2024-10-07 12:02

Key takeaways “Safe haven” currencies should be supported amid heightened geopolitical concerns. The USD has bounced back; but both the JPY and CHF weakened, probably reflecting local dynamics. The USD may be a better “safe haven” than the CHF or JPY. The USD has strengthened recently, as markets are digesting heightened geopolitical risks in the Middle East. At the same time, the recent dovish developments related to the European Central Bank (ECB) and the Bank of England (BoE) have also supported the USD, from the yield differential’s channel (Chart 1). Markets are currently fully priced for 25bp cuts at both the 27 October and 12 December ECB meetings (Bloomberg, 3 October 2024). In the UK, BoE Governor, Andrew Bailey, said policymakers could be a bit more aggressive and activist if inflation continues to decelerate (The Guardian, 3 October 2024). Unlike the USD, both the JPY and CHF have weakened lately, reflecting local dynamics. In Japan, markets are digesting comments from the new Prime Minister, Shigeru Ishiba, who said the economy is not ready yet for further interest rate hikes (Bloomberg, 2 October 2024). At the same time, the Bank of Japan (BoJ) Governor, Kazuo Ueda, said he would move cautiously when deciding whether to hike further (Bloomberg, 2 October 2024). The BoJ is widely expected to keep rates unchanged at its 31 October meeting. The attraction of the JPY as a “safe haven” currency may have to contend with the less hawkish tone from Japanese policymakers. That being said, our economists expect the BoJ to hike its policy rate to 0.5% in January 2025. With the prospect of monetary policy divergence between the Federal Reserve and the BoJ, USD-JPY is likely to decline moderately (Chart 2) over the medium term, in our view. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, in his first speech as Swiss National Bank’s (SNB) president, Martin Schlegel, indicated that the central bank can intervene in currency markets if required and stands ready to lower interest rates again (Bloomberg, 2 October 2024). In other words, the SNB’s tolerance for CHF strength would likely have its limits. Perhaps, the USD is a better “safe haven” currency than the JPY and CHF amid heightened geopolitical risks, and in the run-up to the 5 November US elections. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2024-10-07/

2024-10-07 07:05

Key takeaways Recent stimulus announcements have sparked a dramatic recovery in China’s stock market – making it the top performing global market this year… and perhaps the strongest example yet of the great rotations we’ve seen in markets in 2024. Back in March 2021, Banco Central do Brasil (BCB) became one of the first major central banks to start hiking rates in response to the pandemic surge in inflation. As a global leader in the policy cycle, could September’s BCB rate hike be a cautionary tale for the Fed, just as it kicks off its easing cycle? European stocks outperformed their US peers in Q3, helped by the ‘broadening out’ trade and their strong exposure to China, with investors seeking value outside the US. However, there is an intriguing disconnect between country-level macro data and profit growth expectations. Chart of the week – Emerging markets are back There were some remarkable twists and turns in the macro and market environment in Q3, and one of the biggest was the recent Politburo-endorsed package of support in China. That sparked a stunning rally in the country’s stocks, which reversed China’s laggard status this year, and put the overall performance of emerging market stocks at +19% year-to-date, slightly ahead of developed markets. Policy was a major focus during the quarter, with the Fed finally joining the global easing cycle with a 0.5% rate cut. The backdrop to that move is that the economy remains on course for a soft landing. Despite some bumps, inflation continued its retreat, but growth also cooled, with mixed employment data causing volatility at times, particularly in early August. In markets, a ‘great rotation’ in leadership was a strong theme. In developed markets, the ‘Magnificent 7’ were robust – rising around 4%, but there were more signs of a broadening out of returns and profit growth expectations across sectors and markets. Japan, Europe, and UK indices largely outperformed the US. And in the US itself, the small-cap Russell 2000 beat the S&P 500. Meanwhile, emerging market regions accelerated on a weakening US dollar and anticipation of rate cuts, with Asian regions setting the pace (see Market Spotlight), but Latam markets continued to lag. Across other asset classes, high quality fixed income performed as the global easing cycle progressed. Market Spotlight Emerging Asian assets lead in Q3 Stocks in mainland China and Hong Kong set the pace in Q3 – with a remarkable rally late in the quarter delivering gains of 23% and 24% respectively for MSCI indices. But even before that, weakness in the US dollar as Fed policy easing got started (and rate expectations were repriced) sparked a pick-up in the performance of EM Asian markets. ASEAN was notable, with the region’s MSCI index up 19% in Q3. That was driven by a rebound in foreign inflows in response to the favourable FX environment, regional monetary easing, and a resilient macro backdrop. Thailand, the Philippines, and Malaysia led the gains. Year-to-date, China, India, and Asia (ex-Japan) now lead global performance. EM Asian credits were also strong during the quarter, with Asia high yield a leading performer globally. In part, that was driven by well-performing names in markets like India and Indonesia. And from here, some specialists believe the default outlook is favourable with good funding access, strong balance sheets and a resilient macro backdrop for a vast majority of Asian companies. The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 11.00am UK time 05 October 2024. Lens on… China’s breathtaking rally Recent stimulus announcements have sparked a dramatic recovery in China’s stock market – making it the top-performing global market this year… and perhaps the strongest example yet of the great rotations we’ve seen in markets in 2024. The gains are impressive. But the starting point was one of serial underperformance, connected to concerns about nominal growth. On valuation measures like ‘earnings yield’, there had been a large ‘China discount’, which gave stocks room to move sharply on better-than-expected news. It meant the stimulus was ‘doubly good’ for the market because investor sentiment had been so bad. After a rally of historic proportions, some short-term caution is probably warranted. But the comprehensive liquidity measures mean that the ‘policy put’ is back. Further fiscal and credit stimulus will be crucial to make the market recovery sustainable, but China’s policy stimulus, combined with Fed jumbo cuts, improves the odds that the global economy will stick to a soft landing. Brazil – a warning for the Fed? Back in March 2021, Banco Central do Brasil (BCB) became one of the first major central banks to start hiking rates in response to the pandemic surge in inflation. As a global leader in the policy cycle, could September’s BCB rate hike be a cautionary tale for the Fed, just as it kicks off its easing cycle? Brazil’s recent switch to policy tightening came a year after the country’s leadership launched a public spending spree that fuelled domestic demand. Tight labour markets, a pick-up in wage growth, and a weaker Brazilian real have since proved inflationary. For some onlookers, there are similar risks lurking in the US. November’s US presidential election could result in a sizeable fiscal boost and shift tariff rates higher, while the US dollar remains on a weakening trend. The comparison is off the mark. The fiscal boost wouldn’t come until 2026, and the labour market and wider economy is cooling. But the potential shift in policies could mean a higher-than-expected endpoint for rates in this policy easing cycle, with consequences for longer-term investors. Conflicting signals for European profits European stocks outperformed their US peers in Q3, helped by the ‘broadening out’ trade and their strong exposure to China, with investors seeking value outside the US. However, there is an intriguing disconnect between country-level macro data and profit growth expectations. On the macro front, Europe is expected to grow in 2025, but recent activity data for Germany and France has been weak, with manufacturing PMIs well below 50. Germany’s auto sector is struggling in particular. By contrast, the same industrial confidence surveys in Spain have been more positive. Meanwhile, the big drivers of wider European profit growth – which is expected to jump from 2-3% this year to around 10% in 2025e – are pencilled in as Germany and France. Both are forecast to move from low single digits in 2024e to 10-13% next year. But Spanish EPS growth is set to fall. This apparent contradiction in the macro outlook and expected earnings growth implies scope for surprises. Past performance does not predict future returns. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 11.00am UK time 05 October 2024. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 11.00am UK time 05 October 2024. This information shouldn't be considered as a recommendation to buy or sell specific sector/stocks mentioned. Any views expressed were held at the time of preparation and are subject to change without notice. Market review Heightened geopolitical concerns weighed on risk markets, with oil prices climbing on rising supply worries. The US dollar DXY index was little changed. Core government bonds were mixed, with US Treasuries weakening on comments by Fed Chair Powell that there was no urgency to ease policy. Bunds rallied on dovish ECB comments. Global equities softened, with US stocks falling across the board, and the small-cap Russell 2000 faring worst. The Euro Stoxx 50 fell on growing concerns about the eurozone’s economic outlook, while Japan’s Nikkei 225 was little changed despite a weaker yen following comments by new LDP president Ishiba on monetary policy. In emerging markets, the Hang Seng rallied further, Korea’s tech-driven Kospi index weakened, and India’s Sensex index also lost ground in a holiday-shortened week. Copper and gold both consolidated following recent rallies. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/2024-10-07/

2024-10-04 07:05

Key takeaways US stocks and Treasuries fell on geopolitical concerns. European stocks and government bonds fell. Asian stocks were mixed but mostly lower; Japan gained. Markets US equities ended lower on Thursday, ahead of payrolls and unemployment reports due later today and as investors continued to monitor geopolitical developments in the Middle East. The S&P 500 fell 0.2%; energy shares rallied on higher oil prices. US Treasuries fell (yields rose) after upbeat ISM services data and as crude oil prices surged on Middle East supply risks. 10-year yields rose 7bp to 3.85%. European stock markets mostly fell on Thursday amid rising geopolitical tensions. The Euro Stoxx 50 fell 0.8%. The German DAX lost 0.8%, while the French CAC dropped 1.3%. In the UK, the more defensive FTSE-100 edged 0.1% lower. European government bonds fell (yields rose), as investors weighed the ECB policy outlook. 10-year German yields rose 5bp to 2.14% as 10-year French yields rose 8bp to 2.94%. In the UK, 10-year gilt yields were range-bound at 4.02%. Most Asian stock markets fell on Thursday as investors assessed geopolitical tensions in the Middle East. Hong Kong’s Hang Seng ended a volatile session 1.5% lower after recent stimulus-triggered rallies, while India’s Sensex dropped 2.1%. Bucking the regional trend, Japan’s Nikkei 225 rose 2.0%, led by exporter shares amid a weaker yen on the new prime minister’s comment that Japan is not ready for another rate hike. Onshore markets in China and Korea were closed for holidays Crude oil prices surged on Thursday amid mounting concerns about geopolitical tensions in the Middle East. WTI crude for November delivery jumped 5.1% to settle at USD73.7 a barrel. Key Data Releases and Events Releases yesterday US ISM Services Index rose more than expected to 54.9 in September, from 51.5 in August. Despite being relatively volatile lately, the reading had been trending lower since the start of 2024. Releases due today (4 October 2024) In the US, non-farm payrolls have trended lower recently, in line with other labour market indicators, such as job openings. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-daily/2024-10-04/

2024-10-03 07:04

Key takeaways US stocks were little changed and Treasuries fell. European stocks traded mixed, as government bonds fell. Asian stocks mostly fell; Hong Kong rallied. Markets US equities closed little changed on Wednesday, as investors continued to monitor geopolitical developments in the Middle East and awaited more key US jobs data due this week. The S&P 500 ended flat. US Treasuries fell (yields rose), aided by upbeat ADP employment data ahead of Friday’s highly anticipated unemployment and nonfarm payrolls reports. 10-year yields rose 5bp to 3.78%. European stock markets lacked clear direction on Wednesday. The Euro Stoxx 50 rose 0.2%. The German DAX fell 0.3% while the French CAC ended flat. In the UK, the FTSE-100 rose 0.2%, aided by higher energy stocks. European government bonds fell (yields rose), in a reversal of Tuesday’s risk-off rally. 10-year German yields rose 5bp to 2.09% as 10-year French yields rose 4bp to 2.86%. In the UK, 10-year gilt yields were up 8bp to 4.02%. Asian stock markets mostly declined on Wednesday amid rising concerns over geopolitical developments in the Middle East. Japan’s Nikkei 225 and Korea’s Kospi lost 2.2% and 1.2%, respectively. However, Hong Kong’s Hang Seng surged 6.2%, extending the recent stimulus-driven rallies and led by gains in tech heavyweights and real estate shares amid further easing of home-purchase restrictions in China’s top-tier cities. Onshore markets in China and India were closed for holidays. Crude oil prices extended gains on Wednesday, as ongoing concerns over supply risks in the Middle East overshadowed data showing a rise in US weekly crude and gasoline stockpiles. WTI crude for November delivery rose 0.4% to USD70.1 a barrel. Key Data Releases and Events Releases yesterday In South Korea, the manufacturing PMI fell to a 15-month low of 48.3 in September, from 51.9 in August. The output and new orders indices declined as overseas demand weakened. In Mexico, the manufacturing PMI remained in contractionary territory at 47.3 in September, down from 48.5 in August. This reflected weakness in new orders, production, and employment. Releases due today (3 October 2024) US ISM Services Index has been relatively volatile as of late but has trended lower since the start of 2024. The consensus forecast is for a modest rise in September’s reading. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-daily/2024-10-03/

2024-10-02 08:05

Key takeaways US stocks and Treasury yields fell amid geo-political worries. European stocks fell; government bonds rose. Asian stocks were mixed. Markets US equities declined on Tuesday, as investors weighed heightened geopolitical tensions in the Middle East and the start of the US East and Gulf Coast Port strike. The S&P 500 closed 0.9% lower, led by losses in technology shares, while energy stocks rallied. US Treasuries rose (yields fell), supported by flight to quality/safety demand. Investors also awaited key jobs data on Friday after headline JOLTS job openings rose more than expected in August. 10-year yields fell 5bp to 3.73%. European stock markets mostly fell on Tuesday, as markets awaited key US jobs data amid rising geopolitical tensions. The Euro Stoxx fell 0.9%, led by consumer cyclicals. The German DAX lost 0.6%, as the French CAC was down 0.8%. In the UK, the FTSE-100 rose 0.5%, aided by higher energy stocks. European government bonds rose (yields fell) as Eurozone inflation fell below the 2% target, boosting expectations of an ECB rate cut at the next meeting in October. 10-year German yields fell 9bp to 2.03%, as 10-year French yields declined 10bp to 2.82%. In the UK, 10-year gilt yields were down 6bp to 3.94%. Asian stock markets were mixed on Tuesday. Markets in China, Hong Kong and Korea were shut for holidays. Japan’s Nikkei 225 climbed 1.9%, partially reversing Monday’s losses following the election victory for Ishida as the LDP president. Elsewhere, India’s Sensex closed flat. Crude oil prices jumped on Tuesday amid growing worries over the supply impact from geopolitical tensions. WTI crude for November delivery rallied 2.4% to settle at USD69.8 a barrel. Key Data Releases and Events Releases yesterday US ISM manufacturing index was unchanged in September at 47.2, remaining in contraction territory and below market expectations. The US JOLTS index surprised on the upside in August, rising to 8.04 million compared to a revised 7.71 million in July but remained low. The quits rate fell further in August, pointing to moderating wage growth in the near-term. Eurozone headline inflation fell to 1.8% yoy in September, from 2.2% yoy in August, matching the market consensus. Core CPI eased to 2.7% yoy in September compared to 2.8% yoy in August. Releases due today (2 October 2024) n the US, the ADP employment measure likely rose by 125k in September after a 99k increase in August. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-daily/2024-10-02/

2024-09-30 12:02

Key takeaways The Fed rate cut and its forecast of no recession support market sentiment. We now expect two more 0.25% rate cuts this year. Historically, quality bonds and equities continue to rally further after the first cut. We continue to favour Global and US equities and investment grade with 5-7 year maturities. Fed rate cuts should give more scope for EM central banks to cut rates, so we move EM local currency bonds up to neutral, preferring India and Indonesia. China’s new stimulus package brings tactical opportunities but more significant fiscal easing is needed for sustainable growth. The supply chain reorientation, the global rate cut cycle and any pick-up in sentiment in the region should benefit ASEAN markets. We therefore upgrade Singapore stocks to overweight. We continue to broaden and balance our sector exposure in the US, favouring technology, industrials, communications, financials and healthcare. As a result of rate cuts, we upgrade Global and European utilities to overweight, which should benefit from lower borrowing costs and rising electricity demand. Both communications and real estate are rate-sensitive sectors. We upgrade European communications to neutral due to strong EPS growth expectations, which leads to an overweight position globally. We also move Asian real estate up to neutral. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/2024-10/