2025-11-14 08:05

Key takeaways Tariff-related uncertainty continues, despite the US negotiating a few deals with Asia. Pockets of inflationary pressure in the US, less so elsewhere. We still expect another US Federal Reserve rate cut in December but risks have risen. The global economic outlook continues to be dominated by uncertainty – ranging from trade-related news and the recent US government shutdown to other global and domestic geopolitical risks. Despite these headwinds, financial markets have remained robust through 2025, with a wide range of asset prices close to, or at, record highs. Trade developments Over the past few weeks, US-China trade tensions intensified and then cooled at the recent APEC summit. The US has agreed to reduce fentanyl related tariffs by 10% and remove the threatened additional 100% tariffs, while China agreed to defer rare earth export curbs introduced in October and could import soybeans once more. President Trump also signed trade deals with Korea, Malaysia and Cambodia during the trip. Meanwhile, the G7 agreed in its latest meeting to accelerate efforts across the critical mineral supply chain to reduce the risk of Chinese dominance in rare earths. Separately, the US threatened an additional 10% tariffs on Canadian imports after a Canadian advertisement quoted a line from former US President Reagan’s speech stating, “Tariffs hurt every American”. In addition, Washington imposed sanctions on two of Russia’s largest oil companies, potentially curtailing India and China’s import of Russian crude. India’s trade data are seeing some of the impact of the 50% tariffs on exports to the US taking effect, but ongoing negotiations with the US may provide some relief. Source: Macrobond Source: Macrobond Inflation risks Higher tariffs have already begun to feed into US inflation, with durable goods prices increasing. However, lower rental inflation is going in the other direction, and so the two may cancel each other out to a degree in the coming months, even if survey indicators suggest that firms are feeling the pressure of higher costs. The lack of official US data due to the recently ended shutdown means that policy setting needs to be a little more cautious. The Federal Reserve delivered another rate cut in October, primarily to help the softening labour market, and we still expect another rate cut in December, but risks have risen. Source: Macrobond Source: Macrobond Policy easing In Europe, most eurozone countries submitted their draft budget plans for 2026 to the European Commission, with the fiscal stance likely to turn expansionary. In the UK, lower-than-expected inflation has increased odds of a rate cut sooner rather than later, but we expect Bank of England to remain on hold until April 2026. Meanwhile, in mainland China, the 15th Five Year Plan unveiled an increased focus on self-reliance, with an emphasis on high quality development fuelled by technology and innovation. The slowdown in recent data, particularly on the investment side, makes the need for government support more pressing. 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/cooling-trade-tensions/

2025-11-10 12:02

Key takeaways UK economic data points to a more stable environment… …while inflation reported a lower-than-expected peak. The BoE leaves interest rates unchanged but signals further cuts are likely, though the timing is more uncertain. Source: HSBC The bar is low for good news on the UK economy and while the uncertainty around the upcoming Autumn Budget persists, the latest UK data appeared, at least, to show some stabilisation in the economy. The PMIs surprised on the upside in October, consumer confidence held at its 2025 average, and despite stagnant GDP growth in August and July, we expect the economy to have grown over 3Q as a whole. Albeit at a slower pace than in the first two quarters of 2025. On the inflation side, the expected jump in the inflation rate for September did not materialise. The headline CPI rate was unchanged at 3.8% y-o-y, the downside surprise relative to expectations was helped by broad based disinflation across the basket of goods and services. However, a lack of disinflation in restaurants and hotels, and a still elevated services inflation rate of 4.7% y-o-y in September, is a concern and may point to a more prolonged pass-through of higher labour costs. More positively, private sector pay growth has slowed and labour market data signals a further moderation. So while the outright decline in payrolled employees appears to no longer be gathering pace, various surveys continue to point to weak labour demand. A Bank of England divided The soft demand backdrop and still elevated inflation continue to put the Monetary Policy Committee (MPC) at odds on policy decisions. Bank Rate was unchanged at 4.00% in the November meeting, however, a vote split of 5-4 alongside individual commentary on each MPC member’s decisions only highlighted the uncertainty over the path of rate cuts. Such a divided committee likely leaves the Governor, with the deciding vote, given his more balanced views on the risks and outlook. The committee’s central view is that inflation peaked at 3.8% in September, and a subdued demand environment and soft labour market should see a gradual normalisation in pay growth; private sector pay grew 4.4% 3m/year to August. On the upside, inflation expectations remain elevated (Figure 3) and there is uncertainty as to their role coupled with structural changes in the labour market in future pay growth, that could prevent inflation returning to target sustainably. On the downside, interest rates remain restrictive, consumer confidence is low, and weakness in household consumption may persist. The BoE noted that such a scenario could see inflation fall quicker than expected. Then there is the looming Autumn Budget and expected fiscal tightening, a risk yet to be accounted for by the BoE. Source: Macrobond, S&P Global, HSBC calculations Source: Macrobond, ONS, HSBC Source: Macrobond, BoE, YouGov, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/some-better-news-from-a-low-base/

2025-11-10 07:04

Key takeaways The BoE narrowly kept the Bank Rate unchanged at 4.00%, but with a 5-4 vote. New look guidance suggests that Andrew Bailey’s vote will be key in determining the timing of the next move. December is a close call, but our new central case is for a resumption of the easing cycle in February (previously: April). The Bank of England (BoE)’s Monetary Policy Committee (MPC) has kept the Bank Rate on hold at 4.00%. This is the first time it has not cut rates at a quarterly Monetary Policy Report (MPR) meeting since May 2024, marking a pause in the easing cycle. However, if August was a hawkish cut, today was a dovish hold. For the GBP, the Bank of England’s dovish 5-4 hold is mildly bearish near term given the consensus was for a 6-3 vote. Over the next few weeks, unemployment and inflation prints on 11 and 19 November will likely have an impact. Ultimately, however, the Autumn Budget is likely to prove the key factor for GBP in the coming weeks. The dovish hold likely limits the upside for GBP over the near term, as it means the market thinks a December rate cut remains a possibility. GBP-USD has come under pressure in recent weeks given broad USD strength, along with speculation ahead of the UK’s Autumn Budget. A surprise rise in the August unemployment rate to 4.8% and slower-than-expected CPI which fell short of the BoE’s peak forecast of 4.0% in September also added to more dovish bets with the front end of the UK yield curve repricing the terminal rate down to 3.35% ahead of Thursday’s meeting. Data over the coming weeks will provide more evidence of the UK’s disinflationary path. Markets will also look for clues in speeches by BoE chief economists in November. Source: BoE, HSBC forecasts The Budget, however, will likely prove the determining factor. Last year’s Budget proved inflationary but this year’s statement could hamper already fragile growth. The Budget holds three potential risks for GBP (1) the government must convince markets it can stick to fiscal rules; (2) the impact on growth from likely tax hikes; and (3) the inflationary impact of any potential fiscal measures. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/bank-of-england-on-hold-gbp-implications/

2025-10-31 12:01

Key takeaways The Fed cut rates by 25bp, with one member wanting a 50bp cut and another preferring no change. Fed announced an end to Quantitative Tightening (QT) from 1 December and that a December rate cut is not guaranteed. We continue to expect USD weakness into year-end 2025. The Federal Reserve (Fed) continued its policy easing, cutting the federal funds target range by 25bp to 3.75-4.00% at the Federal Open Market Committee’s (FOMC) meeting on 28-29 October – the second rate cut so far this year. The decision was voted on 10 to 2, with Fed Governor Stephen Miran favouring a 50bp reduction and Kansas City Fed President Jeffrey Schmid dissented in favour of no change in policy rates. The FOMC also announced an end to overall quantitative tightening (QT) from 1 December onwards. Our economists expect another 25bp rate cut at the 9-10 December meeting, which could take the range down to 3.50-3.75%. After that, they expect policy rates to stay on hold through 2026-27. However, Fed Chair Jerome Powel’s comments during the October press conference suggested that the Fed could delay a December cut, depending on how the economy performs. The ongoing US government shutdown, which began on 1 October, has also disrupted key economic data releases, adding to the uncertainty. Powell highlighted that a few pieces of economic data are still available, despite the government shutdown. One key source is state-level jobless claims. While the Department of Labor is not publishing national totals, most individual states continue to release their own data, which can be aggregated. Powell that noted these reports have not shown any rise in unemployment claims, offering a reassurance that labour market conditions remained stable recently. This supports the view of some FOMC members who believe the committee could pause or skip a December rate cut, while awaiting more information on economic activity, employment, and inflation before going any further. The meeting ultimately supported the USD after Powell’s comment that a December rate cut is not assured. We continue to expect USD weakness by year-end 2025, based on our base case of a December Fed cut, and we expect the USD to bottom by early 2026, as we expect no further Fed easing next year, despite what markets currently expect. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-25bp-rate-cut-delivered-with-december-in-doubt/

2025-10-30 12:01

Key takeaways The Federal Reserve cut interest rates by 0.25% to the target range of 3.75%–4.00%, its second reduction of the year, while signalling a more balanced stance towards inflation and employment. The FOMC also confirmed plans to end Quantitative Tightening on 1 December, marking a key shift in liquidity management as it transitions towards a neutral policy stance. Fed Chair Powell emphasised that central bank policy isn’t on a preset course, describing another rate cut in December as “far from a foregone conclusion.” He noted that economic growth has moderated, with GDP expanding 1.6% in the first half of 2025, down from 2.4% last year, supported by resilient consumer spending and business investment, but offset by continued housing weakness. Mr Powell also mentioned that inflation has eased signficantly from its highs in mid-2022. We still expect a 0.25% rate cut in December but no additional reductions next year, bringing the target range down to 3.50-3.75% by end-2025. For US equities, lower policy rates should be accretive to earnings and help keep valuations in check. For fixed income investors, the Fed cut after a pause provides positive returns in the 12 months after the first cut. Typically, the yield curve follows the policy rates lower, but there may continue to be friction in the Treasury markets due to the government shutdown, federal fiscal issues, and long-term deficit reduction. We remain overweight on US equities and global investment grade bonds. History shows the USD typically weakens when the Fed is easing policy so long as the US economy isn’t in recession. Please refer to the full report for details about the event and our investment view. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/the-fed-reacts-to-economic-uncertainty-amidst-the-government-shutdown/

2025-10-29 08:05

Key takeaways While recent US-China trade tensions have triggered profit-taking, we continue to see further upside for risk assets. Our underweight on US Consumer Staples helps hedge downside risks, and we further add Energy to the underweight list. For bonds, we prefer investment grade and EM local currency government bonds over high yield. A multi-asset strategy helps diversify across asset classes, sectors and currencies, and gold remains a good diversifier. Rising US tech stock prices have raised AI bubble concerns, but we believe the rally is supported by solid earnings growth and substantial investments in AI infrastructure. However, given elevated US tech valuations, we diversify beyond IT and Communications into Financials and Industrials, and upgrade Utilities to overweight due to increasing electricity demand to support the cloud and AI. China’s 15th Five-Year Plan reinforces its strategic priorities in domestic demand and supply, technological innovation, household and consumer wellbeing, supporting our overweight on mainland China’s stocks. We upgrade Hong Kong equities to overweight due to a stabilising housing market, increased IPO and M&A activity, robust liquidity inflows and attractive valuations. While Japan’s new Prime Minister is expected to pursue expansionary fiscal policies, funding is challenging amid increasing costs in social security and debt servicing, so we remain neutral on Japanese stocks. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/bull-market-stays-on-course-despite-short-term-markets-dips/