2026-02-12 07:05

Key takeaways There are signs that demand is stabilising, but subdued consumer confidence points to a fragile outlook. Bank Rate was left unchanged at 3.75%, and although further cuts are expected… …the timing and scale of rate reductions is more uncertain. Fragile with a hint of potential The year has started with mixed and volatile data, so it’s unclear how much underlying momentum in the economy has improved. Measures of business activity reported a sharp rebound in activity in January, most notably across services firms. However, consumer confidence ticked only 1pt higher, as improved confidence in personal finances was offset by lower expectations of the economy for this year. Those dynamics left consumers to continue to prefer saving. Elsewhere, there were signs that demand conditions are, at least, stabilising, house prices rose 0.3% m-o-m and manufacturers reported the fastest pace of new order growth since May 2022. While the outlook is a fragile one, there is scope for a more marked improvement in demand. But we need to see a stable policy environment and a more sustained improvement in confidence to support underlying growth. Source: HSBC Bank of England hints at further rate cuts At its latest policy meeting the Bank of England’s (BoE) Monetary Policy Committee left Bank Rate unchanged at 3.75%. Four of the nine-strong Committee voted for a cut, while more broadly, policymakers appear to be gaining confidence in the disinflationary process. The prospect of lower inflation reflects weak demand in the economy, a higher rate of unemployment, and policy measures announced at the Autumn Budget. Governor Andrew Bailey, who voted for unchanged rates this month, will be key in determining the timing of the next cut, given his relatively middle ground stance. Mr Bailey suggested that he needed to see a further falls in inflation expectations alongside the expected moderation in the current inflation rate. That would help to further alleviate concerns of upside risks to inflation over the medium term. It is widely expected that the CPI inflation rate will fall to around 2% in April 2026. Then there is the question of how many more rate cuts are in prospect, and where Bank Rate may settle. That will be determined by how restrictive the Committee currently views interest rates to be on economic growth and inflation and whether any restrictiveness should remain in place for a more prolonged period. The latest BoE forecasts point to lower inflation, relative to its November forecast, and while the upside risks to inflation are judged to have diminished, they remain a source of uncertainty. Ultimately, after six rate cuts since August 2024, and with Bank Rate closer to its ‘neutral’ level, decisions on further rate cuts are likely to be finely balanced. Source: Macrobond, S&P Global, HSBC Source: Macrobond, Bloomberg, HSBC forecast https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/fragile-with-a-hint-of-potential/

2026-02-12 07:05

Key takeaways The rollercoaster ride for geopolitical and trade uncertainty continues, but the global macro picture remains firm… …even as financial markets try to second guess the policy implications of Fed Chair nominee, Kevin Warsh. US tariff threats abound, but few have been delivered, with the main trade news coming from US or European trade deals. Six weeks into 2026, the twists and turns in geopolitics continue, but while they had continued to drive precious metals sharply higher for much of January, the announcement of Kevin Warsh as the next Federal Reserve (Fed) chair saw much of the early 2026 moves unwind. Currencies continue to swing around with the appreciation of the EUR raising questions for the European Central Bank (ECB) rate path, especially given January’s 1.7% inflation print. JPY bounced sharply as news of a snap election triggered FX intervention chatter. Divergent central banks There is much discussion on potential implications for the size of the Fed’s balance sheet with Mr Warsh as Chair, but market expectations of two more Fed rate cuts in 2026 are little changed. Our forecast remains for unchanged rates given robust activity set to be bolstered further by tax cuts, inflation looking sticky, and mixed labour market signals. Other central bank action has been hugely divergent: the Reserve Bank of Australia (RBA) delivered a hawkish rate rise; Colombia a bigger-than-expected 100bp rate hike; Brazil is set to revert back to cutting in March; and the Bank of England (BoE) points to further loosening soon. Source: Bloomberg, HSBC; Note: OIS = Overnight Index Swap Source: Macrobond Firm global activity Globally, inflation is stable or slowing in many places but not all, and various input price pressures have emerged, from some key industrial metals, to memory prices, to natural gas. Global activity has stayed firm with US consumer spending, eurozone GDP and German industrial orders surprising to the upside in Q4, and global manufacturing and service sector PMIs firming in January. In Asia, mainland China GDP growth slowed in Q4, but elsewhere in the region, growth has surprised on the upside with policy generally supportive and India’s recent FY27 budget – projecting a fiscal deficit of 4.3% of GDP – represents the slowest consolidation in six years. Source: Macrobond, Redbook Source: Eurostat, Bloomberg New tariffs On the trade side, there has been no shortage of US tariff noise: US ambitions for Greenland – and associated warning of 25% tariffs on Europe – de-escalated post-Davos. Tariff threats against Canada and Korea, on any country selling oil to Cuba and – following recent protests – any country doing business with Iran, have all followed. But the only new US tariffs imposed so far this year are the 25% tariffs on a very narrow category of semiconductors and even those are lower than feared. Trade deals The more significant news has been the progress on bilateral trade deals both with and without the US. The EU has signed trade agreements with Mercosur and India, both pending approval by the European Parliament. Mainland China has engaged in negotiations with the UK and Canada, resulting in limited tariff agreements for both. A US-India trade deal has also been announced under which tariffs on Indian imports will fall to 18%, down from 50%. 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/global-activity-on-a-firm-footing/

2026-02-11 07:05

Key takeaways US tariffs on India cut from 50% to 18% and likely to benefit investor sentiment, growth, and macro stability. The trade deal adds to a list of ongoing reforms, bringing exports to the centre of India’s growth strategy. Improving sentiment and rising capital inflows could lower the balance of payments deficit and support the INR. Godot arrives. The wait for an India-US trade deal has been long. But it finally arrived on 2 February, though we are still awaiting details. The US has agreed to lower the 50% tariff on India’s goods to 18%. This comes in two parts. One, President Trump announced that under a trade deal, India’s “reciprocal tariffs” will be set at 18% instead of 25%, effective immediately. Two, US officials said the extra 25% tariff related to Russian oil will also be removed, as India has reportedly agreed to stop buying Russian oil (Reuters, 2 February 2026). An official press release with details has not been released. There are three areas in which more clarity is needed: One, will India have to stop all Russian oil purchases? Import data shows India has already scaled down Russian purchases (Exhibit1). We also believe that the discount on Russian oil has fallen, so switching to other sources may not be too costly. Two, what’s the timeline for the USD500bn of US goods (energy, technology, agriculture,and coal) that the US said India has agreed to buy? We believe India would switch suppliers rather than raise its overall import bill (Exhibit 2). Three, the US President also mentioned that India will lower all tariff and non-tariff barriers on US goods to zero. The details are not out, but the India-EU trade deal could provide a framework under which both parties could safeguard some sectors. Short-term growth impact. The US accounts for 20% of India’s goods exports (2.2% of GDP). In an earlier report we had calculated that the 50% tariff could shave off up to 0.7ppt from India’s GDP growth. With the tariff now more than halved, we believe the growth drag will halve to about 0.3ppt. These numbers assume that one-third of exports remain exempt from tariffs (e.g. pharmaceuticals, critical minerals, and fuels), and some sectors face differential tariffs (autos, steel, and aluminium). The items that were most at risk were the labour-intensive jewellery, textile, and food items. These could get some reprieve (Exhibit 3). At the new 18% tariff rate, India has a rate marginally lower than the 19% levied on most ASEAN economies (excluding Singapore). Medium-term growth impact.This is where we expect to see the most benefit. The US-India trade pact adds to a string of external reforms India has undertaken last year – completing FTAs with the EU and the UK, lowering some customs duties, and becoming more open to FDI. With these, India is putting exports centre stage as a key driver of growth, and benefitting from the China+1 theme. Separately, it is also diversifying itsgrowth strategy as was clear from the just concluded Budget speech. From being focused on just high-tech goods and services exports, such as electronics and professional services, it is now also focusing on re-energising mid-tech exports, such as textiles. Given India’s wage advantage, this is a welcome strategy. Lastly, external reforms are being complemented by domestic reforms, such as the ongoing government deregulation drive. Of course, much depends on implementation. Inflation and BoP impact. There are several moving parts on inflation. Lower import tariffs and a more stable currency should lower inflation. However, switching to more expensive oil, and a change in the CPI base year could marginally raise inflation in FY27. The impact of none of these factors, we believe, will be large. And in most parts will offset each other. The excess capacity from China driving disinflation remains strong. And we continue to believe that inflation will remain close to the 4% RBI target. All of this means that the central bank should be able to hold the repo rate steady for the foreseeable future, while focusing on providing enough liquidity. Meanwhile, if the improvement in sentiment and push for exports raises capital inflows, the balance of payments deficit would fall, supporting the currency. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/economic-implications/

2026-02-10 08:06

Key takeaways Weakened opposition now holds less sway over fiscal policy in Japan. FX intervention warnings could buy time to strengthen credibility and ease political and fiscal risks. USD-JPY is likely to remain choppy and elevated in 1H26, before moderating more sustainably in 2H26. Following Japan’s Prime Minister Sanae Takaichi’s surge in approval ratings, the Liberal Democratic Party (LDP) has secured a historic 316 out of 465 seats in the Lower House by itself, granting a two-thirds supermajority. This outcome enables the LDP to override decisions made by the opposition-controlled Upper House. Given the large victory, in our economists’ view, Takaichi now faces less pressure to accommodate her junior coalition partner or the opposition when it comes to the proposed consumption tax cut on food or other fiscal measures. For the JPY, Prime Minister Takaichi’s strong mandate presents both opportunities and challenges. While some market participants anticipate that this mandate could reinforce the Prime Minister’s “reflationary” policy stance, others suggest that reduced political compromise may result in greater fiscal discipline. At present, there remains uncertainty regarding potential changes to fiscal spending, funding strategies, monetary policy, and foreign policy following the election. With USD-JPY trading near the intervention zone of 158-162 during April-July 2024, the immediate focus for the FX market is whether Japan’s Ministry of Finance (MoF) will engage in verbal intervention as assertively as it did in January, and whether the prospect of coordinated intervention with US authorities will be highlighted once again. While FX intervention does not resolve underlying concerns about Japan’s fiscal sustainability, it could prompt some market participants to temporarily close short JPY positions to mitigate volatility. Such intervention can also provide time for the government to implement measures, such as tax adjustments to Nippon individual savings accounts (favouring domestic assets), regulatory measures or incentives for pension funds and insurers to increase FX hedging or shift towards domestic assets, and potential rate hikes by the Bank of Japan (BoJ), and more disciplined fiscal policy. A sustained recovery in the JPY is likely to require a more proactive BoJ, clear evidence of fiscal discipline, and supportive capital flow measures. However, the JPY could still strengthen if external factors deteriorate, such as a sharp decline in US real yields, increased US fiscal risks, or a severe global economic shock prompting major central banks to cut rates. Overall, we expect USD-JPY to remain choppy but elevated over the near term, before moderating in a more sustained way in 2H26. Our economists continue to forecast a single 25bp rate hike by the BoJ in July, though the risk of earlier or additional hikes is increasing, given ongoing JPY weakness and the likelihood of continued fiscal expansion under the new administration. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-takaichi-wins-an-overwhelming-supermajority/

2026-02-09 12:02

Key takeaways The RBA raised rates, with the next hike expected in 2H26. The BoE’s dovish hold raised near-term rate cut expectations, with the GBP likely lagging the AUD. The ECB kept rates steady and downplayed concerns about EUR strength; EUR-GBP may raise over the near term. On 3 February, the Reserve Bank of Australia (RBA) increased its cash rate by 25bp to 3.85%, in line with market expectations. The RBA also revised its nearterm growth, and inflation forecasts upwards to 2.1% and 4.2% by June 2026 (previously 1.9% and 3.7%), assuming the cash rate reaches 4.2% by end-2026. Our economists view the RBA’s overall stance as fairly hawkish, indicating potential for further tightening, and anticipate an additional 25bp increase in 3Q26. The AUD’s recent rally looks a bit stretched, up c3.5% against the USD year-to-date (Bloomberg, 6 February). Consequently, AUD-USD is likely to consolidate over the coming weeks, with external factors − rather than rate differentials − driving moves over the near term (Chart 1). Source: Bloomberg, HSBC Source: Bloomberg, HSBC The Bank of England (BoE) narrowly voted (5 to 4) to keep rates steady at 3.75% on 5 February, with Swati Dhingra, Alan Taylor, Dave Ramsden, and Sarah Breeden favouring a 25bp cut − more dovish than markets expected. The overall messaging was also dovish, with CPI inflation now forecast to fall to 1.8% in two years. Markets are now almost fully pricing in a 25bp cut for 30 April, with a c60% chance of an earlier move in March (Bloomberg, 5 February). Unsurprisingly, the GBP weakened after the announcement. Meanwhile, the European Central Bank (ECB) kept rates unchanged as expected in February, but struck a slightly hawkish tone, highlighting resilient growth (Chart 2). ECB President Christine Lagarde downplayed the recent inflation dip and signalled rates will remain on hold for some time. She also dismissed concerns about EUR strength, noting FX moves are already factored into forecasts and the EUR remains within its average range. In summary, the BoE’s dovish tilt and the ECB’s comments on the EUR suggest some upside risk for EUR-GBP. The GBP may also lag behind currencies that are in a monetary tightening cycle, like the AUD. However, US factors are likely to drive GBP-USD and EUR-USD higher over the near term. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/aud-eur-and-gbp-central-banks-in-focus/

2026-02-04 07:06

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/g10-currencies-a-bumpy-ride/