2025-12-12 07:04

Key takeaways The Fed delivered a 0.25% rate cut as expected, lowering the target range to 3.50–3.75%. It also introduced reserve-management purchases of short-term instruments, which will begin with roughly USD40bn in Treasury bills but they are not QE (quantitative easing) and carry no implications for the policy stance. The ‘DOTS’ chart with Fed members’ views of the future rate path was little changed, with continued wide dispersion in views. We continue to expect the policy rate to remain unchanged through 2026–27, with meaningful two-sided risks as the economy transitions into 2026. The economic projections show stronger growth and lower inflation, with a notable mechanical rebound in 2026 GDP following the shutdown. The policy rate cut is accretive to corporate earnings and should help keep valuations in check. Technology, AI, and productivity-linked sectors stand to benefit from lower real yields and improving macro conditions. The cut is also positive for rate-sensitive sectors and companies benefitting from AI-driven investment and the ongoing US re-industrialisation trend. Even if the Fed does not cut any further and P/E multiples stagnate, equities can do well as the underlying economy remains robust with corporate earnings projected to grow by roughly 14.5% in 2026. For fixed income, the Fed’s monitoring of inflation and the continued decline in inflation expectations provide a supportive backdrop, while the USD could see short-term downside before a more lasting base is formed during Q1 2026. 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/fed-likely-moving-to-a-hold-after-its-december-cut-as-fomc-is-split/

2025-12-11 12:01

Key takeaways The Fed delivered a 25bp cut, with neutral guidance; our economists expect the Fed to be on hold in 2026 and 2027. The Fed will start buying USD40bn of Treasury bills per month from 12 December. The USD may weaken further before stabilising in early 2026, in our view. As anticipated, the Federal Open Market Committee (FOMC) implemented a third consecutive 25bp rate cut at its 9-10 December meeting, lowering the federal funds target range to 3.50-3.75%. The decision passed by a 9-3 vote, with dissent from two regional Fed presidents − Austan Goolsbee (Chicago) and Jeff Schmid (Kansas City) − who preferred to maintain current rates, and Governor Stephen Miran, who advocated for a larger 50bp cut. Initial USD weakness reflected the absence of hawkish signals. The updated “dot plot” revealed a wide range of views among all 19 FOMC members, with the median interest rate projection for 2026 indicating only one further 25bp cut, compared to market expectations of two. It is worth noting that the significant dispersion of rate forecasts for 2026 (2.125% to 3.875%) highlights a lack of consensus on the pace of easing. Source: Federal Reserve Forward guidance remained unchanged, suggesting policymakers are not yet prepared to signal an end to the easing cycle. Additionally, the Fed announced USD40bn in monthly Treasury bill purchases from 12 December, to “maintain an ample supply of reserves on an ongoing basis”. While not a policy shift, this move contributes to a more dovish overall tone. Fed Chair Jerome Powell reiterated a neutral stance, noting that the current rate is within the estimated neutral range and that the Fed is positioned to observe economic developments. This approach contrasts with market pricing for two rate cuts in 2026, which the USD saw a brief rebound, but the USD Dollar Index (DXY) declined further to c98.5 (Bloomberg, 12 December). The Fed is in “wait and see” mode, so policy and the USD is data dependent. Our economists expect rates to remain unchanged through 2026 and 2027, though risks persist. We still believe the DXY may see more downside before a more lasting base is formed during 1Q26. Historically, the USD tends to weaken when the Fed cuts rates outside of recessionary periods. Besides, market expectations for further rate cuts in 2026 may increase with a new Fed Chair. Concerns over Fed independence could further contribute to USD weakness. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-feds-third-25bp-cut-with-neutral-guidance/

2025-12-10 12:01

Key takeaways Clean energy sectors, particularly solar, wind, and nuclear, have underpinned strong performance in climate-related equities in 2025. While US outflows dominate, there is evidence of rotation into Europe and Asia, with Switzerland and mainland China reporting net inflows. Solar and energy storage emerge as most attractive themes within the climate change space. After a slow start to the year, global climate stocks – particularly in the solar, wind and nuclear sectors – have made a strong comeback, outperforming global equities year-to-date. Looking forward, HSBC Global Investment Research identifies solar and energy storage as the most compelling opportunities within the climate change space. Solar energy continues to lead the global clean energy transition, supported by falling costs, favourable policy frameworks, and rapid technological progress. Meanwhile, energy storage is becoming increasingly critical for reducing emissions across both the transport and power industries. Did you know? Global climate stocks have outpaced global equities (FTSE All World) by over 11 percentage points year-to-date (as of 16 October 2025) Solar capacity additions reached c550GW in 2024, marking a 30% growth from 2023 levels China accounted for 97% of global solar wafer production, 87% of solar cells, and 78% of solar modules, as of 2024 The International Solar Alliance is working to mobilise USD1trn in solar energy investments by 2030 Global energy storage battery demand needs to jump 6x by 2030 to meet the IEA’s net-zero scenario Over the past five years, nearly 20% of energy related funding went towards energy storage and batteries related start-ups Sources: IEA – Global Energy Review 2025 – License: CC by 4.0; HSBC Global Investment Research Climate stocks outperformance Global climate stocks in the HSBC Global Investment Research (HSBC Research) proprietary HSBC Climate Solutions Database (HCSD) saw a strong price performance in the third quarter of this year and have outperformed the global equity benchmark (FTSE All World Index) by 11.4 percentage points in 2025, as of 16 October. This follows the steady outperformance of climate stocks over the past few years, including a 15.4 percentage point gain in 2024. Climate stocks have outperformed global equities year-to-date Source: FTSE Russell, LSEG Datastream, HSBC as at 16 October 2025 Recent surge is driven by pure-play climate stocks Source: FTSE Russell, LSEG Datastream, HSBC as at 16 October 2025 Broad-based outperformance HSBC Research’s analysis of climate stocks by region and sector suggests that the recent price outperformance is broad-based, marking a notable turnaround from the challenging outlook earlier in the year. Political backlash, deteriorating sentiment attached to sustainable investing, and concerns associated with greenwashing and regulatory changes had an adverse impact on the performance of climate stocks in the HCSD in the first few months of 2025. While many of these issues persist, the strong relative performance of climate stocks since early July aligns with a slight reduction in uncertainty, particularly related to the US climate policy, partly alleviated by the One Big Beautiful Bill. Pure-plays lead Drilling down further, pure-play climate stocks – those generating more than half of their revenues from climate-related activities, have delivered the strongest returns this year, approximately around 35%. This likely reflects investors’ preference for pure-play stocks, while expanding their exposure to the universe of clean-tech companies. Importantly, companies with less than 50% climate revenue exposure have also outperformed the global equity benchmark in 2025. This ongoing trend reinforces the consistent outperformance of climate stocks over the past decade, despite facing various market Asia-Pacific ahead Analysis of regional price performance of stocks in the HCSD shows Asia-Pacific leading with a 34% year-to-date return. While climate stocks in North America and Europe have lagged HCSD stocks in aggregate, they have still outperformed the global equity benchmark. Historically, Asia-Pacific climate stocks have delivered stronger returns than other regions, driven by a robust economic growth and increased investment in clean technologies. Notably, the region represents over half of all climate stocks in the HCSD and remains a significant contributor to global climate company revenues. Sustainable funds: US drives equity outflows Sustainable equity funds have experienced net outflows of USD 57 billion year-to-date—the first recorded outflows since 2020. The US market is the primary contributor, accounting for USD 43.5 billion of these outflows as of 10 October this year. This trend is largely attributed to political backlash, waning investor sentiment towards sustainable investing, and concerns over greenwashing and regulatory changes. First instance of outflows from sustainable equity funds since 2020 Source: Morningstar, HSBC as at 10 October 2025 (using weekly data) Nonetheless, sustainable funds’ asset under management continues to rise Source: Morningstar, HSBC as at 10 October 2025 In contrast, sustainable bond funds have maintained strong momentum in 2025, attracting USD 57 billion in inflows, representing over 6% of all global bond fund inflows. Despite the outflows from equity sustainable funds, assets under management (AUM) for both equity and bond sustainable funds have increased, reflecting robust price performance and supporting observations of strong returns in global climate stocks. Notably, since 2021, the long-term growth in AUM for sustainable equity and bond funds has been higher than all-equity and all-bond funds, respectively. Across major markets, the US remains a significant drag, with year-to-date outflows intensifying in recent months—rising from approximately USD 16 billion at the end of the last quarter to around USD 43 billion currently across both equity and bond sustainable funds. These outflows, exceeding 10% of AUM in both categories, highlight a deteriorating outlook for sustainable investments in the US. The early termination and phase-down of Inflation Reduction Act tax credits for renewables and transport, as legislated in the One Big Beautiful Bill, have further dampened sentiment. While US outflows dominate, there is evidence of rotation into Europe and Asia, with Switzerland and mainland China reporting net inflows. Climate themes to watch HSBC Research applied their quantitative framework to the HCSD, identifying solar and energy storage as the most attractive themes within their climate change space. We examine the underlying fundamentals supporting these sectors. Solar Solar energy continues to lead global clean-energy growth, supported by falling costs, strong policies and rapid technology gains. Investments in solar photovoltaic technology (cells that convert sunlight into electricity) are expected to surpass USD450bn in 2025, outpacing all other renewable energy sources, according to IEA World Energy Investment 2025 estimates. Global renewable energy pledges and policies are driving the growth of renewables and solar power. These include plans to triple renewable energy generation capacity to at least 11TW by 2030 (COP28); end a reliance on fossil fuels (REPowerEU); mobilize USD1trn in solar energy investments by 2030 (International Solar Alliance), and numerous supportive national policies and targets set by countries such as China, India, UAE, South Africa and Brazil. Furthermore, to align with the IEA net-zero scenario, solar generation needs to reach approximately 9,200TWh by 2030, requiring an annual average growth rate of around 28% from 2024 levels. Advanced manufacturing capabilities, a reduction in polysilicon prices, and growing economies of scale have resulted in the significant fall in solar cell prices over the last decade, making them more competitive relative to fossil-fuels powered energy generation. The cost of solar energy has become substantially lower than both gas, coal, and other renewable energy sources except wind. Moreover, the BNEF expects the cost to fall further by 31% over the next decade, potentially making it an attractive long-term energy investment. Emerging economies are forecasted to add c78% of the global net solar capacity additions by 2030, which is principally driven by China. Indeed, China has emerged as a global centre for the solar energy investment and supply chain, with the country adding almost two-thirds of all new renewable capacity globally in 2024. Solar power plant capacity trend and forecast Source: IRENA, BNEF*, HSBC *BNEF forecast based on COP28’s tripling renewable energy capacity by 2030 Global Levelized cost of solar energy is expected to fall 31% by 2035 Source: BNEF, HSBC Energy storage Reducing emissions from the transport and power sectors, which together represent approximately two-thirds of global emissions, is key to hitting net-zero goals. Energy storage systems play a pivotal role in improving the efficiency and reliability of clean transport and renewable power sources. According to the IEA’s net-zero emissions scenario for 2050, increased adoption of electric vehicles could reduce oil demand by 8 million barrels per day by 2030, with battery solutions being central to this transition. In the electricity sector, battery storage solutions enhance the efficiency of power systems by storing excess energy during periods of low demand and releasing it when demand is high. This minimises losses and supports the integration of renewables into the grid. To align with the IEA’s net-zero scenario, global annual demand for energy storage batteries must increase sixfold to reach 6TWh by 2030. Of this demand, 90% is projected to come from batteries for electric and hybrid vehicles, with the remaining 10% from other energy storage applications. Additionally, the global energy battery systems market is expected to quadruple, reaching USD 500 billion by 2030, up from USD 120 billion in 2023. Battery Price Decline Accelerates EV and Energy Transition The clean transport and energy sectors now account for over 90% of global annual demand for lithium-ion batteries—a figure set to rise as falling battery prices drive broader adoption of electric vehicles, as well as utility-scale and residential solar solutions. Battery costs have dropped significantly, from USD 1,400/KWh in 2010 to below USD 115/KWh in 2024. Continued innovation and higher-density battery production are expected to reduce average global prices to under USD 100/KWh within the next few years, further supporting the energy transition. Conclusion Clean energy sectors—particularly solar, wind, and nuclear—have underpinned strong performance in climate-related equities in 2025. At the same time, outflows from US sustainable equity funds have increased, with Switzerland and China emerging as leading recipients. Analysis from HSBC Research highlights solar and energy storage as the most promising themes within the climate change investment landscape. https://www.hsbc.com.my/wealth/insights/esg/why-esg-matters/investing-in-climate-change/

2025-12-08 12:01

Key takeaways The RBI cut rates by 25bp as expected, and unveiled plans of infusing domestic liquidity in December via OMO purchases and FX swaps. The RBI cut inflation forecasts, discussed sectors where growth could soften, and assured ample liquidity. We believe weaker growth down the line, low for long inflation, and tight fiscal policy may require growth supportive monetary policy in 2026. In a unanimous decision across the six MPC members on 5 December, the RBI cut the policy repo rate by 25bp, taking it to 5.25%. This was in line with our expectation. But this is not where the accommodative policy ended. The RBI also unveiled its plans to infuse domestic liquidity, announcing INR1trnOMO purchases of government securities and a 3-year USD/INR buy-sell swap of USD5bn in December. These, we believe, can infuse about INR1.45trn of liquidity in December. Dovish on many counts On inflation, the RBI lowered its FY26 and 1HFY27 inflation forecasts by 60bp and 50bp respectively. It further emphasised that underlying inflation (core excluding gold) is even lower (at 3% in the last 3 months). On growth, GDP numbers were raised, from 6.8% to 7.3% in FY26, but in our view, primarily on the back of stronger-than-expected numbers in 2QFY26. The governor spoke about the exports sector being weaker in the press conference and he also said that he expects “growth to somewhat slow”. On liquidity, not only is the RBI providing INR1.45trn worth of funds in December, the governor mentioned that more could be made available if needed. On rates, the governor mentioned that in the season of easing, the odds for lower rates are more than for higher rates. Why this dovishness? We believe there are two main reasons for the dovishness this time. First, the inflation targeting regime has some symmetry (4%, +/-2%), which needs to be respected for the regime to strengthen and succeed. We would expectrate hikesand hawkish commentary if inflation were to run higher than 6% for 6 months. In the same vein, if inflation runs lower than 2% for 6 months, we would expect the RBI tocut rates and sound dovish, which is what it did in the December policy meeting. Second, the macro economy needs loose monetary policy as per our forecasts. We expect inflation to remain below 4% in FY26 and FY27. We believe growth is strong now, but will soften bythe March quarter due to fiscal tightening, weaker exports, and the GST boost fading. We think fiscal policy will remain tight in a world of fiscal intolerance, and the onus for supporting growth will fall on the RBI. What next? Even though the RBI has lowered 1HFY27 inflation forecast by 50bp (4.5% previously to 4% now), our forecasts are 50bp lower (c3.5%). If we are correct, and the RBI eventually makes further downward adjustment to inflation, there would be space to ease further, if growth requires it. As such, we believe there are risks of further rate cuts in FY27, alongside more liquidity infusion. Finally, while the RBI did not provide much new colour on its INR policy, we believe the ongoing FX depreciation can be the best and most fitting shock absorber, improving export competitiveness in the face of elevated tariffs. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/cuts-rates-infuses-liquidity-underlines-dovishness/

2025-12-08 12:01

Key takeaways Labour market softness in the US and a disinflationary budget in the UK should ensure near-term rate cuts… …but with inflation and domestic demand surprising on the upside in parts of G10, not every central bank is cutting… …and a few are turning a little more hawkish. Fears of an AI bubble spooked the market in November, but with earnings and global growth holding up (including some notable upside Q3 surprises in Asia) and some easing of trade uncertainty, global equites are just below their late-Oct record highs. US government re-opened The US government’s record-long 43-day shutdown finally ended on 13 November, after President Trump signed a bill which extends government funding through to the end of January. It also guaranteed back-pay to all federal workers, which could lift Q1 GDP. Data releases are still delayed though, with the next set of key BLS and BEA releases – like payrolls and CPI – not scheduled until after the Federal Reserve (Fed)’s 10 December meeting. Some lagging US data have already been released, including August trade data, which showed a smaller US trade deficit. This was likely reflecting some payback following earlier frontloading trends. Tariff uncertainty prevails though, as sector tariffs could change, and we await a Supreme Court ruling on the International Emergency Economics Powers Act (IEEPA) tariffs. Yet some tariffs are falling too, given the recent détente between the US and China, and, following signs that tariffs are raising consumer prices, several agricultural products have been excluded from scope. Source: Macrobond Source: Macrobond September labour market data were mixed, with an upside surprise from payrolls (119,000), but the unemployment rate ticking up to 4.4%. Other data, for October, showed falling job openings, higher layoffs, and lower confidence, seemingly locking in the prospect of a December rate cut, even amid dissent on the FOMC. Source: Bloomberg, HSBC forecasts Note: OIS = Overnight Index Swap Source: Bloomberg, HSBC forecasts Note: OIS = Overnight Index Swap Disinflationary UK budget The UK’s much-anticipated Budget leaves many structural issues unresolved, but it stuck to the fiscal rules and more than doubled the fiscal headroom. Railway fare and energy price freezes should keep CPI trending lower, supporting further Bank of England (BoE) rate cuts. Meanwhile, Japan’s cabinet approved a 3.2% of GDP economic stimulus, supporting our case for a Bank of Japan 25bp rate hike in December. Easing cycles nearing an end Elsewhere, it has become clearer that other central banks are at the end of their easing cycle. The European Central Bank (ECB) and ASEAN countries look set to be on hold in the coming year, so first out of the blocks on rate rises is likely to be the Reserve Bank of New Zealand. With an upswing now evolving, we now expect a rate rise in Q3 2026. With firming demand and core inflation above the Reserve Bank of Australia (RBA)'s 2-3% target band, the RBA will also likely raise its policy rate by Q3 2026. Strong India growth Despite very strong Q3 growth of 8.2% y-o-y in India, lower inflation provides scope for further easing. Fiscal and monetary stimulus also loom for China where the October data disappointed. Investment, consumption, and industrial production slowed, as external and domestic demand remained subdued. The property sector is also showing renewed weakness, with a steeper fall in primary home sales and real estate investments. 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 *October data in this release will not include unemployment rate https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/a-hawkish-tilt/

2025-12-08 08:05

Key takeaways Gold prices are supported by risk aversion and a weaker USD. Central banks continue robust gold purchases, while Italy reviews gold reserve ownership. In our precious metals analyst’s view, USD softness and policy risks may sustain gold prices in 2026, but volatility is expected. Gold prices have recently returned to around USD4,200 per ounce, underpinned by increased risk aversion and growing expectations of a 25bp rate cut by the Federal Reserve (Fed) at its 9-10 December meeting. The recent weakness in the broad USD − reflected by the US Dollar Index (DXY) falling below 99 − has further supported gold prices, given their typically inverse relationship (Chart 1). However, with markets having largely priced in the anticipated rate cut (Bloomberg, 4 December), any subsequent decline in the USD is expected to be modest. While gold’s upward momentum remains intact, our precious metals analyst notes that a lack of improvement in physical demand may constrain further near-term gains. Meanwhile, official sector demand for gold remains strong. The World Gold Council reports that central banks purchased a net 53 tonnes of gold in October, marking the highest monthly increase this year and a 36% rise from September. Nonetheless, potential changes are on the horizon, as the Italian government considers amending the ownership structure of central bank gold reserves. Previous attempts to transfer these reserves to the Treasury have faced resistance from EU authorities, citing Lorenzo Bini Smaghi of the Institute for European Policymaking. Italy currently holds the world’s third-largest official gold reserves, behind only the US and Germany. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Looking ahead, the appointment of the next Fed Chair, following Jerome Powell’s term ending in May 2026, will be a key factor for markets. The new appointee is unlikely to prompt a significant hawkish policy shift, keeping the USD defensive and favouring gold in 2026 (Chart 2). In addition, persistent geopolitical, fiscal, and economic policy risks are likely to sustain upward pressure on gold, although our precious metals analyst expects heightened volatility and some price moderation in 2H26 as supply-demand dynamics evolve. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gold-rally-to-extend-into-2026/