2025-11-19 07:04

Key takeaways October goods trade deficit widened significantly to USD42bn, led by a jump in gold imports. Exports to the US continued to contract while exports to other destinations also lost some momentum; services exports outpaced goods exports. At this run rate, the current account deficit could more than double in FY26; eventually, rupee depreciation may act as an automatic stabiliser. India’s goods trade deficit widened in October to USD41.7bn, an all-time high, from USD32.2bn in September. Seasonal trends indicate that the trade deficit tends to widen in October due to festive demand. After seasonally adjusting, the trade deficit stood at USD33.4bn (vs USD31.1bn in September). In detail, while both rising imports and weaker exports played a role, the former dominated. Export drag continues. Exports to the US contracted in y-o-y terms for a second consecutive month (-12% in September, and -8.6% in October). The granular breakdown will be released in a few days; however, we can get a glimpse of the tariff drag in overall export numbers. Export of gems and jewellery, leather, and chemicals contracted (in line with the trends observed in September). However, exports of exempt categories like electronics continued to rise. Exports to non-US destinations lost momentum. After rising 11% y-o-y in September, it slipped back into the red, in line with the trends observed in 1H25. Some of this could reflect the heightened competition of selling to non-US destinations as many countries try to diversify exports post tariff announcements. Another could be that India is not as well integrated into global supply chains and large aggregators, which assist in rerouting and tariff optimisation. Gold imports sting. Gold prices were up 58% y-o-y in October, the Diwali month. No surprise, the gold import bill rose to USD14.7bn (USD5bn higher than in September). Core imports (non-oil, non-gold) contracted on a sequential basis following a sharp rise last month, select categories like electronics, machinery, and machine tools grew quickly. Electronic imports, in particular, may have risen on the back of GST rate cuts. India’s services exports (USD38.5bn) outpaced goods exports (USD34.4bn) in October. After a few months of weakness, services exports bounced back (averaging cUSD37.5bn in September-October vs USD33bn in the first eight months of the year). Services trade surplus was at an all-time high of cUSD20bn. Current account deficit for 4Q25 is likely to settle close to 2.7% of GDP given the USD42bn deficit in October and assuming cUSD29bn goods deficit for November-December (a scenario where demand for precious metals fades). If the trade balance continues to average cUSD29bn in 1Q26 as well, then the full-year current account deficit may more than double to 1.4% of GDP (vs 0.6% in FY25). A potential trade deal with the US in the next few months could help offset the current drag on exports and thereby, growth. This comes at a time when a trade deal with the UK has already been struck and one with the EU is in advanced discussion. Eventually, India may also want to look east, and get further integrated into supply chains, if it wants to grow as an exporter. Meanwhile, the 10%-odd depreciation in the real trade weighted exchange rate this year, could help improve export competitiveness. https://www.hsbc.com.my/wealth/insights/market-outlook/india-economics/goods-weakness-services-strength/

2025-11-18 08:06

Key takeaways Chinese exports are proving competitive beyond just pricing with robust performance this year amid all the tariffs. Still, China wants to better balance imports and exports, in part by moving production overseas, closer to consumers. FDI is rebounding as some multinationals reassess their strategies from ‘China for China’ to ‘China for global’. China data review (October 2025) Retail sales eased slightly to 2.9% y-o-y in October as durable goods that benefited from trade-in subsidies weakened in October, despite the recent allocation of the last batch of trade-in subsidies. This was primarily owing to a much higher base from last year. In particular, auto sales were down 6.6% y-o-y and largely weighed on overall retail sales growth. Industrial Production (IP) slowed to 4.9% y-o-y in October, partly owning to a fall in exports. However, the NBS previously noted that some production was front-loaded before the eight-day long Golden Week holiday and therefore weighed on activity in October. By sector, weaker exports likely explained pullbacks in IP growth in electrical machinery and computer and communication. Fixed Asset Investment (FAI) fell 1.7% y-o-y in October, as investment in manufacturing (-6.7%), property (-23%) and infrastructure (-8.2%) faced more pressure. The domestic anti-involution campaign will likely remain a key nearterm drag weighing on investment appetite, which may come back only when investors see industry consolidation play out or profit margins notably improve. Exports contracted 1.1% y-o-y in October for the first time since February. While most of this slowdown is attributable to a high base, there may be some impact from the expansion of the US Bureau of Industry and Security 50% ownership entity rule and China’s export controls, including on rare earths shipments. Meanwhile, imports slowed to 1.0% y-o-y as high-tech products slowed, likely affected by trade tensions. CPI was up 0.2% y-o-y in October, after two consecutive months of contraction, helped by a continued improvement in core CPI (+1.2%). PPI also eased its decline, falling 2.1% but turned positive in m-o-m terms (+0.1%) for the first time since last November, partly helped by higher non-ferrous metals prices. Meanwhile, efforts to rectify irrational competition may have provided support. China’s trade playbook Strong exports, investing overseas, and FDI China’s exports grew by 5.3% y-o-y (in USD terms) in the first ten months. This resilience is supported by trade diversification and the pull effects from other economies’ front-loading purchases, generating demand for Chinese intermediate and capital goods. China’s tariff disadvantage is now less significant than anticipated, too. Meanwhile, its average export prices are declining, driven by domestic depreciation pressure and a relatively weaker RMB against non-USD currencies, such as the euro. “Made in China” goods are competitive beyond just pricing US demand for Chinese capital goods and intermediate goods has been increasingly less price sensitive over time, per US Census data. That said, we acknowledge that c67% of the lowestpriced consumer goods imported by the US originated from China in 2024, significantly surpassing China’s 32% share of US consumer goods imports. The recent 10% tariff reduction now aligns US tariffs on consumer goods from China with those from some emerging economies, which could potentially boost China’s exports to the US. Will outbound direct investment (ODI) be a viable playbook? Concern about China’s exports competitiveness is rising among trading partners. However, in the new Five-Year Plan, China pledges to balance imports and exports with more trade and investment cooperation. Will Japan’s playbook, aka stepping up ODI and localising production, work for China? A significant challenge is the stricter national security concerns over Chinese investments abroad. Nonetheless, China’s ODI has substantial growth potential. For certain trading partners, allowing direct investments by China to build factories with the aim of replacing exports could help ease tensions. An emerging trend in FDI: from "China for China" to "China for global"? Multinational corporations (MNCs) are re-evaluating their strategy in China amid trade uncertainties. Some are now pausing plans to diversify supply chains away from China while others are exploring China’s innovation capabilities to enhance their global competitiveness. Meanwhile, FDI into China has shifted to moderate inflows, with an increase in foreign funded R&D centres in China. If this trend continues, it could signify a new phase of re-globalisation. Source: China Customs, HSBC; Note: Data as of September 2025. Source: CEIC, HSBC Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 14 Nov 2025 market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/chinas-trade-playbook/

2025-11-17 12:02

Key takeaways The CHF gains amid US-Switzerland trade deal optimism. Post-government shutdown, the USD is facing economic, monetary policy, trade, and Fed leadership uncertainties. The JPY’s weakness has triggered MoF’s verbal intervention and the likelihood of an increased BoJ hike. In this fourth quarter, the CHF leads as the top-performing G10 currency, with the USD close behind. In contrast, the JPY, another “safe haven” currency, is the weakest. This disparity prompts questions about the reasons for their varied performances and the potential persistence of this trend. Note: Data as of 13 November 2025 (20:00 HKT) Source: Bloomberg, HSBC The CHF has recently strengthened due to optimism about a potential USSwitzerland trade agreement. Reports indicate that Switzerland may be close to reaching a deal that would lower its reciprocal tariff rate on exports to the US from 39% to 15% (Bloomberg, 11 November). This development is favourable for the CHF, especially given previous domestic growth concerns due to the anticipated tariff impact, which led to growth downgrades by the Swiss National Bank (SNB) and the government. While investment pledges, particularly in US gold refining, might impact the CHF, the trade deal is expected to be beneficial overall. The USD’s strong quarter-to-date performance may not persist. With the US government shutdown now resolved, upcoming data might highlight its negative impact on economic growth, potentially affecting the USD. Interestingly, US rate expectations have not declined alongside the USD; rather, the likelihood of a December rate cut by the Federal Reserve (Fed) has dropped to just below 50% (Bloomberg, 13 November). The reopening could boost equity markets, possibly weakening the USD due to increased risk appetite, although evidence remains mixed. In the end, the USD is navigating uncertainties related to economic performance, monetary policy direction, and potential risks from US trade policy and Fed leadership changes. USD-JPY has continued to rise, despite the verbal intervention from Japan’s Ministry of Finance (MoF). Japanese Finance Minister, Satsuki Katayama, highlighted recent “one-sided, rapid currency moves” and stressed the government’s vigilance against excessive and disorderly fluctuations (Bloomberg, 12 November). The MoF last intervened in July 2024 when USD-JPY exceeded 160, so if that remains the threshold for the new leadership, USD-JPY may continue to rise. A consequence of the JPY’s ongoing weakness could be an increased likelihood of a rate hike by the Bank of Japan (BoJ), with markets currently pricing a 33% chance of this occurring in December (Bloomberg, 13 November). Thus, the JPY’s weakness may be moderated by rhetoric from both the MoF and the BoJ. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/safe-haven-currencies-diverging-performance/

2025-11-14 08:05

Key takeaways Tariff-related uncertainty continues, despite the US negotiating a few deals with Asia. Pockets of inflationary pressure in the US, less so elsewhere. We still expect another US Federal Reserve rate cut in December but risks have risen. The global economic outlook continues to be dominated by uncertainty – ranging from trade-related news and the recent US government shutdown to other global and domestic geopolitical risks. Despite these headwinds, financial markets have remained robust through 2025, with a wide range of asset prices close to, or at, record highs. Trade developments Over the past few weeks, US-China trade tensions intensified and then cooled at the recent APEC summit. The US has agreed to reduce fentanyl related tariffs by 10% and remove the threatened additional 100% tariffs, while China agreed to defer rare earth export curbs introduced in October and could import soybeans once more. President Trump also signed trade deals with Korea, Malaysia and Cambodia during the trip. Meanwhile, the G7 agreed in its latest meeting to accelerate efforts across the critical mineral supply chain to reduce the risk of Chinese dominance in rare earths. Separately, the US threatened an additional 10% tariffs on Canadian imports after a Canadian advertisement quoted a line from former US President Reagan’s speech stating, “Tariffs hurt every American”. In addition, Washington imposed sanctions on two of Russia’s largest oil companies, potentially curtailing India and China’s import of Russian crude. India’s trade data are seeing some of the impact of the 50% tariffs on exports to the US taking effect, but ongoing negotiations with the US may provide some relief. Source: Macrobond Source: Macrobond Inflation risks Higher tariffs have already begun to feed into US inflation, with durable goods prices increasing. However, lower rental inflation is going in the other direction, and so the two may cancel each other out to a degree in the coming months, even if survey indicators suggest that firms are feeling the pressure of higher costs. The lack of official US data due to the recently ended shutdown means that policy setting needs to be a little more cautious. The Federal Reserve delivered another rate cut in October, primarily to help the softening labour market, and we still expect another rate cut in December, but risks have risen. Source: Macrobond Source: Macrobond Policy easing In Europe, most eurozone countries submitted their draft budget plans for 2026 to the European Commission, with the fiscal stance likely to turn expansionary. In the UK, lower-than-expected inflation has increased odds of a rate cut sooner rather than later, but we expect Bank of England to remain on hold until April 2026. Meanwhile, in mainland China, the 15th Five Year Plan unveiled an increased focus on self-reliance, with an emphasis on high quality development fuelled by technology and innovation. The slowdown in recent data, particularly on the investment side, makes the need for government support more pressing. 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/cooling-trade-tensions/

2025-11-10 12:02

Key takeaways UK economic data points to a more stable environment… …while inflation reported a lower-than-expected peak. The BoE leaves interest rates unchanged but signals further cuts are likely, though the timing is more uncertain. Source: HSBC The bar is low for good news on the UK economy and while the uncertainty around the upcoming Autumn Budget persists, the latest UK data appeared, at least, to show some stabilisation in the economy. The PMIs surprised on the upside in October, consumer confidence held at its 2025 average, and despite stagnant GDP growth in August and July, we expect the economy to have grown over 3Q as a whole. Albeit at a slower pace than in the first two quarters of 2025. On the inflation side, the expected jump in the inflation rate for September did not materialise. The headline CPI rate was unchanged at 3.8% y-o-y, the downside surprise relative to expectations was helped by broad based disinflation across the basket of goods and services. However, a lack of disinflation in restaurants and hotels, and a still elevated services inflation rate of 4.7% y-o-y in September, is a concern and may point to a more prolonged pass-through of higher labour costs. More positively, private sector pay growth has slowed and labour market data signals a further moderation. So while the outright decline in payrolled employees appears to no longer be gathering pace, various surveys continue to point to weak labour demand. A Bank of England divided The soft demand backdrop and still elevated inflation continue to put the Monetary Policy Committee (MPC) at odds on policy decisions. Bank Rate was unchanged at 4.00% in the November meeting, however, a vote split of 5-4 alongside individual commentary on each MPC member’s decisions only highlighted the uncertainty over the path of rate cuts. Such a divided committee likely leaves the Governor, with the deciding vote, given his more balanced views on the risks and outlook. The committee’s central view is that inflation peaked at 3.8% in September, and a subdued demand environment and soft labour market should see a gradual normalisation in pay growth; private sector pay grew 4.4% 3m/year to August. On the upside, inflation expectations remain elevated (Figure 3) and there is uncertainty as to their role coupled with structural changes in the labour market in future pay growth, that could prevent inflation returning to target sustainably. On the downside, interest rates remain restrictive, consumer confidence is low, and weakness in household consumption may persist. The BoE noted that such a scenario could see inflation fall quicker than expected. Then there is the looming Autumn Budget and expected fiscal tightening, a risk yet to be accounted for by the BoE. Source: Macrobond, S&P Global, HSBC calculations Source: Macrobond, ONS, HSBC Source: Macrobond, BoE, YouGov, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/some-better-news-from-a-low-base/

2025-11-10 07:04

Key takeaways The BoE narrowly kept the Bank Rate unchanged at 4.00%, but with a 5-4 vote. New look guidance suggests that Andrew Bailey’s vote will be key in determining the timing of the next move. December is a close call, but our new central case is for a resumption of the easing cycle in February (previously: April). The Bank of England (BoE)’s Monetary Policy Committee (MPC) has kept the Bank Rate on hold at 4.00%. This is the first time it has not cut rates at a quarterly Monetary Policy Report (MPR) meeting since May 2024, marking a pause in the easing cycle. However, if August was a hawkish cut, today was a dovish hold. For the GBP, the Bank of England’s dovish 5-4 hold is mildly bearish near term given the consensus was for a 6-3 vote. Over the next few weeks, unemployment and inflation prints on 11 and 19 November will likely have an impact. Ultimately, however, the Autumn Budget is likely to prove the key factor for GBP in the coming weeks. The dovish hold likely limits the upside for GBP over the near term, as it means the market thinks a December rate cut remains a possibility. GBP-USD has come under pressure in recent weeks given broad USD strength, along with speculation ahead of the UK’s Autumn Budget. A surprise rise in the August unemployment rate to 4.8% and slower-than-expected CPI which fell short of the BoE’s peak forecast of 4.0% in September also added to more dovish bets with the front end of the UK yield curve repricing the terminal rate down to 3.35% ahead of Thursday’s meeting. Data over the coming weeks will provide more evidence of the UK’s disinflationary path. Markets will also look for clues in speeches by BoE chief economists in November. Source: BoE, HSBC forecasts The Budget, however, will likely prove the determining factor. Last year’s Budget proved inflationary but this year’s statement could hamper already fragile growth. The Budget holds three potential risks for GBP (1) the government must convince markets it can stick to fiscal rules; (2) the impact on growth from likely tax hikes; and (3) the inflationary impact of any potential fiscal measures. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/bank-of-england-on-hold-gbp-implications/