2024-09-30 07:30
Insect protein plays an important role in future food security, providing rich nutritional content and little environmental impact given their high feed conversion efficiency. We think the insect protein market will grow with the increasing risk of food insecurity driven by extreme weather events. Did you know? Source: Food and Agriculture Organization of the United Nations 1. The menu: An exclusive edible insect excursion Welcoming drinks Insects could be the key to resolving malnutrition and future food insecurity problems exacerbated by climate change. They’re widely available and offer ample macronutrients and micronutrients. In addition, insect farming requires fewer natural resources, while generating less waste and emissions compared to conventional livestock farming. We think consuming insects as a major protein source, instead of livestock, could help mitigate the environmental impact of the agricultural sector. It also allows the global food system to adapt to changes brought about by climate change. Main course Governments are aware of the risks and opportunities that increasing the consumption of insects in diets could bring. Poland is proposing an ‘anti-bug’ law that requires a warning label on food products containing insects, while Italy now requires strict labelling of the use of insect flour in traditional food products such as pasta and pizza. Some places are more receptive: Singapore and the EU, for example, have approved certain insects for human consumption. However, the acceptance of edible insects varies across regions and cultures. Dessert The increase in occurrence of extreme weather events will lead to a shrinking supply of animal-based protein. Insect protein can be an alternative. However, the ‘yuck factor’ remains a concern. Researchers have found that when the natural form of insects is hidden in familiar foods, consumers are less resistant to consuming them. For example, cupcakes made with cricket flour tend to be more acceptable than a cricket lollipop. Percentage of recorded edible insect species per group globally Note: True bugs: a hemiptera is an order of insects commonly called 'true bugs', comprising over 80,000 species within groups such as cicadas, aphids & planthoppers. Source: Food and Agriculture Organization of the United Nations 2. Sustainability in eating insects Eating insects might be an ideal solution for some of the food insecurity problems we face. For example, extreme weather worsens the severity of swarming locusts and exacerbates food insecurity in Africa. Swarming locusts used to be eaten by humans and animals during locust outbreaks when crops were destroyed. However, due to extensive use of insecticides, the consumption of locusts is not recommended nowadays. In many developed countries, the safe harvesting of locusts for humans and animals could serve as a more sustainable management method compared to the use of insecticides. Big edible insect buffet, but tiny livestock ‘amuse bouche’ Animal-based protein is becoming more expensive, largely driven by years of drought conditions and inflation in the cost of feed and fuel. Compared to animal-based protein, insect protein is more efficient and reliable for human consumption, with around 80% of insects being edible vs c50% for livestock. In addition, insects’ energy conversion rate from feed to edible weight is significantly higher than livestock, their abundance is high while their reproduction cycle is shorter than vertebrates. As a result, the supply of insect protein is more scalable. Nutrition of insects Insects provide all the essential amino acids for human nutrition. Yet, some insects have high sodium content and high saturated fat. The sodium content of an adult cricket is more than double that of beef or pork. Thus, if insects are to replace conventional livestock to prevent diseases related to over-nutrition in the community, we need to be aware of any downsides. Edible insects and livestock – nutritional value Source: European Journal of Clinal Nutrition Edible insects and livestock – vitamin and mineral content Source: European Journal of Clinal Nutrition Saviour of food insecurity? Apart from insects’ high nutritional value, the circularity and resilience of the insect food system make edible insects a means to fight food insecurity. Insects can transform food waste into nutritious biomass, while insect frass can be used as a fertiliser. Farming insects has little dependency on other external factors and the insect food system, making the insect food system highly sustainable. 3. Challenges incorporating edible insects into meals Farming insects is complicated Insect farming can lead to negative impacts on the environment if it’s performed inadequately. Some insects aren’t suited to be farmed in a captive and enclosed environment. The living condition of insects should be optimal for their species, otherwise, it might cause fighting and induce stress. Also, farming non-native insect species might harm domestic biodiversity. Regulators should look into species-specific measures to ensure insects’ welfare is protected. Testing the tolerance level It would require the elimination of the ‘yuck factor’ towards eating insects to successfully promote them as a common protein source. Many would see insects as a symbol of rot and pestilence. In order to gain broader public acceptance of insect consumption, researchers have been trying out different strategies. For example, edible insects have been served in school meals in four primary schools in Wales as researchers explore young people’s attitudes to alternative proteins. Also, consumers are found to be more willing to try insects when their natural shape is hidden and they’re incorporated into foods they’re familiar with, such as grounded insects being blended into baked goods or protein shakes. There is growing variety and supply of insect- infused food in the market to cater to different dietary preferences and understand consumer acceptance. The flavour profile of edible insects Source: Institute of Culinary Education Countries are paying more attention to edible insects Governments are starting to recognise the importance of insect protein in future diets. Regulators are stepping in to oversee the novel food industry and build consumer trust. The Singapore Food Agency, for example, has given approval for 16 species of insects (including crickets, silkworms and grasshoppers) for human consumption from 2H 2023. In the EU, four applications for insects for human consumption have been approved, with eight more applications pending authorisation. However, there’re still concerns over the safety of directly eating edible insects or eating livestock that are fed by insects. Insects can host microorganisms and some can do harm to humans. Regular updates on regulatory frameworks and controls over production and marketing can drive the expansion of the edible insect market by building consumer confidence. 4. Conclusion Despite all the environmental benefits of eating insects, it would require a change in consumer psychology for insects to become one of the major protein sources. Concerns mostly revolve around the ‘yuck factor’ of eating insects and food safety. These are just some factors that need to be resolved to promote insects as a mainstream protein. However, we think the growing severity of the climate crisis and food insecurity will push countries to reconsider the food system and pay closer attention to the development of insect protein. We believe insect protein will play a more important role in our diets in the near future. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/2024-06-14/
2024-09-30 07:30
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/2024-09/
2024-09-30 07:30
Key takeaways US recession fears have eased on solid earnings growth along with more constructive labour market data, supporting a quick rebound in US equities. A Fed rate cut is widely expected in September. While we remain bullish on US equities, we also favour UK, Japanese, Indian and South Korean equities to achieve diversification amid slowing growth and rising market uncertainties. Investors returned to the tech sector, especially after the fall in its valuations, but we see opportunities both within and beyond the sector, such as communications, financials and healthcare. We upgrade US industrials due to re-onshoring and the support from both US presidential candidates. Consumer discretionary is facing margin pressures amid US economic growth and global activity slowing down, so we downgrade the sector to neutral across regions. Fed Chair Powell set the stage for the first rate cut in September at the Jackson Hole summit, with markets now pricing in 1% worth of rate cuts by end-2024, higher than our projection of 0.75%. As cash returns will be diminishing, bonds are important for income generation and diversification. We focus on locking in current bond yields near multi-year highs and prefer investment grade bonds (5-7 years) to government bonds for better yield pick-up. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/2024-09/
2024-09-30 07:30
Key takeaways UK GDP growth stagnated and the outlook is less benign. The rise in services inflation in August should be temporary but, alongside wage growth, is still elevated. The risk of persistent domestic price pressures becoming entrenched kept the BoE on edge at their September meeting. Slowing growth and price momentum UK GDP growth stagnated in July for the second consecutive month. The broad sector breakdown showed a near mirror image of the growth rates seen in June: the services sector up 0.1% m-o-m, construction +0.4% m-o-m, and industrial production -0.8% m-o-m. Notwithstanding the continued expansion signalled by S&P’s Purchasing Managers Index, a lack of underlying momentum in the economy means we expect activity growth to slow in the second half of 2024. Consumer and business confidence appears to be deteriorating, GfK consumer confidence flatlined in August and then fell to a 6-month low in September. We revise down our 2024 GDP growth to 1.1% but see a pick-up from the middle of 2025 and into 2026. Elsewhere, the headline CPI inflation rate rose in August to 2.2% y-o-y from 2.0% in July. That was largely driven by an expected acceleration in services price inflation to 5.6% y-o-y which should unwind in September (see UK inflation briefing (Aug), 18 September 2024). More positively, underlying services inflation – which excludes volatile and indexed components – was unchanged on the month. The latest labour market data continued to evidence the challenge in assessing the health of the jobs market. However, a pick-up in employment, a fall in the redundancy rate, and a still low participation – albeit slightly improved – rate all point to a resilient jobs market. Private sector wage growth moderated to 4.9% in the 3 months to July (see Mixed signals, 10 September 2024). That said, with both underlying services inflation and wage growth still elevated the risk of price pressures becoming more persistent remains. Concerns of entrenched price pressures kept the BoE on edge Although economic data released over the last month have been broadly in line with expectations, the risk that domestic price pressures become entrenched kept eight of the nine strong committee a little cautious. As such, and after a cut in policy rate in August, Bank Rate was left unchanged in September. We expect a cut in November and then a quicker pace of cuts next year. We don’t expect the absence of a further rate cut in September to weigh on optimism in the UK housing market. The RICS house price balance surged to +1 in August, its highest since November 2022, and with more expected rate cuts and housebuilding reforms the sector may have turned a corner. https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/2024-09/
2024-09-30 07:30
Key takeaways The Fed meeting was closely watched, with market expectations split between 0.25% and 0.5%. In the event, the Fed policy normalisation started with a 0.5% cut, moving the rate to 4.75%-5% at its September meeting. The consensus among the Fed officials was that they now foresee two more 0.25% cuts this year, followed by four more cuts next year and two more cuts in 2026. The FOMC updated its quarterly projections, with GDP growth expectations nearly unchanged, unemployment projections somewhat higher, and core PCE inflation slightly reduced. We now forecast 0.25% rate cuts at each of the next six policy meetings, taking the federal funds target range down to 3.25%-3.5% by next June. Although the market had been anticipating a rate cut, the 0.5% move should provide scope for mild further falls in bond yields. As the Fed expects a soft landing, we continue to prefer quality investment grade over high yield. As the rate cut cycle has now clearly started, holding cash is less attractive. Equity investors should continue to benefit from resilient earnings growth and rate cuts. We thus maintain our overweight on US and global equities. What happened? The FOMC began the process of monetary policy normalisation at its September meeting and cut rates by 0.5% to the target range of 4.75%-5.00%. The FOMC voted 11 to 1 to lower the benchmark for the first rate cut in more than four years. The “dot plot” of rate projections shows that the median official expected to lower rates by 1% for the 2024 calendar year, implying two more 0.25% cuts or one larger, 0.5% cut. 9 of 19 officials pencilled in 0.75% of cuts or less. The median rate forecast for 2025 falls to 3.4% from 4.1% (in June), implying four additional 0.25% moves next year. At this meeting, the FOMC updated its quarterly projections (published in March, June, September, and December) on real GDP growth, the unemployment rate, inflation, and policy rates. The changes to the economic projections were small, with GDP growth expectations nearly unchanged, unemployment projections somewhat higher, and core PCE inflation slightly reduced. Following the September FOMC decision, we now forecast 0.25% rate cuts at each of the next six policy meetings (though another 0.5% “front-loaded” rate cut remains a risk for November), taking the federal funds target range down to 3.25-3.5% by next June. Median of the FOMC economic projections, September 2024 Source: Bloomberg, HSBC Global Private Banking and Wealth as at 18 September 2024. At the press conference, Powell said that this rate cut decision “reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%”. In other words, the Fed is expecting that a soft landing of the economy can be achieved. Regarding quantitative tightening, Powell mentioned that the Fed also decided to continue to reduce its securities holdings at the same pace. Currently the Fed has a potential balance sheet reduction of up to USD60bn per month: USD25bn for Treasury securities and USD35bn for agency debt and MBS. During the Q&A session, Powell was asked “should there be any signal inferred about how the committee would approach and state on the balance sheet policy?” and he responded by saying “we're not thinking about stopping run off” and added “for a time, you can have the balance sheet shrink, but also be cutting rates”. Powell reiterated that the US labour market is solid and stated that the 4.2% is “a very healthy unemployment rate.” When asked about the economy’s vulnerability to a shock that could cause a recession, he said “I don’t see anything in the economy right now that suggests that the likelihood of a downturn is elevated.” Recent indicators suggest that economic activity has continued to expand at a solid pace. The Atlanta Fed GDPNow model is currently estimating 2.9% for real GDP growth in the third quarter this year – far from recessionary territory. Looking at the economic growth and inflation forecasts from the Fed, it could depict a story of a soft landing. Median estimates are for 2% growth this year and next, while inflation is basically back to target at 2.1% next year and 2% for 2026. Powell noted that inflation has come down and the labour market has cooled, but the upside risks to inflation have diminished, and the downside risks to employment have increased. He stated that the risks to achieving the Fed’s employment and inflation goals are roughly in balance, and that the Fed is attentive to the risks to both sides of its dual mandate. Investment implications Fixed income investors should continue to look for lower policy and market rates. Fixed income should perform well as policy rates come down and the yield curve re-slopes. They should also keep an eye on quality, investment grade credit, as the business cycle slows and balance sheets could feel stress. Equity investors should continue to see upward earnings revisions. Controlled inflation and better productivity should maintain margins and improve profits. In addition, as the FOMC’s monetary policy easing cycle ensues, it has historically been quite accretive to US corporate profits and equity market returns, which is in keeping with our US equity overweight. Q4 is historically the best performing quarter for US markets Source: Bloomberg, HSBC Global Private Banking and Wealth as at 18 September 2024. Past performance is not a reliable indicator of future performance. According to FactSet as at 13 September 2024, US corporate earnings are forecast to rise 10.2% in 2024 and 15.4% in 2025. This provides very solid fundamentals for US equity investors. Investors should also be aware of seasonal factors. Historically, Q4 has been the best-performing quarter for US equity markets, producing around 40-60% of returns over the last 20 years. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/2024-09-19/
2024-09-30 07:30
Key takeaways The Fed, ECB, and BoE are all in rate-cutting cycles, but are divided when it comes to deciding the appropriate easing pace. FX market is likely to be sensitive to any upcoming data releases and perhaps also US elections. With global growth and political uncertainty ahead, a sustained decline in the USD seems less likely, in our view. In September, the European Central Bank (ECB) delivered its second 25bp cut and the Federal Reserve (Fed) began its easing cycle with a large 50bp reduction (see “FX Viewpoint - EUR: The ECB delivers its second rate cut” and “FX Viewpoint Flash - Mixed signals for the USD after the Fed’s 50bp cut” for details). In contrast, the Bank of England (BoE) – started its easing cycle last month in a tight 5-4 vote – voted by 8 to 1 to keep its key rate steady at 5.00% on 19 September, with one dissenting vote for a followed-up 25bp cut (Chart 1). While the decision was in line with market expectations, the GBP moved briefly above 1.33 for the first time since March 2022 (Bloomberg, 19 September 2024). It is worth noting that divided opinions about the appropriate pace of easing are evident. Like the BoE, the Fed’s decision in September was not unanimous, with one dissenting vote for a 25bp cut. And for the ECB, while the September decision was unanimous, recent rhetoric among governing council members appeared to be on different policy paths. For example, Joachim Nagel called for patience to fully reach the 2% inflation target (Bloomberg, 18 September 2024), but Mario Centeno argued that the ECB may need to speed up the easing pace or risk coming in below the inflation target (Politico, 19 September 2024). Meanwhile, Klaas Knot hid in the middle ground, arguing that he is comfortable with the market’s pricing (Bloomberg, 19 September 2024). For reference, current market pricing reflected c150bp of ECB easing by the end of 2025 (Bloomberg, 19 September 2024), while our economists expect 100bp of rate cuts in the same period. The EUR stayed steady against the USD at around 1.11 (Bloomberg, 19 September 2024). Note: This chart shows US effective federal funds rate, ECB's deposit facility rate, and BoE's bank rate. Source: Bloomberg, HSBC Source: Bloomberg, HSBC With this in mind, the FX market is likely to remain sensitive to upcoming data releases to find clues for future policy paths and global growth outlook. But beyond this, risk appetite has become a more dominant FX driver. As US election uncertainty is set to loom large over the coming weeks, the USD may find some support (Chart 2). https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2024-09-23/
