2024-12-02 12:02

Key takeaways As widely expected, the RBNZ delivered a 50bp rate cut in November, taking its easing so far to 125bp since August. On the contrary, the RBA is likely to keep its policy rate unchanged in December, with the first cut to come in 2Q25. But both AUD and NZD are expected to weaken against the USD through 2025 amid external headwinds, in our view. On 27 November, the Reserve Bank of New Zealand (RBNZ) cut its policy rate by 50bp to 4.25%, in line with market expectations. This was the third straight cut, taking its easing so far to 125bp since August. The RBNZ embraces the idea of a 2025 recovery in economic activity, while seeing inflation to be 2.4% (up 0.1%) in Q4 2025 and 2.1% (up 0.1%) in Q4 2026, but still within the RBNZ’s inflation target range of 1% to 3% (Chart 1). It is worth noting that RBNZ Governor Adrian Orr gave strong guidance towards a 50bp cut in February 2025, if the economy evolves as expected. The RBNZ also lowered its year-end 2025 policy rate forecast to 3.55% (from its August projection of 3.85%), albeit above market expectations of c3.30%. Our economists see the RBNZ delivering further cuts through 2025, taking the policy rate to 3.25% by end-2025. The NZD jumped c1% against the USD and c0.7% against the AUD after the announcement (Bloomberg, 28 November 2024). Beyond the kneejerk reaction, AUD-NZD is likely to face downward pressure amid the relative terms of trade dynamics. From a rate differential’s perspective, monetary policy divergence remains clear between the two central banks, but we see limited room for the divergence in market pricing to extend (Chart 2). Both markets and our economists expect the Reserve Bank of Australia (RBA) to keep its policy rate unchanged at 4.35% at its 10 December meeting. Markets and our economists’ central case is for the RBA to start its rate cut cycle in Q2 2025, but our economists also see a 25% chance that the RBA does not cut at all in 2025. Source: Bloomberg, HSBC Source: Bloomberg, HSBC In 2025, we think that both the AUD and the NZD are likely to weaken against the USD amid external headwinds, such as the rising US terminal rate, potential tariff concerns, and portfolio outflows. More forceful fiscal policy support from China could help, but it may have limited spillover effect through the commodity demand channel. Structurally, China’s importance on the AUD may be declining. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2024-12-02/

2024-12-02 08:07

Key takeaways While strong earnings momentum and Fed rate cuts remain growth drivers for US equities, the Republicans’ clean sweep and Mr. Trump’s pro-growth policies prioritising tax cuts and deregulation should further bolster IT, communications, energy, financials and industrials. Still, it’s crucial to enhance portfolio resilience to withstand geopolitical and policy risks. Despite tighter credit spreads and limited price gains, bonds should outperform cash as interest rates fall and investment grade credit still offers attractive yields. Multi-asset strategies can help capture growth opportunities while managing downside and duration risks. Moreover, we see opportunities in renewable energy, infrastructure and gold to achieve greater diversification. In addition to a RMB6 trillion fiscal package approved by China’s NPC, we see positive signs in domestic consumption during the “Double 11” shopping festival. Asia remains a key growth engine for global growth, supported by India’s strong cyclical and structural growth, Singapore’s attractive yield and large REIT exposure, as well as Japan’s reflation tailwind and corporate governance reforms. Domestic industry leaders are better positioned to withstand US tariff risks. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/2024-12/

2024-12-02 07:06

Key takeaways Investor sentiment towards emerging markets (EM) has been cautious in the wake of US elections and growing concerns about tariffs. Asian stock markets have delivered decent performances this year, with mainland China and India setting the pace. In addition to concerns about potential changes to US trade policy next year, the Eurozone is already dealing with its own fair share of problems – much of which are weighing on the euro. Chart of the week – Will rising policy uncertainty push market volatility higher in 2025? Rising uncertainty over economic and trade policy has been hanging over global markets in recent weeks. It’s the kind of anxiety that typically goes hand-in-hand with higher stock market volatility. So far, most of the volatility has been in rates markets. And that’s hardly surprising given uncertainty over the inflation outlook, particularly in a year when bond pricing has been hyper-sensitive to macro data. Meanwhile, US stocks remain in a strong uptrend. But with market multiples pricing perfection (the S&P 500 hit another new high last week), bond yields still elevated, and growth cooling into 2025 – can calm conditions last? In a “multi-polar world” of economic fragmentation and competing trade blocs, the most significant consequence for investors is a higher and more unpredictable inflation regime. This could constrain central bank policy easing, weighing on growth and corporate profits. Fixed income returns may still depend on yield income to support returns, and government bonds may not be a dependable hedge for portfolios. With geopolitics potentially disrupting underlying investor assumptions on the growth, profits, and inflation outlook, market volatility could easily pick up, should the global news flow deteriorate - and the most expensive parts of the market could be vulnerable. Market Spotlight Going private Private credit has been a popular portfolio diversifier with investors in recent years – helped by an era of elevated rates that enhanced returns. But with central banks pivoting in the second half of 2024, a shift to lower rates has raised questions about whether that will change. Yet, demand for private credit has remained robust. One explanation is that, while rates are on their way down, they are unlikely to fall to the very low levels experienced during the last decade. If rates begin to normalise at around 3%, it should leave room for private credit assets to deliver still-attractive all-in yields – particularly when compared to fixed-rate bonds. In fact, private credit premiums could potentially deliver a cushion as floating-rate yields decline. Another attraction is that private credit doesn’t rely on an exit market to fund the distributions given that loans are repaid after a fixed period. This has been an important differentiator to private equity markets, where a weaker exit environment recently has led to lower distributions back to investors. Despite recent growth, private credit only accounts for around 6% of corporate lending in the US – which is one of the most mature private credit markets. 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. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. 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 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 29 November 2024. Lens on… Upbeat on EM credit Investor sentiment towards emerging markets (EM) has been cautious in the wake of US elections and growing concerns about tariffs. EM sovereign bonds (tracked by the EMBI index), for instance, are a high-duration asset class with a structurally improving average credit-rating outlook. If bond yields gradually grind lower globally, EM sovereigns could be well-placed to perform given their historically high all-in yields. Spreads have compressed but are expected to remain well-behaved, thanks to a structural improvement in credit quality. That said, global risks remain high, which could impact the asset class. Worries about inflation and more active fiscal policy mean markets are pricing a shallower path for US monetary easing. And tariffs are unlikely to leave many EMs unscathed, with risks of a strong US dollar tightening global financial conditions. For EM investors, country sensitivity to these headwinds will depend on factors like existing free trade agreements, relationships with the new US administration, and the degree of trade exposure that they have to the US. Asia’s solid earnings Asian stock markets have delivered decent performances this year, with mainland China and India setting the pace. But as Asia’s Q3 earnings season rolls on, we’ve seen regional variations in terms of sector winners and losers. Technology-led markets in South Korea and Taiwan are still the region’s profit engine. Strong demand in industries like semiconductors and hardware has been potent, particularly in South Korea, which has seen a strong rebound in profits growth. In Japan, Q3 has also been solid, with financial stocks the big driver on improving margins. But its discretionary stocks have lagged, with profits falling among automakers. In mainland China, financial stocks (particularly insurance firms) have underpinned robust Q3 profits growth, and firms in hardware and e-commerce have been strong too. By contrast, profits in India have surprised to the downside. But weak macro momentum in the quarter is expected to recover, and sectors like financials, healthcare, and real estate have performed well. Overall, some specialists continue to see fair valuations across the region, as well as solid growth and appealing economic diversification. Euro woes In addition to concerns about potential changes to US trade policy next year, the Eurozone is already dealing with its own fair share of problems – much of which are weighing on the euro. Growth has weakened again, with manufacturing PMIs in France and Germany in the low 40s and services failing to do enough to produce positive growth. Then there is political uncertainty, with general elections in Germany in February and ongoing instability in France. These risks have led to a sharp repricing in the relative outlooks for growth and monetary policy. Markets have priced in more aggressive monetary easing by the ECB, just as Fed rate cuts have been priced out. The result is the euro has weakened in the face of a strengthening US dollar – and the next few months could be challenging. The good news is a weaker euro supports domestic exporters, despite near-term caution on the profits outlook. Likewise, ECB rate cuts should boost both the macro outlook and government bonds. 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. 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 not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg, Datastream. Data as at 7.30am UK time 29 November 2024. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 02 December 2024. 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 Risk markets were stable, with the US dollar index correcting lower amid rising trade tensions. Core government bonds rallied as investors digested the latest appointments to the forthcoming US administration. Rising budget concerns prompted a wider 10yr yield spread between French and German government bonds. US equities posted modest gains in a holiday-shortened week, whereas the Euro Stoxx 50 index softened, led by a weakness in French stocks. Japan’s Nikkei 225 reversed earlier gains last week as the yen rebounded versus the US dollar. Emerging market equity performance was mixed. China’s Shanghai Composite and India’s Sensex advanced, while Korea’s Kospi index dropped on lingering worries over domestic macro outlook and geopolitical risks as the BoK delivered a surprise rate cut. In commodities, oil and gold consolidated. Copper edged higher. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/2024-12-02/

2024-11-28 12:02

Key takeaways UK PMIs fell below the 50-mark as uncertainty weighs. Bank of England updated its forecasts after the Budget. Hard data moved in the wrong direction – GDP growth was slower and inflation accelerated. Source: HSBC A lot to digest and greater uncertainty ahead Since the UK Budget on 30 October, macro and political news has come thick and fast, leaving markets, households and businesses with a lot to digest. Politically, a change of government in the US could see a further rise in protectionist policies and raises questions as to how the UK government will seek to work with President-elect Trump. Meanwhile, a looming confidence vote for German Chancellor Scholz could see a general election in Europe’s largest economy in early 2025. The European Central Bank, Federal Reserve and Bank of England (BoE) all cut interest rates by a further 25bp and signalled more to come, but that was not enough to reassure business sentiment. UK PMI fell into contractionary territory in November for the first time this year and future expectations of growth fell. For consumer confidence, the headline measure remains weak, but seasonal sales helped see an improvement. The BoE pushed back against higher interest rates Alongside a second 25bp rate cut, the BoE’s November monetary policy meeting also included updated economic forecasts that incorporated the latest fiscal policy announcements. GDP growth and inflation were upwardly revised and estimates for the unemployment rate was lowered. In spite of that, rhetoric was centred on a keep calm and carry on approach to gradual rate cuts. Additional Budget-related near-term inflationary pressures were expected to abate fairly quickly (Chart 2) and, conditioned on an average interest rate of 3.7% from 2025, inflation is seen below target. That implies that the BoE deems an interest rate at that level to be too high and may be an implicit push back against market expectations of a 4.0% medium-term rate. And we are inclined to agree and see interest rates falling more quickly in the second half of 2025 to 3.25% by year-end 2024. GDP growth slows and headline inflation rises back above 2% GDP growth moderated by more than expected to 0.1% in Q3. More positively, however, household consumption saw a broad-based acceleration while business investment also rose. That said, retail sales fell sharply in October, offering a soft start for output growth in the final quarter of 2024. Headline CPI inflation rose to 2.3% y-o-y in October from 1.7% previously, although that was predominantly driven by a c10% rise in the Ofgem Price Cap. Indeed, the BoE will look through the known volatility in energy prices, but still elevated services inflation and private sector wage growth are in keeping with a hold in Bank Rate at 4.75% at the final BoE policy meeting of 2024 on 19 December. Source: Macrobond, S&P Globa Source: Macrobond, ONS, BoE forecasts Source: Macrobond, BoE https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/2024-11/

2024-11-25 12:03

Key takeaways Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-trends/2024-11/

2024-11-25 12:02

Key takeaways The USD is likely to consolidate over the near term when markets eye US data releases and the Fed. The case for USD strength in 2025 looks robust… …but there could be moments when the USD may face a squeeze lower. Approaching 2025, the USD may first go through a period of consolidation, in our view. Near-term market focus will probably be US data releases, such as non-farm payrolls (6 December) and CPI (11 December), ahead of the Federal Reserve’s (Fed) meeting on 17-18 December. Markets currently price in a c40% chance of a 25bp rate cut in December and a c70% chance to deliver such a cut in January (Bloomberg, 21 November 2024). Our economists’ central case is that the Fed will probably deliver it in December. But this cut (if it happens) is likely to be accompanied by hawkish revisions to the median interest rate projections (known as “median dots”) and the economic projections. The Fed may even signal that it will pause its rate cuts. All this could send mixed signals to the USD, which is why a consolidation seems more likely to happen in the coming weeks. But looking beyond the near-term FX movements, we think the case for USD strength through 2025 is robust. Our long-held framework for thinking about the USD’s direction of travel boils down to the “circle of trust” – global growth dynamics, US yields relative to others, and risk appetite. On this note, global growth has been lacklustre (Chart 1) and would look even more fragile should tariffs begin to come increasingly into the frame. Expectations of fiscal stimulus and import tariff risks may slow the Fed’s easing pace, maintaining the USD’s high yields relative to other currencies (Chart 2). Both of these could also weigh on risk appetite in FX markets, which would play to the USD’s advantage. In addition, the possibility of deregulation and corporate tax cuts may foster capital inflows into the US, supporting the USD. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Still, there could be moments when the USD may face a squeeze lower next year. For instance, newly elected US President Donald Trump could make USD negative comments. Nevertheless, the past occurrences indicate that the impact on the USD would likely be small and transitory. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/2024-11-25/