2025-06-16 07:04

Key takeaways The Fed is widely expected to leave the funds rate unchanged at its meeting this week. What Chair Powell says and how the Fed factors US import tariffs into its updated forecasts will be the focus. US technology dominates the artificial intelligence revolution. But recent advances by Chinese AI firm DeepSeek have shown China to be a serious competitor. Asia’s investment in renewable energy is slowing as its governments struggle to balance decarbonisation objectives with delivering reliable and more affordable power sources. A scarcity of traditional funding options is adding to the headache. Chart of the week – EM central banks in easing mode Recently, the Reserve Bank of India (RBI) delivered front-loaded policy easing with a surprise 0.50% rate cut and liquidity easing through lower reserve requirements. Falling inflation and a broadly dollar-bearish backdrop have opened the door for the RBI to deliver bold moves this year – with a quick, cumulative 1% rate cut, substantial liquidity infusions, and multiple relaxations of macro-prudent measures. Big moves like this aim to speed up policy transmission through the banking sector and boost credit growth, helping to bolster consumer spending and capital investment. The measures are likely to support local stocks too, especially in rate-sensitive sectors like real estate and some financials. It comes as Indian equities have been under pressure this year amid heightened global policy risks. They’re also likely to lead to further spread compression on rupee-denominated corporate and supranational bonds, which offer attractive spreads over Indian government bonds. But this isn’t just an India story. A number of emerging market central banks have taken decisive policy action recently – as the US Fed continues to hold. Among them have been Mexico, Indonesia, Poland, South Africa, and Egypt. In some cases, countries have been able to act because their fiscal outlooks are improving. But the critical factor has been the weaker dollar, as investors reassess its status as a global safe haven. A weaker dollar is an obvious EM positive. It typically eases dollar debt servicing, helps trade, supports capital flows, and boosts returns in stocks and local currency bonds. With many EM economies transforming their macro structures since the “fragile five” phase a decade ago, and amid faltering confidence in American exceptionalism, no wonder investors are paying more attention. Market Spotlight Trading places Over the past decade, emerging market economies – especially in Asia and Latin America – have enjoyed closer integration when it comes to regional trade and banking. The result has been better growth, access to alternative sources of credit, and less volatile government spending. But this closer regional EM integration has come at a time of rising geopolitical tensions that have led to more fragmentation at a global level. This rewiring of global trade linkages is the focus of a new bulletin by the Bank of International Settlements. The BIS research explores how, prior to the 2010s, global trade expanded faster than GDP, but then slowed as geopolitical wrangling intensified. Meanwhile, integration in global banking fell sharply after the financial crisis and didn’t recover much afterwards. But at a regional level, trade and banking integration have continued to progress in emerging Asia and LatAm. According to the BIS authors, these trends – and the economic drivers behind them – have the potential to act as a buffer against geopolitical shocks that lead to global fragmentation. Their encouraging conclusion is that the reinforcing nature of trade and banking means that deeper regional integration in EMs – and the better growth and regional stability that comes with it – is likely to develop. 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 13 June 2025. Lens on… Taking the summer off The Fed is widely expected to leave the funds rate unchanged at its meeting this week. What Chair Powell says and how the Fed factors US import tariffs into its updated forecasts will be the focus. In March, the Fed expected 1.7% yoy growth in Q425 with core PCE inflation at 2.8%. The current Bloomberg consensus figures are 0.9% and 3.3% respectively, giving some sense of how the Fed’s numbers could change. The March “dot plot” implied two rate cuts in 2025, in line with current market pricing, which suggests investors have interpreted higher expected inflation and lower expected growth as broadly offsetting. The latest data don’t argue for the Fed to guide market rate expectations in one direction or the other. Activity and survey data have been mixed. The labour market is cooling gradually but remains resilient. Importantly, March, April, and May inflation data have been softer than expected, implying that, absent tariffs, underlying price pressures are reasonably well contained. Modest policy easing later in 2025 appears appropriate. One catch is that a data-dependent Fed risks intensifying the sensitivity of the macro system to news, which could spur US market volatility. Artificial intelligence, real profits US technology dominates the artificial intelligence revolution. But recent advances by Chinese AI firm DeepSeek have shown China to be a serious competitor. A new research by some Equity Research teams finds that while the US is still likely to lead on AI innovation – driven by Silicon Valley start-ups and Magnificent 7 mega-caps – China could lead globally in engineering optimisation, production, and widespread commercialisation. With AI reasoning models now able to reach potentially billions of users, some investment specialists believe the AI race is no longer just about who builds the smartest machine, but who gets it to consumers at the lowest cost. And for investors, there are several implications. One is that software firms will probably lead the next stage of the AI investment cycle, as they work to get AI apps into the hands of users. Second, the influence of DeepSeek is likely to give emerging Asia inherent advantages in monetising AI tech, and that will attract increasing investor attention. As the cost of AI compute falls, the impact should be seen in a broadening-out of profits growth to emerging Asia and beyond – as the profits edge enjoyed by US tech over the past decade erodes. Energising Asia Asia’s investment in renewable energy is slowing as its governments struggle to balance decarbonisation objectives with delivering reliable and more affordable power sources. A scarcity of traditional funding options is adding to the headache. In the past, infrastructure has been dominated by large country-scale projects. But the current energy transition requires more localised investments, typically ranging from USD40 million to USD250 million. This shift has created a gap, because banks are geared towards larger deals. But the good news is that private credit, which is well-suited to renewable energy infrastructure because of its flexibility, is proving a successful alternative. Microgrids across the Philippines – combining solar panels, battery storage, and smart distribution tech – are a good example of successful privately-financed energy projects. With private credit delivering superior returns to both credits and stocks over time, and interest rates and inflation expected to remain high compared to historical levels, investor appetite for these kinds of cash-flow-generating assets with inflation protection is likely to persist. 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 13 June 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 13 June 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 struggled to make headway as investors weighed the outcome of the latest US-China trade negotiations, US inflation data, and geopolitical concerns. Oil and gold prices climbed, while the US dollar weakened further against major currencies. Core government bonds found support from tame CPI data and a solid 30-year Treasury debt auction. In equity markets, US stocks rose but EU-US trade tensions weighed on the Euro Stoxx 50, with the DAX the main casualty. Japan’s Nikkei 225 was little changed ahead of the BoJ meeting. South Korea’s Kospi led Asian markets, building on post-election gains, whereas India’s Sensex and China’s Shanghai Composite fell. In Latin America, Brazil’s Bovespa index rebounded after recent declines. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/em-central-banks-in-easing-mode/

2025-06-16 07:04

Key takeaways We expect the Bank of England’s Monetary Policy Committee to keep Bank Rate on hold at 4.25% on 19 June. However, weak wage data and next week’s inflation print may allow for an interest rate cut in August. We see downside risk for GBP-USD ahead but broad USD weakness could limit the impact. On 19 June, the Bank of England (BoE) will announce its latest rate decision and publish its monetary policy minutes and statement: HSBC economists expect the Committee to keep Bank Rate on hold at 4.25%. The guidance was unchanged in May, and is likely to remain unchanged in June, namely that “monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further”. The bigger question is what happens at the next meeting, on 7 August. Although the Committee cut interest rates by 25bp in May, the meeting minutes suggested that they were not far off voting for a hold: two members voted for this, with three more saying they might have done so were it not for the global trade situation. Arguments in favour of a hold are that financial volatility has receded, the UK has struck three recent trade agreements (with the US, the EU, and India) and 1Q GDP was decent, at 0.7% q-o-q. On top of that, and perhaps more importantly, the April inflation number surprised on the upside. The headline print of 3.5% was 0.1ppt above the BoE’s forecast, while the services print of 5.4% was 0.4ppts higher. However, April’s labour market report, closely watched by the BoE for signs of domestic inflation, showed private sector wages slowing to 5.1% y-o-y in April (vs consensus of 5.3% and from 5.5% in March), the slowest pace since February 2022. The unemployment rate also ticked higher to 4.6%, from 4.5%. Meanwhile, April’s GDP fell 0.3% m-o-m, more than consensus of -0.1% and down from 0.2% previously. Before voting next week, the Committee will see May’s inflation print. We think the data is unlikely to sway June’s decision to keep rates on hold, but it may set the tone for a close call in August. Our base case is that the wage data and next week’s inflation print will allow for an August cut, but like the rest of the market, we will be watching keenly for clues in the language next week. Given our forecast for the BoE to cut interest rates to a terminal level of 3.0% by 2Q26, compared to 3.51% priced by the market, we think further job market weakness in the coming months could lead the market to price in more cuts. If this happens, GBP would likely struggle vs both USD and EUR. However, given that trust issues and the de-dollarisation theme continue to undermine the USD, downside GBP-USD moves may prove somewhat more limited. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/gbp-downside-from-labour-market-weakness/

2025-06-10 08:05

Key takeaways Progress on trade deals calmed the tumbling survey data in May, but the hard data may be starting to soften… …at a time when fiscal concerns have revived and the future course of US import tariffs hinges on the courts of appeal… …adding to challenges for businesses and monetary policy. US trade and fiscal policy has dominated the global narrative over the past month. Progress on framework trade deals with the UK and, more importantly, China, following on from the 90-day pause on the highest reciprocal tariffs announced on 9 April, calmed some of the fears about worst case scenarios on US tariffs. This, in turn, helped revive equity markets, while the May business and consumer confidence survey data stabilised or improved after the dismal April readings. Source: Macrobond Source: Macrobond Tariff challenges Trade uncertainty still reigns though, following the US Court of International Trade (CIT) ruling that the US President had overstepped his authority by imposing reciprocal tariffs globally using the International Emergency Economic Powers Act (IEEPA). While the US administration immediately lodged an appeal and won a temporary ‘stay’ on the CIT’s order to remove the IEEPA tariffs, US importers and consumers, as well as foreign exporters, cannot know whether some tariffs will be sustained or cancelled after the appeal, or even increased post 9 July. Debt concerns If there is a loss of tariff revenues, which rose in April, it will have no direct implications for the so-called Big Beautiful Bill (BBB) Act as there was no explicit connection to tariff revenues in the Republican budget reconciliation package now in the Senate. However, the latter was already a major factor in Moody’s May downgrade of the US sovereign credit rating which coincided with heightened market concerns over the hefty budget deficit and much higher debt projections implied by the BBB. The US 10-year yield hit 4.6% and the 30-year hit 5%, keeping US mortgage rates high. Divergent data Yields have now edged lower again amid a few signs that the hard US data, which have generally still been more resilient than surveys, may finally be softening a touch. Non-farm payrolls increased at a slightly slower pace in May, while unemployment remained unchanged at 4.2%. Although layoffs in the US remain low, the rate of hiring has slowed. In Europe and in parts of Asia Q1 GDP was stronger than expected, helped by frontloading ahead of tariffs, but Q2 industrial data are mostly showing signs of softening. Source: Macrobond Source: Macrobond. Falling inflation US inflation releases for April were lower, but the Federal Reserve will remain wary of inflation expectations as tariff effects feed through: early signs of rising input cost were evident in the US manufacturing and services PMI/ISM data and May wage data were higher. Eurozone inflation fell below 2% in May as Easter effects unwound and lower energy prices and a stronger euro should mean it falls further, even if global food prices (dairy and meat) continue to edge higher. The European Central Bank (ECB) is in a good place after cutting interest rates to 2%, which could prove to be the last cut of the cycle, but we still see disinflationary effects against a backdrop of already low inflation driving policy rates lower across Asia, except Japan. 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/ongoing-trade-and-debt-uncertainties/

2025-06-09 12:01

Key takeaways The Reserve Bank of India (RBI) surprised the markets by delivering a larger-than-expected 0.50% rate cut in its June MPC meeting. However, the central bank changed the monetary policy stance to “neutral” from “accommodative” previously. The RBI also reduced the Cash Reserve Ratio (CRR) for banks by 1% to 3%. In our assessment, the RBI’s larger-than-expected rate cut was done to front-load the rate cuts rather than being an indication of sharp downside risks to growth. We now expect the RBI to remain on hold in the August and October meetings, before delivering a 0.25% cut in December MPC meeting to take the benchmark rate to 5.25%. We retain our overweight stance on Indian equities and favour large-cap stocks as we believe they are better positioned to navigate the uncertain environment. Given the elevated global uncertainty, we like more domestically-oriented sectors and favour financials, healthcare and industrials. We are bullish on Indian local currency bonds and expect 10-year government bond yields to edge lower by end-2025. What happened? In the Monetary Policy Committee (MPC) meeting on 6th June 2025, the Reserve Bank of India (RBI) surprised the markets by delivering a larger-than-expected 0.50% rate cut. In the lead-up to the meeting, most of the economist surveys by Bloomberg were expecting a 0.25% rate cut by the RBI. Five out of the six MPC members voted for a 0.50% rate cut. However, the central bank changed the monetary policy stance to “neutral” from “accommodative”. The RBI Governor Malhotra highlighted that the shift in the monetary policy stance means that the future policy direction would be largely data dependent. In addition to the jumbo 0.50% rate cut, the RBI also reduced the Cash Reserve Ratio (CRR) for banks by 1% to 3%. The 1% cut will be enacted in a staggered manner with 0.25% cuts each fortnight starting from 6th September. The RBI highlighted that this measure should release approximately INR 2.5tn (USD29.1bn) liquidity in the Indian financial system by November 2025. The RBI lowered Indian repo rate to 5.50%, the lowest since 2022 Source: Bloomberg, HSBC Global Private Banking and Premier Wealth as of 6 June 2025. Past performance is not a reliable indicator of future performance. The RBI kept its FY26 (April 2025-Mar 2026) GDP growth forecast unchanged at 6.5%. RBI Governor Malhotra highlighted that amid global uncertainties, Indian economy was a picture of strength and stability. Private consumption is expected to remain healthy with a gradual rise in discretionary spending and a pick-up in rural demand, due to a good monsoon season. Governor Malhotra also mentioned that while India has agreed on a trade deal with the UK and is negotiating with other countries, the central bank remains vigilant against downside growth risks due to geopolitical tensions. RBI Governor Malhotra also highlighted that the outlook for food inflation had softened while the core inflation outlook remained benign. As a result, the RBI lowered its FY26 inflation projection to 3.7% from 4.0% previously. Governor Malhotra also said that the battle against inflation, which has declined to a six-year low, had been won and indicated that the central bank would increase its focus on supporting growth. In our assessment, RBI’s larger-than-expected rate cut was done to front-load the rate cuts rather than being an indication of sharp downside risks to growth. The change in monetary policy stance to “neutral” and the RBI governor’s comments suggest that this was done to ensure a minimal time lag in the transmission of monetary easing to the real economy. Investment implications We now expect the RBI to remain on hold in the August and October meetings, before delivering a 0.25% cut in December MPC meeting to take the benchmark rate to 5.25%. RBI’s monetary policy decision was viewed positively by the equity markets, which rose sharply following the announcement. Easier monetary policy to boost growth is generally supportive for the broader market. In particular, the 0.50% rate cut and the lowering of CRR are positive for banks, real estate and the consumer discretionary sector. 10-year government bond yields declined initially before edging 2-3bps higher at the time of writing, while USD/INR was largely unchanged. We retain our overweight stance on Indian equities, as most of the fundamentals and technical factors remain supportive. India’s headline CPI inflation declined to the lowest level in nearly 6 years Source: Bloomberg, HSBC Global Private Banking and Premier Wealth as of 6 June 2025. Past performance is not a reliable indicator of future performance. From a fundamental perspective, in addition to the tailwind from robust GDP growth, we see (i) potential signs of stabilisation in the earnings trajectory, with expectations of double-digit earnings growth and (ii) a healthy Return on Equity (RoE) of around 15% offsetting the concerns about valuations. From a technical perspective, the resilience of domestic investors, which was a big unknown, is viewed as a big positive. Also, there are visible signs of the return of foreign investor inflows and from a seasonal perspective, June – September has historically been a strong period for Indian equities. We favour large-cap stocks over the small- and mid-cap stocks. Large caps continue to trade at a sizeable discount and their larger size makes them more defensive should market volatility spike again. Given the still-elevated global uncertainty, we prefer domestically-oriented sectors, with a greater exposure to the Indian consumption story. We continue to favour the financials, healthcare and industrials sectors. We are bullish on Indian local currency bonds and expect them to outperform cash in 2025. We expect 10-year government bond yields to edge lower by end-2025. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/rbi-delivers-a-surprise-cut/

2025-06-09 07:04

Key takeaways Emerging market stocks have performed well in 2025, with most outpacing the US, and a few – like Latin America, China, and South Korea – delivering strong double-digit returns. Current optimism for Chinese technology stocks could not be more different to the bearishness of 2022. Back then, tech firms were under scrutiny from regulators, and even faced the threat of US delisting. High real yields and a weaker US dollar are providing a strong setting for emerging market local currency debt this year. But there are also important structural changes boosting investor confidence – with South Africa a good example. Chart of the week – Proactive ECB versus hamstrung Fed Eurozone core inflation hit its lowest level since January 2022 last week, dropping to 2.3%, and the disinflation trend looks set to continue. US tariffs are a negative demand shock for the eurozone, which will help keep prices in check. In addition, lower oil and gas prices, a stronger euro, and the possibility of more Chinese goods being diverted from the US to Europe all point to moderating inflation pressures. This leaves the ECB in an enviable position of being able to lean against downside growth risks by cutting rates, as it did for the eighth time this cycle at its June meeting. Meanwhile, the Federal Reserve is in a trickier position. For the US, tariffs are a supply shock that could keep inflation well above target until mid-2026. And a weaker USD adds to price pressures. So, the Fed is likely to remain cautious on policy easing unless growth deteriorates sharply. But any growth hiccup could raise further questions about US fiscal sustainability, given it would mean even wider deficits and more rapid accumulation of debt. In such a scenario, while the Fed may decide to cut rates aggressively, longer-term yields could prove sticky, with US stocks remaining volatile. By contrast, ECB rate cuts and Germany’s improving fiscal position – with a relaxation of its “debt brake” a potential game-changer for structural growth – mean that Bunds could perform well in a downside scenario. We think these “policy puts” can provide a powerful catalyst to unlock value in many European stock markets on a longer-term basis. Duration in core eurozone bonds also looks like an attractive option for multi-asset investors looking for “safety substitutes” just as the haven attributes of US Treasuries are under question. Market Spotlight Currency conundrum In global portfolios, investors face a conundrum when it comes to the unintended or unrewarded risks of dealing with multiple currencies. And despite this being an obvious potential hazard when investing across international markets, there’s no unified approach to it. Some of the simplest workarounds involve limiting currency exposure by either staying heavily invested in a home market or by fully hedging all foreign currencies. But the research shows both strategies can damage risk-adjusted returns and miss the diversification benefits of having specific currency exposures. Some research studies find that it could be preferable for investors to consider a long-term hedging strategy alongside a more active approach to currency management using ‘dynamic currency overlays’. These overlay strategies can be guided using signals that capture risk premia like carry, value, and momentum, and which have been shown to be effective at generating excess returns historically. But portfolio risk constraints can be a limiting factor – so investors need to think carefully about how to apply these strategies to maximise returns. 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 09 June 2025. Lens on… Emerging differences Emerging market stocks have performed well in 2025, with most outpacing the US, and a few – like Latin America, China, and South Korea – delivering strong double-digit returns. Key to that has been sustained weakness in the US dollar – which tends to boost EM economies – and a broadening of attention from the US to EAFE markets. Yet, despite robust overall returns, performance dispersion across EMs continues to be wide. That’s down to a range of local idiosyncrasies, structural stories, and, more recently, the sensitivity of economies to tariffs. Differing returns between China and India are a case in point. Indian equities got off to a subdued start this year, with the economy facing cyclical headwinds, but have rallied in Q2. But Chinese stocks have done even better amid excitement around tech (see next story), strong profits growth, and a sense that authorities retain a policy put. The increasing shift to a multi-polar world will lead to more divergence like this, with historical country correlations being disrupted. Investors should pay close attention to local drivers and catalysts to capture genuine diversification upside in EMs. Terrific tech Current optimism for Chinese technology stocks could not be more different to the bearishness of 2022. Back then, tech firms were under scrutiny from regulators, and even faced the threat of US delisting. Since then, there has been a shift in policy tone, with China’s government emphasising “new quality productive forces”, encouraging high-quality developments, sci-tech innovation, and self-sufficiency in advanced technologies. A macro recovery since 2023, supported by policy stimulus, has also helped. So too has been the major reassessment of China’s ability to innovate at a relatively low cost following advancements by AI firm, DeepSeek. It now appears that Chinese firms could accelerate AI development in areas where homegrown tech is already first class, such as humanoid robots, electric vehicles, and biotech applications. Chinese tech stocks have driven performance in the offshore market this year. With the Q1 reporting season nearly over, profits growth has been strong – led by internet companies and e-platforms – and AI adoption is growing. With Chinese stocks trading at a discount to global peers, technology – and AI in particular – could be a re-rating catalyst, just as the moat around US tech appears to be shrinking. Rand designs High real yields and a weaker US dollar are providing a strong setting for emerging market local currency debt this year. But there are also important structural changes boosting investor confidence – with South Africa a good example. Its government is embarking on reforms to modernise and transform network industries and boost productivity. The economy runs a modest current-account deficit and recorded its first surplus in two decades in 2021-22. On the fiscal front, its recent budget highlighted a commitment to stabilising debt. The premium that South African government rand-denominated bonds pay over equivalent-maturity swaps, a well-known measure of fiscal risk, remains high relative to IMF budget projections. If those expectations are accurate, it implies a favourable fiscal outlook where yields should gradually decline. Meanwhile, the South African Reserve Bank has been conservative in easing policy, which has kept bond yields high, but inflation has stabilised below the central bank’s 3-6% target range. This paves the way for more rate cuts, and makes it easier to move to a single point target at 3%. This could help anchor inflation expectations and create more stable inflation. 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 09 June 2025 Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 09 June 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 Positive risk sentiment prevailed last week despite lingering US-China trade tensions. The OECD downgraded global growth projections, warning that agreements to ease trade barriers would be “instrumental” in reviving investment. In the US, the dollar weakened against a basket of major currencies, while government bonds firmed on signs of weakness in “soft data”. In the eurozone, the ECB lowered rates by 0.25% to a “neutral level”, with ECB president Lagarde signalling a summer pause in the easing cycle. US and European IG and HY credits consolidated. In stocks, US equities built on recent gains, led by “Magnificent 7” tech giants. European stocks also rose. Japan’s Nikkei 225 traded sideways as JGBs stabilised. EM Asian equity markets moved broadly higher, but Latin American stock markets were weaker. In commodities, oil prices and gold both climbed. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/proactive-ecb-versus-hamstrung-fed/

2025-06-04 12:02

Key takeaways Labour market weakness continued at pace in April, but perhaps a tentative sign of improvement in May. Retail sales demand has picked up, but is yet to see a translation into broader consumption. Higher than expected inflation complicates both monetary and fiscal policy. Source: HSBC Finding signals through the fog It’s been a period of conflicting economic data releases for the UK economy, in part a reflection of the data being for the months either side and including April, which saw a lot of volatility and could prove a key inflection point for the UK economy. On the one hand, labour market indicators for April continued to show weakness in labour demand. PAYE employment fell 33k and, while that number will likely be revised, nearly every sector has reported a decline in vacancies since the start of the year (chart 1). Moreover, surveys pointed to a faster pace of headcount reductions and weaker demand for labour. And, although the labour market has been softening since 2022, the higher unit labour costs associated with a sharp rise in the national living wage and employer national insurance contributions hike provided further impetus. However, those factors came into effect in April and the PMI employment index was marginally improved in May, so labour market sentiment may, at least, be stabilising. Despite weaker employment prospects, retail sales reported a fourth consecutive month of growth in April and a 5.0% rise y-o-y, its strongest pace of growth in three years. Some caution is needed in taking strong signals from retail sales as overall household consumption growth has struggled to find a footing amid continued rate pass through and cost of living increases. However, the upward trend in retail sales demand is in full swing (chart 2), forward-looking components of consumer confidence saw decent gains in May, and net household deposit growth has continued to slow to more historically normal rates. Inflation surprises make for policy conundrum A plethora of known price rises in April and some surprise underlying price growth saw headline inflation accelerate to 3.5% y-o-y. More concerningly, services price inflation jumped to 5.4% y-o-y, higher than the BoE had forecast. Combined with still elevated wage growth, initial estimates from PAYE data point to wage growth of 6.4% y-o-y in April, which means greater uncertainty over the future path for rate cuts. Indeed, financial markets have pulled back expectations on rate cuts this year (chart 3). Longer-dated government bond yields have also continued to rise amid global uncertainty and a large risk premium associated with fiscal policy. That raises the risk of lower fiscal headroom in the autumn and a ‘doom loop’ for fiscal policy. Source: Macrobond, ONS, HSBC Source: Macrobond, ONS, HSBC Source: Bloomberg, HSBC forecasts https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/finding-signals-through-the-fog/