2025-07-14 08:06
Key takeaways The RBA kept rates on hold in July, despite widespread expectations for a 25bp cut. The RBNZ’s rate pause was, nevertheless, much anticipated, with its tone turning slightly more dovish. We turn neutral on AUD-NZD and believe risk sentiment will be crucial for AUD-USD and NZD-USD in the months ahead. On 8 July, the Reserve Bank of Australia (RBA) surprised markets with a 6-3 vote in favour of keeping its policy rate unchanged at 3.85%. The RBA wanted more information on inflation and mentioned that the downside risks to global uncertainty have receded. We think the decision is only marginally positive for AUD-USD, as the conviction should remain for further RBA easing, albeit in a less front-loaded manner. Markets currently almost fully price in a 25bp cut in the RBA’s next meeting on 12 August (Bloomberg, 10 July 2025). Unlike the RBA, the Reserve Bank of New Zealand’s (RBNZ) decision on 9 July was in ine with expectations. Elevated near-term inflation (driven by food prices and dministered price increases) and strong export prices convinced the RBNZ to keep its olicy rate unchanged at 3.25% and wait for more data to be released, like 2Q CPI data 21 July) and the labour market report (6 August). Markets see a c70% chance for he RBNZ delivering a 25bp cut in its 20 August meeting (Bloomberg, 10 July 2025).Overall, the RBNZ’s tone has turned slightly more dovish from the last meeting.Given the latest rhetoric of both central banks, we turn neutral on AUD-NZD. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Looking beyond the central banks’ decisions, we believe “risk on” sentiment is likely to support both the AUD and NZD (see charts above) in the months ahead. Nevertheless, the headlines around US trade policy will drive the narrative over the near term. A sequence of letters has recently been sent to several US trading partners, outlining new tariff levels that will come into effect on 1 August. There was also the announcement of copper tariffs of 50% to be implemented from 1 August, and a mooted 200% tariff on pharmaceuticals, although the implementation here may be some way off. With the tariff deadline extending, the impact on FX markets has been rather muted, but if there is any re-escalation in trade tensions, the AUD and NZD could underperform the EUR, JPY, and CHF. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/aud-and-nzd-julys-rate-pause-amid-trade-uncertainty/
2025-07-14 07:05
Key takeaways At first sight, you’d be forgiven for thinking that after a slow start to the year, US stocks have finally caught up with their European counterparts. In local currency terms, the performance differential between European and US indices has certainly narrowed – although it still favours Europe. Foreign investments into Asian markets have risen sharply over the past 25 years. Global factors – like recent US dollar weakness – drive these flows, but local valuations, earnings growth, and supportive policy play an increasingly influential role. The global landscape is shifting from a world dominated by a single economic power to one where influence is shared across multiple regions. Chart of the week – What to watch in Q2 profits season Q2 profits reporting season gets started in earnest in the US this week against a backdrop of continued uncertainty about further tariff announcements. A strong Q1, helped by firms frontloading ahead of expected tariffs, saw year-on-year profits grow by 13% – double consensus expectations at the start of the year. Today, all eyes are on whether Q2 will see something similar. Forecasts have been falling through the quarter – in part driven by tariff uncertainty – leaving expected year-on-year growth at a modest 5%. The big question remains – will companies absorb tariffs, or pass them on? Evidence so far suggests that many are initially choosing to soak them up to protect market share. With net profit margin estimates at an above-average 12.8%, companies appear to have space to weather these headwinds. This implies margins may struggle to increase as analysts expect over the coming quarters, especially if the economy slows. Meanwhile, last week’s news that Nvidia had become the first USD4 trillion market cap company is a reminder of the outsized influence of the technology and communication services sectors on the US stock market. Together, they account for over 60% of expected profit growth in 2025. However, tech sector valuations and profitability levels are back at all-time highs, which could make beating profit forecasts more challenging. So, while global investors can’t ignore US stocks (see page 2), dollar weakness and profits challenges indicate that US exceptionalism is fading, which should encourage a broadening out of performance globally. Market Spotlight Megatrend investing A key investment attraction of listed infrastructure is its role as a long duration play that can potentially generate dependable cashflows and high dividend yields. For that reason, it tends to be a defensive, low volatility building block. So, it’s eye-catching that recent returns from listed infrastructure are linked to its strong connection to sectors involved in one of the biggest megatrends in global markets – AI. Take the rapid roll-out of data centres in the US. Major construction of facilities to power AI has been an unfolding infrastructure theme for some time, and big-tech hyperscalers remain active in the sector. Meanwhile, data centres are fueling vast demand for power generation. Against a backdrop of the longer-term energy transition, this is driving investment in key areas like electrification, transmission, and distribution grids. After a strong recent performance from the US infrastructure-related sectors, some infrastructure analysts think there could now be more compelling valuations found in Europe, the UK, and China on a relative basis. Meanwhile, at around 4%, the current average dividend from infrastructure is well above the average for global equities – reinforcing its appeal as a defensive income option for portfolios. 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. Data as at 7.30am UK time 11 July 2025. Lens on… Spot the difference At first sight, you’d be forgiven for thinking that after a slow start to the year, US stocks have finally caught up with their European counterparts. In local currency terms, the performance differential between European and US indices has certainly narrowed – although it still favours Europe. But in euro terms, US stocks are still down 6% in 2025. Much of the difference is to do with the weaker US dollar. Global investors normally leave equity allocations unhedged – because stock market volatility tends to dominate FX volatility – and for years exposure to the strong dollar has been a return driver. But that’s not the case this year. Meanwhile, the recent pick-up in US momentum reflects a combination of investor relief post-Liberation Day, and resurgent interest in the AI and technology megatrend. And the tailwind of a weaker dollar boosts the profitability of the US’s world-leading exporters. So, even at today’s rich forward price/earnings ratio of 22x, and with weak macro vibes weighing on profits, investors can’t overlook US stocks. But it all makes for a complicated outlook for global investors, and a key lesson from H1 is that FX can’t be ignored. Ebb and flow Foreign investments into Asian markets have risen sharply over the past 25 years. Global factors – like recent US dollar weakness – drive these flows, but local valuations, earnings growth, and supportive policy play an increasingly influential role. Research by some Multi-Asset analysts shows that the region is evolving in how it absorbs and responds to global economic forces. In the past, equity flows surged on tech-led booms in Taiwan and South Korea, and the economic rise of India and mainland China. But they partly reversed amid the post-pandemic slowdown and policy uncertainty. Big exporters saw sharp outflows, but domestically-focused economies in India, Indonesia and the Philippines were much more resilient. Bond flows were also vulnerable to macro shocks but have tended to be more stable, especially in markets with favourable policies and supportive structures, like ASEAN and mainland China. Against a backdrop of fading US exceptionalism and a broadening out of global leadership, the research shows that Asian markets are becoming more resilient. G-zero economics The global landscape is shifting from a world dominated by a single economic power to one where influence is shared across multiple regions. The traditional dominance of the US or G10 economies is giving way to a fragmented “G-zero” landscape, where no single country has the capacity to lead. This presents complex dynamics and opportunities for investors. One outcome has been a rise in geopolitical tensions. The number of international conflicts has increased in recent years, adding uncertainty to the macroeconomic outlook. It can contribute to an environment of frequent supply shocks, volatile inflation, and constrained growth. Yet in a G-zero landscape, emerging and frontier markets – such as India, Indonesia, Brazil and Vietnam – are gaining economic and political influence. Many are building deeper trade relationships, investing in domestic capacity, and benefitting from demographic trends. These markets are well-positioned for future growth but are underrepresented in global portfolios. In a more fragmented world, diversification across these economies can help investors manage risk and access structural upside. 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. Source: HSBC Asset Management. Macrobond, Bloomberg, Uppsala Conflict Data Program. Data as at 7.30am UK time 11 July 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 11 July 2025. 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 Risk markets were cautious ahead of the start of the Q2 earnings season in the US, with trade uncertainty weighing on sentiment. The US dollar index saw modest gains. US Treasuries were firm, supported by solid debt auction results. US IG and HY spreads widened, in contrast to narrowing corporate spreads in Europe. In stock markets, the S&P 500 hovered near its record high. The Euro Stoxx 50 advanced, and the UK’s FTSE 100 reached an all-time high, driven by strength in mining stocks. Japan’s Nikkei 225 lagged, as longer-dated JGBs weakened amid persistent fiscal concerns ahead of election. Other Asian markets broadly rose, with South Korea’s Kospi leading the rallies. Chinese equities also traded higher, but India’s Sensex declined. In Latin America, Brazil’s Bovespa fell on growth concerns and tariff uncertainty. Meanwhile, oil and gold prices consolidated. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/what-to-watch-in-q2-profits-season/
2025-07-09 07:05
Key takeaways The reciprocal tariff discussions are keeping markets on their toes… …with the recent economic data proving messy making it hard for policymakers to get a clear steer on the economy. We recently raised our 2025 global GDP growth forecast to 2.5%, with notable upgrades in India and Brazil. Ahead of the revised 1 August deadline for additional reciprocal tariffs, tariff-related news has come to the forefront again. At the time of writing, it remains unclear what this means for multiple economies in terms of final tariff rates going forwards, but the door is open to more bilateral deals, or new tariff rates on economies with which the US is unlikely to reach an agreement. Trade talks ongoing Vietnam is an economy exposed to tariff uncertainty and has moved towards a deal that would see a 20% tariff on all US imports from Vietnam and 40% tariff on transhipped imports. Earlier agreed trade deals with the UK and mainland China are also in effect. For the UK, sector tariffs on autos and aerospace have been relaxed, but steel tariff rates remain uncertain, while China agreed to approve export licenses for critical minerals. In return, the US will lift recent export controls on Chinese goods (Fortune, 27 June). Trade talks with key trading partners are ongoing, though their outcomes remain uncertain. Source: Macrobond Source: Macrobond Improving survey data… Amid all these uncertainties, the macroeconomic outlook remains very hard to read. In addition, big legislative changes in the US following the passage of the Big Beautiful Bill will have fiscal consequences. Various survey data have improved from the April lows but still don’t show any clear signs of momentum and could be heavily influenced by frontloading effects (charts 1 and 2). In the US, business surveys fared better in June, but we are seeing signs of stockpiling of raw materials and rises in input costs. While CPI and PPI inflation are yet to reflect the impact of tariffs, we can see a lot of tariff-led inflation in the pipeline within the survey data. …and consumer outlook Meanwhile, the US unemployment rate fell slightly, as nonfarm payrolls surprised on the upside in June (charts 3 and 4). However, questions about the quality and reliability of data keep building – meaning that it’s getting even harder for central bankers to make informed decisions about the best path for policy. Data outside the US could be being propped up by the frontloading impacts, or, in mainland China’s case, domestic stimulus measures. That said, we are seeing lower inflation and interest rates outside the US improve the consumer outlook. Source: Macrobond Source: Macrobond. Tariffs, tariffs, tariffs The global growth outlook remains mired in uncertainty. While Middle East tensions appear to have calmed down for now, lowering the risk of a spike in oil prices, the questions over tariff rates, timings and how trade flows react are set to keep markets and economists on their toes over the next few months. Our GDP growth forecasts Growth outcomes were stronger than expected in many countries in Q1. Still, we see global GDP slowing from 2.8% in 2024 to 2.5% in 2025, despite some notable upgrades to India and Brazil which are less affected by tariffs. A weaker growth picture later this year and early next means our 2026 global GDP forecast is 2.3% in 2026. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 17 April 2025. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics Source: Bloomberg, HSBC ⬆ Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus Source: Refinitiv Eikon, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/tariff-deadlines-in-focus/
2025-07-08 12:02
Key takeaways President Trump has sent letters to multiple countries announcing higher tariffs from 1 August, while many others are still waiting to either receive letters or reach a trade deal. The US will now impose 25% tariffs on imports from Japan and South Korea if no agreement is found by the new deadline. Around a dozen other countries, including Malaysia, Kazakhstan, South Africa, and Myanmar, are also facing new tariffs ranging from 25% to 40%. The global market reaction is mixed. US stocks fell around -1% but the possibility for negotiations is putting some Asian markets in the green today. The JPY weakened but KRW retraced its initial weakness. The announcements come as investors are already watching rising US debt levels and higher long-term borrowing costs, so there’s some mild pressure on bonds, though Fed rate cut expectations haven’t materially moved on the news. The new tariffs could raise the risk of upward pressure on inflation while weighing on corporate profit margins. That said, much of the hit to 2025 earnings expectations has already been priced in, with very conservative earnings growth assumptions for Q2. In the short term, investors will clearly watch for new sector and country-specific headlines. 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/tariff-deadline-pushed-back-to-august-1-resulting-in-further-uncertainty-for-global-financial-markets/
2025-07-07 12:02
Key takeaways Gold prices could spike higher on geopolitical events. Policy and economic uncertainty, mounting fiscal concerns, and a weaker USD should sustain gold prices at high levels… …but positive US real rates and physical market dynamics will eventually wear on gold prices. Gold hit a record high of USD3,500 per ounce on 22 April, fuelled by ‘safe haven’ demand, spurred on by geopolitical, economic, and policy uncertainties (Chart 1). The inability of gold to rise above the April high in the midst of the Israel-Iran crises is worth re-thinking whether there are sufficient risks to propel gold prices higher. The threat of an outright ‘trade war’ may have receded, as US President Trump announced a trade deal with Vietnam, the first bilateral trade deal with Asia, followed by Indonesia’s coordinating minister who said that the US and Indonesia will sign a Memorandum of Understanding (MOU) on trade and investments on 7 July (Bloomberg, 3 July). However, there is still a great deal of US policy uncertainty, with many ongoing trade discussions. In addition, global economic uncertainty also has the potential to buoy gold. Mounting US fiscal deficits – and those of other countries – have aided the gold rally and may continue to do so. In the latest Fiscal Monitor (April 2025), the International Monetary Fund (IMF) points out that global public debt could increase to 100% of GDP well before the end of the decade. These bedrock factors are likely to sustain gold at what are historically high levels, which could further encourage momentum-related demand, in our precious metals analyst’s view. Note: Geopolitical Risk Index (GRI) is compiled by Fed economists Dario Caldara and Matteo Iacoviello, while US Economic Policy Uncertainty Index (EPUI) based on newspaper archives from Access World New's NewsBank service, is developed by Baker, Bloom and Davis. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Going into 2H25, our framework suggests that the USD has room to weaken moderately, which may support gold prices (Chart 2). The “de-dollarization” momentum is also positive for gold. However, our precious metals analyst believes that there is a limit to how far gold prices may go. High gold prices are limiting key physical demand and could see demand from central banks moderate, while at the same time there is higher recycling supply even as mines strain to increase output. Monetary policy, should fewer rate cuts than previously expected materialise, could weigh on gold, and positive US real rates will eventually wear on gold prices. All things considered, our precious metals analyst expects gold prices to go higher over the near term, but when risks start to fade and other factors (like US real rates) become more dominant, weakness in gold prices could come later in 2H25. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gold-momentum-fading/
2025-07-07 07:04
Key takeaways After selling-off earlier this year, the US equity market is back at all-time highs. Technology stocks – which account for 35% of the MSCI US index – have driven the rally. US credit markets have staged an impressive comeback since the ‘Liberation Day’ tariffs announcement in April. The initial sell-off was in line with previous episodes over the past 10 years, but the recovery in Investment Grade has been quicker than it was after President Trump’s first round of tariffs in late 2018, the inflation shock of early 2022, and the collapse in oil prices in late 2015. After a blistering two-year rally, Indian stock markets took a breather coming into 2025, with relatively high valuations ticking down on a softer profits outlook. But price momentum picked up again in Q2. Chart of the week – US stocks rally, but what comes next? US equities hit another record high last week. All is well again in the world. But can it really be that the policy shocks of recent months are simply going to fade into the background? One important caveat is that the S&P 500 only hit a record in US dollar terms. Measured in any other major currency, it is still short of its highs seen earlier in the year. Indeed, the pace of dollar decline has picked up again recently in tandem with a jump in the S&P 500. In part, the dollar’s latest leg lower is likely a function of risk-on sentiment. But it may also reflect President Trump’s desire to announce an early replacement for Fed Chair Powell – a so called “Shadow Chair”. Combined with the President’s calls for the Fed to cut rates, this marks a further risk to US policy credibility and, potentially, faith in the dollar as the ultimate reserve currency. Looking ahead, having rallied hard, US stock markets could now be sensitive to negative news (see page 2). On top of concerns over “fiscal policy” and Fed leadership, any re-escalation of tariff tension on 9 July may reignite volatility. However, perhaps the bigger risk is that the data flow over the summer shows the economy cooling in a more decisive way. While June's headline payrolls number surprised to the upside, some other labour market indicators were soft (private payrolls and ADP employment) and consumer spending fell in May. On average, recent data have surprised to the downside. A period of below trend growth would bring with it the risk of the economy hitting its “stall speed” – historically, if US growth drops c.1.0pp below trend, it has often then dropped into a recession. After an early summer break, volatility could be on the horizon later this year. Market Spotlight Taking the credit Private credit activity cooled in early 2025 amid tough competition from the syndicated loans market and subdued conditions for mergers and acquisitions deals, driven by macro uncertainty. Yet, some private credit specialists expect further growth for the asset class as banks continue to retreat from the market and private equity (PE) firms turn to private debt funds to finance mid-market leveraged buyouts. For now, private credit managers are staying active – focusing on refinancing and add-on deals, especially in defensive sectors like healthcare and business services, where there is strong support from PE sponsors and lower default risk. For investors, the appeal of private credit lies in its potential for attractive all-in yields, stable income, and role as a portfolio diversifier given its low volatility. Private credit default rates remain low by historical standards. And while recent tariff uncertainty has impacted on borrower creditworthiness, the use of tools like payment-in-kind interest and flexible loan structures is helping borrowers navigate headwinds – as well as protect investor capital. The prospect of rate cuts in 2025 should be good for borrowers and encourage a revival in deal activity – supporting the private credit outlook. 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. Data as at 7.30am UK time 04 July 2025. Lens on… Tech’s back… but risks remain After selling-off earlier this year, the US equity market is back at all-time highs. Technology stocks – which account for 35% of the MSCI US index – have driven the rally. And that’s no surprise given that, together with the communications services sector, technology accounts for over 60% of expected US profits growth in 2025. But while sentiment is now risk-on, the temptation to overweight tech (and particularly the AI theme) in portfolios demands caution. The sector saw one of the sharpest drawdowns when momentum collapsed in April – falling 26%. It reflected the sensitivity of stocks priced for perfection but suddenly faced with trade policy uncertainty – and some of those risks could still remain. Yet, price/book valuations are back at 12-month highs. In addition, while recent tech sector profits (and forecasts) have been strong, growth has been concentrated in the race for AI chips and data centre construction – where the longer-term profit model is not certain. So, for now, it could pay to take a more ‘picks and shovels’ approach to AI. Credit recovery US credit markets have staged an impressive comeback since the ‘Liberation Day’ tariffs announcement in April. The initial sell-off was in line with previous episodes over the past 10 years, but the recovery in Investment Grade has been quicker than it was after President Trump’s first round of tariffs in late 2018, the inflation shock of early 2022, and the collapse in oil prices in late 2015. The recovery in High Yield credit has been just as impressive. This has mirrored the recovery in stocks. In part, the rapid rebound has been driven by solid fundamental credit metrics, with US corporate profitability proving resilient. Strong technical support in the market has also played a part. That said, recent macro data has seen signs of weakness, with continuing jobless claims hitting a cycle high. There have also been signs of strain in recent NIPA corporate profits data, and in personal consumption in the latest US Q1 GDP data. So, some caution could be warranted. Alpha in India After a blistering two-year rally, Indian stock markets took a breather coming into 2025, with relatively high valuations ticking down on a softer profits outlook. But price momentum picked up again in Q2. And this time, India’s strong structural tailwinds are benefiting from favourable domestic macro policies and a return of foreign investor interest. Profit expectations have felt the strain from global trade and geopolitical uncertainties, weaker domestic demand, and slow credit growth. But that now appears to be stabilising. Downward profit revisions are slowing, with the cyclical outlook improving on brighter consumer sentiment, front-loaded monetary easing, fiscal policy support, and lower inflation. Profits are expected to grow by just over 10% year on year in 2025, accelerating to mid-teens in 2026. Valuations have also improved. And while trade policy remains a risk, India’s tendency to be domestically oriented could give it some protection. 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. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 04 July 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 04 July 2025. 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 Risk market sentiment improved last week following an earlier-than-usual US jobs report that beat consensus expectations and the announcement of a US-Vietnam trade deal. The US dollar continued to weaken, while US Treasury yields rose, with the yield curve flattening. UK Gilt yields also increased during a volatile week, as fiscal concerns returned to the forefront. German Bunds outperformed with yields rising marginally after an uneventful eurozone HICP flash print. In stock markets, US equities saw broad-based rallies, while European markets rose more modestly, with the DAX declining. Japan's Nikkei 225 retreated following last week’s gains. Other Asian markets traded mixed: mainland China’s Shanghai Composite rose, whereas Hong Kong’s Hang Seng led the regional losses, driven by tech shares’ weaknesses. In commodities, oil prices rose, as did gold and copper. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/us-stocks-rally-but-what-comes-next/
