2025-10-06 12:02

Key takeaways US government shuts down for the first time since 2019. The economic impact will depend on the duration of the shutdown and whether job reductions become permanent. For the USD, its implications are open to debate, but most likely lean to the weak side. The federal government of the US officially shut down on 1 October. If it persists, US economic data releases that come from affected federal agencies will be delayed. This would include releases from the Bureau of Labor Statistics (nonfarm payrolls, CPI, PPI), the Bureau of Economic Analysis (GDP, PCE prices), and the Census Bureau (retail sales, international trade, new home sales). The shutdown will not affect economic releases that come from private-sector sources (such as ADP employment and ISM manufacturing PMI). The FX impact of delayed US data could be spun both ways. Markets are currently pricing in a c99% chance of a 25bp cut by the Federal Reserve (Fed) at the 28-29 October meeting (Bloomberg, 2 October 2025). If the shutdown means that policymakers cannot accurately assess the state of the US economy, there is a chance the Fed will choose to delay the rate cut, thereby supporting the USD. Nonetheless, we see the Fed more inclined to cut rates unless there are hawkish data surprises. This is also our economists’ base case (expecting two more 25bp rate cuts before end-2025). The private sources of data (released on 1 October) confirm the current softening labour market narrative. For example, ADP employment change showed a net employment loss in September; and ISM manufacturing PMI’s employment subindex remained below 50 (indicating a contraction) for an eight straight month in September. With a rate cut almost fully in the price, the USD is likely to remain largely rangebound over the near term, in our view. The economic impact will largely hinge on its duration. There were three government shutdowns during US President Trump’s first term (2017-2021), ranging from just 9 hours up to 35 days. A second element is whether the current shutdown results in job losses rather than workers merely being furloughed. The US Congressional Budget Office (CBO) estimates that about 750,000 employees could be furloughed this time around, and the daily cost of “compensation” or worker pay for the furloughed employees would be roughly USD400m. For example, a 10-day shutdown could be proxied as USD4bn of compensation on services not provided; relative to nominal GDP of USD30trn, this would be 0.13%. The impact on total annual GDP would be relatively small since real economic output should mostly recover after the shutdown ends. But if permanent reductions occur, the economic impact of the shutdown could be much larger. Overall, the implications of the US government shutdown for the USD are uncertain, but most likely lean to the weak side, in our view. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-us-government-shutdown/

2025-10-06 12:02

Key takeaways Elected new LDP president, Sanae Takaichi, is set to become Japan’s next PM. The JPY has weakened as markets digest the policy impact of a Takaichi victory… …but we still see room for a JPY recovery; USD-JPY is likely to fall modestly with a narrowing yield differential. Japan’s ruling Liberal Democratic Party (LDP) selected Sanae Takaichi, 64, as its new leader on 4 October (Saturday). She is thus likely to become Japan’s next prime minister (PM) at the head of a coalition government in a parliamentary vote in mid-October. The JPY opened weaker today (Monday 6 October), with USD-JPY increasing c1.5% to 149.7 (Bloomberg, 6 October at 09:00 am HKT). Heading into this LDP leadership contest, we believed it would be unlikely any Japanese leader would follow policies to weaken the JPY, as the economic reality is that a weaker JPY will further exacerbate cost of living issues. This line of reasoning still resonates with us when Takaichi noted in her victory speech that it is important to control (costpush) inflation. Japan’s likely new PM has expressed dovish views on monetary policy. However, our economists think that the Bank of Japan (BoJ) is likely to raise its policy rate to 0.75% at its 30 October meeting. Markets are now pricing in a c20% chance of a BoJ hike in October, and a c50% chance of this happening in December (Bloomberg, 6 October). USD-JPY is likely to be sensitive to the potential for an indecisive Bank of Japan (BoJ) and pro-easing voices coming back into the frame but could decline amid a dovish pivot of the Federal Reserve (Fed). The JPY is also most likely to be sensitive to Takaichi’s shaping of the FY26 budget in the coming months. Takaichi has in the past supported expansionary monetary and fiscal policies, being an advocate of the reflationary policies of former Prime Minister Shinzo Abe. Depending on coalition discussions, her election therefore likely portends looser fiscal policy, though it is not clear whether she will agree to opposition demands for a lower sales tax (beyond groceries). Instead, she has advocated cash handouts and tax rebates to lower income households (Bloomberg, 5 October). The coming days will be important to gauge her policies and from other potential members in her likely cabinet. However, a near-term factor that could help suppress USD-JPY comes down to the ongoing US federal government shutdown. The USD has tended to drift slightly lower during previous shutdowns. Other offsetting factors that should put a lid on USD-JPY include the risk of FX intervention if USD-JPY rises above the 150 big figure. In addition, narrowing yield differentials between the US and Japan, as well as a rising domestic equity market, among others, could eventually reduce net portfolio outflows from Japan. Our base case is that USD-JPY can still fall modestly with a narrowing yield differential. But given the domestic policy uncertainty, the balance of risk is tilting to a slower convergence. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-takaichi-san-wins-the-ldp-election/

2025-10-06 07:04

Key takeaways With the US domestic and geopolitical environment seeing an eventful start to 2026, focus on the macro backdrop has taken a back seat, despite an avalanche of data as statistical agencies return from the shutdown. But arguably, when policy uncertainty picks up, fundamentals provide a much-needed anchor. Historically, the second year of a US presidential term tends to be a tricky one for markets. It’s often the weakest year for real stock returns in the S&P 500, thanks to the uncertainty that midterm elections bring. After a strong 2025 for many Asian stock markets, momentum has continued into the new year. In South Korea, for instance, the MSCI index is up by 10% in USD terms in 2026 – after nearly doubling in 2025. Other Asian indices – notably in China and Japan – have also built on last year’s good performance. Chart of the week – Fiscal dominance and the Fed They used to say: “Don’t fight the Fed.” But have the rules quietly changed? Last week, attention turned to another big macro theme: fiscal dominance. In plain terms, fiscal dominance is when high government debt and persistent deficits start to constrain – or influence – central bank behaviour. In economic models, it’s associated with higher and more volatile inflation, and boom-bust cycles. But the good news is that we’re probably not fully there yet. At least that’s the conclusion from the new research by former Fed Chair Janet Yellen. She documents multiple ways the Fed continues to assert its independence – ongoing CPI disinflation, and the unusual “low-hire, low-fire” labour market stasis (see page 2). Markets, however, are telling a more ambiguous story: 1. Long-term bond yields are unusually sticky, even as the Fed cuts rates. This is the mirror image of the 2000s-2010s playbook, and one that we call the “reverse conundrum” (see chart). 2️. Term premia are rising, and the correlation between stocks and bonds is no longer reliably negative. These are classic signals that investors perceive a more volatile inflation regime. 3️. The debasement trade keeps working. Short USD, long gold and commodities remains a powerful trend – an inflation-sentiment signal, even as standard measures (like 5y/5y breakevens) look benign. So, it’s clear that something has changed. Now, when the Fed cuts rates, do bond yields go down… or up? The new pattern points to a bumpier, more volatile market regime in 2026 – and strengthens the case for diversifying the diversifiers in portfolios. Market Spotlight Volatility dampener Investor demand for private credit was strong last year, with a robust annual performance in the high single figures and rapid market growth. In direct lending (the largest private credit sub-category), competition for funding buyouts and corporate deals caused spreads to tighten, but the asset class remains appealing for its relative stability, its yield premium over public markets, and the regular income generated from underlying interest payments. Private credit has grown from being fairly niche at the time of the global financial crisis in 2008 to a market of more than USD 3 trillion today. While further rate cuts this year could potentially crimp performance, policy easing could also relieve pressure on borrowers and boost dealmaking activity – which, in turn, should keep returns attractive. In addition, the asset class boasts solid form as a volatility dampener. Direct lending not only experienced smaller drawdowns during both the global financial crisis and the 2020 Covid pandemic sell-offs, but also delivered a positive return during the 2022 inflation shock, when most risk assets sold off. Some alternatives specialists point to it being a potential portfolio diversifier in an environment where episodic volatility is expected. 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. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg, Macrobond. Data as at 7.30am UK time 16 January 2026. Lens on… Looking through the noise With the US domestic and geopolitical environment seeing an eventful start to 2026, focus on the macro backdrop has taken a back seat, despite an avalanche of data as statistical agencies return from the shutdown. But arguably, when policy uncertainty picks up, fundamentals provide a much-needed anchor. On that score, headline US data have not thrown up any nasty surprises, although some of the details require careful monitoring. Q3 GDP surpassed expectations, although growth was unbalanced – robust consumer spending relied on a falling savings rate, while, outside of AI-related capex, investment was soft. The labour market remains a conundrum – firms are stuck in a “low hire, low fire” equilibrium and consumers are pessimistic about job prospects. Inflation in the high twos is not where the Fed wants it to be, but moderating wage growth and a soft housing market point to gradually easing price pressures this year. Sophomore slump Historically, the second year of a US presidential term tends to be a tricky one for markets. It’s often the weakest year for real stock returns in the S&P 500, thanks to the uncertainty that midterm elections bring. Investors don’t like surprises; unexpected policy shifts and questions about the economic outlook often weigh on risk appetite during this period. We also know that almost every midterm election has resulted in the incumbent president's party losing seats in the House of Representatives. If Republicans lose their slim House majority this year, it could result in a Republican president and a Democrat-controlled House: a political gridlock scenario. The good news is that markets often welcome this. A divided government means a lower chance of large policy changes, which tends to calm volatility and boost stocks post-election. Nonetheless, in an environment where AI enthusiasm persists but risks of episodic volatility remain -- caused by high policy and economic uncertainty, elevated tech sector valuations, and heightened geopolitical concerns -- the impact of the US midterms on market sentiment is also worth monitoring. Marginal gains After a strong 2025 for many Asian stock markets, momentum has continued into the new year. In South Korea, for instance, the MSCI index is up by 10% in USD terms in 2026 – after nearly doubling in 2025. Technology stocks are driving the gains, with export-heavy industries like autos, shipbuilding, and defence, up too. Other Asian indices – notably in China and Japan – have also built on last year’s good performance. However, after 2025’s rerating in Asia, attention is now turning to profits momentum. Here, there are positive signs, with cyclical and structural factors, including policy efforts across the region, supporting the outlook. But there is some cause for caution. Macro and policy uncertainty, as well as geopolitical tensions could spur volatility. And in South Korea, a rapid rise in the amount of margin debt in use in the market – at a record level of over KRW 28bn (~USD 19bn) – could also spark volatility if sentiment cools (although current levels are modest relative to Korea’s market cap). A diversified approach in Asia, with selectivity across countries and sectors, can help capture the growth upside while cushioning against downside risks. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 16 January 2026. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 16 January 2026. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Market review Market sentiment stayed largely positive amid the kick-off of the Q4 2025 US earnings season. The US dollar index rose modestly, while lingering geopolitical risks drove gold prices higher, and oil prices remained volatile. 10-year US Treasury yields were range-bound, whereas rising fiscal worries weighed on JGBs amid mounting expectations of an early election in Japan. The trend of “broadening out” continues in global stock markets: US equities traded mixed, with the small-cap Russell 2000 outperforming the S&P 500 and the tech-dominated Nasdaq. The Euro Stoxx 50 index reached a fresh high, while a weaker yen boosted Japan’s Nikkei 225. Elsewhere in Asian markets, the tech-driven Korean Kospi remained a star performer. Hang Seng also advanced, alongside mild gains in India’s Sensex, whereas Shanghai Composite pulled back from recent rallies. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/article/

2025-10-03 07:04

Key takeaways The Reserve Bank of India (RBI) kept the policy rate unchanged at 5.5% for the second consecutive meeting and retained the monetary stance at “neutral”. The RBI raised its FY 26 (April 2025 – March 2026) GDP growth forecast to 6.8% from 6.5% previously. It also cut its inflation projection for FY26 to 2.6% (from 3.1% previously), owing to the good monsoon season, which should result in softer food price inflation. The RBI also released its 4QFY27 inflation forecast at 3.9%. Based on the guidance from the RBI, we believe that should the 50% tariffs continue till year-end, the central bank is likely to cut rates by 0.25% to 5.25% in the December MPC meeting. We retain our neutral stance on Indian equities and favour domestically oriented sectors, which should be relatively more resilient. We are overweight on the consumer discretionary, financials, industrials and healthcare sectors. 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/rbi-stays-on-hold-keeps-the-door-open-for-future-cuts/

2025-10-02 07:05

Key takeaways The US government began its shutdown on 1 October as Congress failed to reach a funding agreement before midnight of 30 September. The last shutdown took place in 2018. While essential services like the military, border security, Social Security checks, and air traffic control would keep operating, non-essential services would pause, and many agencies would furlough staff, and key government reports like jobs and inflation data could be delayed. The economy would feel the impact as each week of shutdown could reduce quarterly GDP by about 0.1-0.2%. The politics and uncertainty surrounding a government shutdown have typically created volatility and have resulted in equity markets recalibrating. However, this potential short-term weakness is usually overcome by the longer-term fundamentals, which remain positive for the US market. For fixed income investors, uncertainty can cause some short-term volatility but often also adds to the safety appeal of US Treasuries. In addition, the shutdown does not change our view that the Fed will cut rates in October and December, which should support bonds. The US dollar could see some weakness in the short term, but it may easily reverse should the conflicts resolve. 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/us-government-shutdown-could-raise-volatility/

2025-09-30 21:04

Key takeaways The re-start of the Fed’s rate cut cycle boosts equities, bonds and gold to new highs. Historically, equities and bonds tend to perform well in the 12 months after the Fed resumes easing. We now expect two more 0.25% rate cuts this year. As the 10-year US Treasury yield is now below our year-end forecast of 4.3%, we reduce our maturity preference for US Treasuries to 5-7 years. We see further upside for US equities due to multiple drivers in place, with rate cuts being one of those. The AI liftoff drives huge activity and investment in the AI ecosystem. Together with a healthy pick-up in M&A activity, steady increases in share buybacks and dividends, as well as a constructive cyclical outlook and structural drivers such as nearshoring and the US re-industrialisation, we stay bullish on US equities, preferring IT, Communications, Industrials and Financials. Apart from a positive outlook for the US market, diversification across geographies, sectors, asset classes and FX can help capture additional opportunities and manage risks. Geographically, we also like China and Singapore for their different economic cycles and growth drivers compared to those of the US. We overweight Financials and Industrials in most regions for their cheaper valuations than IT and attractive opportunities. Quality bonds, gold and alternative assets are good diversifiers amid slowing growth. A multi-asset strategy is an effective way to achieve all of the above. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/fed-easing-creates-opportunities-across-markets/