods. China’s tariff disadvantage is now less significant than anticipated, too. Meanwhile, its average export prices are declining, driven by domestic depreciation pressure and a relatively weaker RMB against non-USD currencies, such as the euro. “Made in China” goods are competitive beyond just pricing US demand for Chinese capital goods and intermediate goods has been increasingly less price sensitive over time, per US Census data. That said, we acknowledge that c67% of the lowestpriced consumer goods imported by the US originated from China in 2024, significantly surpassing China’s 32% share of US consumer goods imports. The recent 10% tariff reduction now aligns US tariffs on consumer goods from China with those from some emerging economies, which could potentially boost China’s exports to the US. Will outbound direct investment (ODI) be a viable playbook? Concern about China’s exports competitiveness is rising among trading partners. However, in the new Five-Year Plan, China pledges to balance imports and exports with more trade and investment cooperation. Will Japan’s playbook, aka stepping up ODI and localising production, work for China? A significant challenge is the stricter national security concerns over Chinese investments abroad. Nonetheless, China’s ODI has substantial growth potential. For certain trading partners, allowing direct investments by China to build factories with the aim of replacing exports could help ease tensions. An emerging trend in FDI: from "China for China" to "China for global"? Multinational corporations (MNCs) are re-evaluating their strategy in China amid trade uncertainties. Some are now pausing plans to diversify supply chains away from China while others are exploring China’s innovation capabilities to enhance their global competitiveness. Meanwhile, FDI into China has shifted to moderate inflows, with an increase in foreign funded R&D centres in China. If this trend continues, it could signify a new phase of re-globalisation. Source: China Customs, HSBC; Note: Data as of September 2025. Source: CEIC, HSBC Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 14 Nov 2025 market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/chinas-trade-playbook/
2025-11-17 12:02
Key takeaways The CHF gains amid US-Switzerland trade deal optimism. Post-government shutdown, the USD is facing economic, monetary policy, trade, and Fed leadership uncertainties. The JPY’s weakness has triggered MoF’s verbal intervention and the likelihood of an increased BoJ hike. In this fourth quarter, the CHF leads as the top-performing G10 currency, with the USD close behind. In contrast, the JPY, another “safe haven” currency, is the weakest. This disparity prompts questions about the reasons for their varied performances and the potential persistence of this trend. Note: Data as of 13 November 2025 (20:00 HKT) Source: Bloomberg, HSBC The CHF has recently strengthened due to optimism about a potential USSwitzerland trade agreement. Reports indicate that Switzerland may be close to reaching a deal that would lower its reciprocal tariff rate on exports to the US from 39% to 15% (Bloomberg, 11 November). This development is favourable for the CHF, especially given previous domestic growth concerns due to the anticipated tariff impact, which led to growth downgrades by the Swiss National Bank (SNB) and the government. While investment pledges, particularly in US gold refining, might impact the CHF, the trade deal is expected to be beneficial overall. The USD’s strong quarter-to-date performance may not persist. With the US government shutdown now resolved, upcoming data might highlight its negative impact on economic growth, potentially affecting the USD. Interestingly, US rate expectations have not declined alongside the USD; rather, the likelihood of a December rate cut by the Federal Reserve (Fed) has dropped to just below 50% (Bloomberg, 13 November). The reopening could boost equity markets, possibly weakening the USD due to increased risk appetite, although evidence remains mixed. In the end, the USD is navigating uncertainties related to economic performance, monetary policy direction, and potential risks from US trade policy and Fed leadership changes. USD-JPY has continued to rise, despite the verbal intervention from Japan’s Ministry of Finance (MoF). Japanese Finance Minister, Satsuki Katayama, highlighted recent “one-sided, rapid currency moves” and stressed the government’s vigilance against excessive and disorderly fluctuations (Bloomberg, 12 November). The MoF last intervened in July 2024 when USD-JPY exceeded 160, so if that remains the threshold for the new leadership, USD-JPY may continue to rise. A consequence of the JPY’s ongoing weakness could be an increased likelihood of a rate hike by the Bank of Japan (BoJ), with markets currently pricing a 33% chance of this occurring in December (Bloomberg, 13 November). Thus, the JPY’s weakness may be moderated by rhetoric from both the MoF and the BoJ. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/safe-haven-currencies-diverging-performance/
