2025-01-13 08:05

Key takeaways Gold is likely to remain well supported in 2025 on a cocktail of fiscal, geopolitical, and trade risks. Central banks’ demand are also likely to remain strong, but a maturing rate-cutting cycle may be less supportive for gold. Gold rallies may also be curbed by positive US real rates and a firm USD, alongside physical market dynamics. Gold prices hit a record high of USD2,790 per ounce in October 2024, and remain over USD2,600 per ounce at the moment. Over the near- to medium-term, the uncertainty surrounding the policies of the incoming US administration, in particular trade policies, could boost gold prices. Geopolitical risks could sustain gold prices at historically high levels. Growing concerns over mounting fiscal deficits may keep gold prices at higher levels than would otherwise be the case. Global public debt would exceed USD100trn or c93% of global GDP by the end of 2024 and will approach 100% of GDP by 2030, according to the International Monetary Fund’s biannual publication “Fiscal Monitor” released on 23 October 2024. However, our precious metals analyst thinks that there is a limit to how far gold prices may go. Monetary policy, while currently supportive, may be less of a bullish input for gold as the monetary cycle progresses. In the US, gradual declines in inflation are still likely to leave real rates strongly positive, even in the light of rate cuts by the Federal Reserve. In our precious metals analyst’s view, the relationship between US real rates and gold may be restored (Chart 1). In other words, US real rates are likely to weigh on gold prices eventually. Gold prices and the USD generally move inversely to each other (Chart 2). We expect the broad USD to strengthen further in 2025 (FX Viewpoint: USD on a firm footing (3 January 2025)), which may curb gold rallies. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, gold may face headwinds from rising supply and weaker physical demand, in our precious metals analyst’s opinion. High gold prices are encouraging more gold mining output and additional recycling supply, while gold miners are facing mounting challenges (like environmental and regulatory constraints, and higher production costs). In the face of high gold prices, demand for gold jewellery and gold coins & bars may become weaker. Central bank demand is also set to moderate especially when gold prices rally past USD2,800 per ounce; however, purchases may increase should gold prices correct. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2025-01-13/

2025-01-13 07:04

Key takeaways US 10-year US Treasury (UST) yields continued to push higher last week, extending an upward trend that began shortly after the Fed’s first rate cut in September. Japanese stocks underperformed global peers in dollar terms in Q4 2024. Potential changes in US trade policy, plus the strength of US stocks and the dollar influenced the performance. Chinese stocks delivered double-digit gains in 2024, with the market outperforming major regional neighbours like India and South Korea. That was largely driven by a leap in valuations after a fresh round of economic and market stimulus measures last September. Chart of the week – China beats India in 2024 In 2024, central banks cut rates, fiscal policy remained active, and growth stayed resilient. Many assets – especially stocks and precious metals – did very well. Geopolitics mattered a lot for the market narrative. But (apart from gold), it’s hard to see much evidence of it in 2024 investment market returns. Megatrends were important in 2024. The AI theme powered growth stocks to outperform value. And the prospect of tax cuts and deregulation turbo-charged investor confidence in US stocks (so called “US exceptionalism”). That all meant that the US market outperformed Europe massively – by more than 20 percentage points in dollar terms. And bonds put in a decent performance in 2024, unless you were invested in Brazil or Japan. Even so, stocks outperformed Treasuries and other core fixed income assets in 2024 because the macro backdrop of no recession, rate cuts, and profits resilience was simply more equity-friendly. Likewise in emerging markets. Bonds performed reasonably well – with India bonds a highlight. But EM stocks outperformed EM bonds, and the performance of Chinese stocks (outperforming India) was noteworthy (see Page 2). From here, the uncertain macro backdrop looks set to persist in 2025. That’s likely to translate to periods of elevated volatility in markets and calls on investors to do their homework when it comes to asset allocation. Market Spotlight Questions for 2025 In an unusually uncertain macro environment, making forecasts for the year ahead is even tougher than normal. But here are some of the key macro questions we think will feature heavily in investors’ minds in 2025… A key question, of course, is which way the narrative on Fed rates will swing next. Could markets even price a Fed hike? And what would that mean for Treasuries, the dollar, and risk assets? Likewise, how will rising policy and geopolitical uncertainty impact trade, global growth, inflation, and investor risk appetite in 2025? With yields rallying at the long end, and signs of term premium rising too, could “bond market vigilantes” play an influential role in disciplining policy makers this year? And can US exceptionalism keep on going? Will US consumers keep on spending? Can 2024’s market megatrends, like AI, keep on performing? There could be scope for global stock market performance to finally broaden out in 2025, boosting the broader US, European, and Japanese markets. And further policy support in China could be a catalyst to close the valuation discount in Chinese, Asian, and Frontier stocks. There’s certainly plenty for economists and investors to think about at the start of 2025. 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. 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. Diversification does not ensure a profit or protect against loss. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 10 January 2025. Lens on… Rising yields US 10-year US Treasury (UST) yields continued to push higher last week, extending an upward trend that began shortly after the Fed’s first rate cut in September. This defies the textbook crunch lower in yields that usually occurs after the Fed starts to lower rates. Structural, rather than cyclical, factors appear to be driving the sell-off. Activity data have been in line with expectations and the latest core PCE inflation number was on the low side. To some analysts, the move reflects a mix of markets pricing in a higher neutral policy rate, given the resilience of growth; and increasing concerns about US government debt dynamics. The base case is that some moderation in US growth and inflation allow the Fed to ease 0.50%-1.00% in 2025, limiting the scope for a significant further sell-off in USTs. However, the situation warrants close attention. As well as weighing on growth prospects and raising financial stability risks, rising UST yields can create problems in other markets. For example, since early December, the equal-weighted S&P 500 is significantly down, while longer-dated UK gilts have underperformed USTs, reflecting the UK’s stretched fiscal position and weak growth. Japanese value Japanese stocks underperformed global peers in dollar terms in Q4 2024. Potential changes in US trade policy, plus the strength of US stocks and the dollar influenced the performance. Domestic forces were also at play, with uncertainty over the timing of Bank of Japan rate hikes. Yet, the outlook for Japanese stocks is potentially positive for three reasons. First is that Japan continues to shift from prolonged disinflation to reflation, with consensus nominal GDP rising to 3.3% this year. Second, initiatives to boost corporate governance continue, with firms hiking shareholder payouts (dividends and buybacks), leading to fitter balance sheets and higher return on equity (ROE). Third, Japanese valuations have not kept pace. Not only have price-to-book values lagged the broad rise in ROE, but there has also been a substantial pick-up in dividend yields, which are up by close to 80% over the past decade on a relative basis. During the same period, 12m forward relative price-earnings (PE) ratios have also declined, leaving Japanese stocks trading at 14.5x versus the world on 18x. That could offer a compelling entry point for investors. China caution Chinese stocks delivered double-digit gains in 2024, with the market outperforming major regional neighbours like India and South Korea. That was largely driven by a leap in valuations after a fresh round of economic and market stimulus measures last September. Yet, Chinese markets have been weak of late. Investors are fretting over headwinds ranging from lacklustre domestic demand and geopolitical risks to the strong US dollar and the prospect of tariffs. There is also uncertainty over the timing and scope of further domestic policy support. On that front, parliamentary sessions in early March could see details on the 2025 growth and fiscal deficit target, the annual bond issuance quota, and other economic and social targets. Officials have already set a pro-growth policy tone for 2025. More demand-side stimulus, further efforts to stabilise the property sector, and structural reforms to rebalance the economy could support the growth outlook. For investors, Chinese stocks continue to trade at a discount despite analysts being optimistic on the profits outlook. Any positive news following the March meetings could boost sentiment and foreign inflows. 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. 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. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. Diversification does not ensure a profit or protect against loss. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 7.30am UK time 10 January 2025. Key Events and Data Releases This week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 10 January 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. Market review A widespread sell-off in core government bonds stifled risk markets amid ongoing uncertainty over US trade policy and the rate outlook. The US dollar continued to strengthen against major currencies. Gilts lagged behind Treasuries and Bunds due to rising UK fiscal concerns, with poor investor demand for the latest 30-year Gilt auction. US equities struggled to make headway ahead of the Q4 2024 earnings season. Europe’s Stoxx 50 index began the year on a positive note, but Japan’s Nikkei 225 tracked US stocks lower. In other Asian markets, Hong Kong’s Hang Seng fell, led by losses in some tech heavyweights on lingering worries over geopolitical tensions. Mainland China’s Shanghai Composite also slid, and earnings worries put pressure on India’s Sensex. Korea’s Kospi index bucked the trend, aided by stronger tech shares. In commodities, gold and copper advanced, while oil remained firm. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/2025-01-13/

2025-01-09 12:02

Key takeaways As we step into 2025, the short-term outlook remains uncertain… …in terms of trade, inflation, growth, and policy choices… …and so we highlight the key data to track as the year progresses. Despite a myriad of challenges, the global economy performed better than we may have expected in 2024 – a year marked by multiple elections, elevated interest rates and geopolitical uncertainty. Inflation moderated at a decent pace over the year – sufficiently to allow most central banks to begin their easing cycles. 2025 looks set to be a year of enormous uncertainty again. This time, surrounding president-elect Trump’s second term and the path of US policy that could influence so many corners of the global economy, from the strength of US demand and global trade flows to how much more easing is delivered by the Federal Reserve. Trade risks Trade policy will be key. There is clearly a lot of uncertainty around how Trump’s tariff announcements will translate to policy – especially around what rates will actually be levied, how and the timing. The question is whether trade can continue to be an engine of growth for key economies around the world. Global goods trade seems to be holding up for now, but the risks are firmly tilted to the downside. Source: Macrobond Source: Peterson Institute for International Economics (PIIE) Europe’s growth challenges Another question mark hangs over Europe after a year of political change and weak growth. Indeed, the region’s composite PMI remained in contraction in December, highlighting continued weakness in manufacturing, particularly in France and Germany, however services returned to growth. We expect the European Central Bank to continue their gradual pace of easing this year, with another three 25bp cuts at the January, March and April meetings. Source: Macrobond Source: Macrobond Inflationary battles On the inflation front, despite the progress in 2024, the war against inflation isn’t quite over. There are pockets of price pressures in different parts of the world, such as US rental inflation, that are hanging around making some central bankers nervous about their easing plans. However, with some core goods and food prices rising again we could see strains in terms of household incomes that hold back consumer demand. Source: Macrobond Source: Macrobond Finally, there are plenty of questions over the direction of policy across the world (not just in the US) in a year following big electoral change. Will governments be able to deliver their promises to voters in a world of elevated debt and growing bills to pay? All in all, it looks set to be another highly unpredictable year, and tracking the right data will be crucial to guide us all through it. 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/2025-01/

2025-01-07 07:05

Key takeaways While the Fed cut rates as widely expected, they expect inflation to remain above 2% in 2025, indicating a less aggressive easing cycle with just two cuts this year. We forecast three cuts with a total of 0.75%. On the growth front though, fiscal stimulus and improved optimism are positives for US equities. Backed by multiple growth drivers, equities should outperform bonds and cash in 2025. We favour US, UK, Indian, Japanese and Singaporean equities the most. Although the Trump administration’s policy priorities may lead to uncertainty over the inflation and rate outlook, bonds remain a key diversifier against geopolitical and policy risks. Investment grade credit with 5-7 year maturities still offers attractive yields. In Q4 2024, we reduced exposure to markets that are vulnerable to US tariff risks, such as the Eurozone (including Germany) and Mexico and prefer those with robust domestic-driven growth opportunities, including Japan, India and ASEAN economies. To withstand external headwinds, we expect the Chinese government to ramp up its policy stimulus to boost domestic demand. Multi-asset strategies, which provide geographical and asset class diversification, can help balance opportunities and risks. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/2025-01/

2025-01-06 12:02

Key takeaways The broad USD ended 2024 on a stronger footing, supported by the December FOMC meeting. US policy uncertainty, relatively higher yields, and sluggish global growth suggest the USD will see continued strength. The GBP is likely to face downside risks when markets start to price in more BoE rate cuts. The broad USD ended 2024 on a stronger footing, gaining against all other G10 currencies last month (Chart 1). We continue to look for a strong USD, a stance reaffirmed by the outcome of the Federal Open Market Committee’s (FOMC) 17-18 December meeting. While the FOMC’s 25bp rate cut was widely expected, other aspects of the meeting were more hawkish than expected, including the new set of interest rate projections (signalling two 25bp rate cuts in 2025, down from four cuts in the September release), a new hawkish dissenter (favouring no change in rates), a tweak to the statement (implying some pauses ahead), and a press conference that revealed the December decision to cut had been a “close call”. Our economists expect the Federal Reserve (Fed) to deliver 75bp rate cuts in 2025 via three 25bp steps at 18-19 March, 17-18 June, and 16-17 September meetings. As USD yields may remain relatively high (Chart 2), alongside sluggish global growth and US policy uncertainty, the USD is likely to see continued strength this year. Against this strong USD backdrop, most currencies are set to struggle. The outlook is poised to be challenging for currencies whose economies are highly linked to the US via trade, or reliant on the global trade cycle. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Outside of trade policies, one should also keep tabs on the respective economies’ fiscal, monetary and FX policies. Taking the UK as an example, the GBP softened following the Bank of England’s (BoE) dovish hold in December. The BoE’s monetary policy committee voted by 6-3 to hold interest rate at 4.75%, but with more voting for a 25bp cut than expected. It is worth noting that markets are still pricing in slightly higher rates in the UK than in the US (Chart 2), which appears at odds with economic fundamentals. Our economists expect the BoE to deliver 150bp rate cuts in 2025, with a faster easing pace later in the year, as inflation continues to normalise, the fiscal policy outlook becomes more restrictive and the private sector struggles to grow. With this in mind, the GBP is likely to weaken against the USD in the months ahead. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2025-01-06/

2024-12-24 07:05

Key takeaways The world is bracing for the impact of Trump’s proposed policy measures… …and waiting for action following China’s promises to loosen monetary policy and lift consumer spending. Given ongoing geopolitical, fiscal and inflation uncertainty, many monetary policy challenges lie ahead. 2025 promises to be an eventful year for politics, geopolitics, economics and policy. Since the US election in November, a still-robust US economy, expectations of corporate tax cuts, a broad deregulatory agenda and, seemingly, a view that the worst outcomes for global trade will be avoided, have pushed up US stocks. China has also suggested looser monetary and fiscal policy to support growth. While there is a great deal of uncertainty ahead, we have taken a view on the likely sequencing of US government policy. We expect talks of tax cuts and quick action on trade tariffs and immigration soon after the US presidential inauguration on 20 Jan but investors may hope the new administration treads a little more cautiously than feared on fiscal, immigration and trade-related measures that could reignite inflation. Source: Macrobond Source: Macrobond The return of the non-US consumer Consumer spending is likely to remain the major growth engine next year. We think consumers in Europe and mainland China may finally open their pockets a little wider, on the back of improving real wages and falling interest rates in the former and government-led stimulus in the latter. Improving job prospects and property prices will be needed to sustain any consumer spending uplift in China. Any meaningful improvement in investment in much of the world seemingly hinges either on the public sector directly – for infrastructure and defence spending – and/or indirectly through more active industrial policy. Could 2025 finally be the year that the enormous IRA and CHIPS act-fuelled manufacturing investment boom in the US sees a positive payback in a revival in industrial production and productivity? Trade tariffs and trade shifts The global industrial cycle, even for areas of electronics, looks to be softening. Our trade forecasts are the main areas that we have trimmed given the prospect of an escalation in tariffs. We recently lowered our world export volume forecast for 2025 from 3.5% to 1.9%, although trade may not soften immediately as shipments are frontloaded ahead of new tariffs. It is clear that Trump intends to use tariffs as a means of addressing not just trade imbalances but a range of other policy priorities, from drugs to immigration control. So while we cannot know the precise timing or magnitude, tariffs on some economies and products appear inevitable, impacting on profits and inflation in the US (and in trading partners if there is retaliation) and weighing on global trade flows and sentiment. Major trading economies are, therefore, looking to strengthen relationships elsewhere. In the past, big stimulus in China offered opportunities for European manufacturing exporters. But this time it appears China’s policy support will target consumption and many firms are fearful that higher US tariffs on China could result in more trade-diversion towards Europe, Asia and elsewhere, triggering further trade restrictions between third countries and an additional hit to world trade growth. Modest forecast changes The revisions to our global growth forecasts are small at this point and the biggest country revisions are upwards to Spain and downwards to Poland. In some regions like mainland China, the reduction in our export growth forecast should be offset by the impact of forthcoming fiscal stimulus. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 11 July 2024. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics Changes to our global inflation forecasts are also modest but they are higher. Our 2025 projection rose from 3.3% to 3.4%, all explained by the developed world which increased from 2.3% to 2.5% with a notable rise in Japan. The lack of an upward revision to the emerging market aggregate of 4% is only because of a reduction in our forecast for China from 1.1% to 0.6% which more than offsets an increase in our Brazil inflation forecast. In 2025 the impact of potential US tariffs and retaliation risks adding to inflation (and hurting growth) while in some countries the bigger threat to inflation comes from the rise in food prices, which can also hit growth and raise inflation perceptions. Surging coffee and cocoa prices are grabbing the headlines, but domestic harvests played the major role in lifting prices in India, where food makes up nearly half of the CPI basket. More divergent monetary policy Despite those uncertainties on inflation, which in some countries will be exacerbated by currency depreciation, we still see scope for rate cuts in many economies in 2025, with the key exceptions of Brazil, set to deliver further hefty rate rises in the early months of the year, and the Bank of Japan on track for more gradual modest ones. In Asia, we forecast short and/or shallow easing cycles, that would likely be even shallower if the Federal Reserve cuts by less than we forecast. We see the US slowing the pace of easing in 2025, lowering the Fed funds rate to 3.5-3.75% by end-2025, then staying on hold. We expect the European Central Bank to cut policy rates to a trough of 2.25%, which means an earlier halt to the easing cycle than current market pricing implies, while the Bank of England looks set to lag other G10 central banks which have been cutting more rapidly. 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/2024-12/