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2025-04-28 07:04

Key takeaways While the sharp drop in US equities following President Trump’s 2 April tariff announcements likely rattled the US administration, the spike in longer-dated yields was probably the deciding factor behind the 9 April decision to delay implementing reciprocal tariffs on most countries. The sharp weakening of the US dollar – as opposed to a desired gradual depreciation – likely played a role too. Q1 earnings season continues in the US, and after another week of big market whipsaws, all eyes are on the profit growth outlook and the potential impact of tariffs. A surge in stock market volatility across Asia has dented returns from a number of major sectors in Q2, with IT and consumer discretionary the hardest hit. Chart of the week – Radical uncertainty and growth The latest IMF World Economic Outlook (WEO) has delivered some hefty downward revisions to global growth forecasts for the next couple of years. As recently as January, the same economists were sounding upbeat on the outlook for both developed and emerging markets. But faced with radical uncertainty in the macro and market environment in 2025, their tone has turned undeniably bearish. Near term, the WEO’s reference forecast (based on data as of 4 April) shows global growth is projected to fall from an estimated 3.3% in 2024 to 2.8% in 2025, before bouncing back to 3% in 2026. Compared to January’s expectations, those projections represent a 0.5 percentage point fall for 2025, and 0.3 percentage points for 2026. And there have been downward revisions for nearly all countries. At the extreme, the US has seen a sharp downgrade to its growth forecast for 2025, which now stands at 1.8%. These revisions reflect recent disappointing data on real activity, and now major policy shifts in global trade – despite signs that the US administration may be considering a more dovish approach to negotiations. They follow a similarly downbeat report from the WTO the previous week showing the volume of world merchandise trade is projected to fall by 0.2% in 2025. That’s almost three percentage points lower than it would have been without the recent policy developments. Put simply, swingeing cuts to US growth expectations is more evidence that we could be seeing the end of US exceptionalism. And as the US catches down to the rest of the world, investors are likely to eye global opportunities that have long been out of favour. But with radical uncertainty thrown into the mix, it’s likely to be bumpy out there. Market Spotlight Credit where it’s due Trade policy uncertainty and the recent pick-up in market volatility have caused asset class correlations to go haywire in recent weeks, with stocks and bonds both selling off. This presents challenges for allocators, given that US Treasuries have historically been a natural portfolio diversifier to stocks because of their usually uncorrelated relationship. But in the face of volatility, and a potential growth slowdown, one asset class that could be well positioned to fend off these headwinds is securitised credit. Given its floating rate nature, securitised credit moves differently to other asset classes during economic cycles and offers an alternative source of risk adjusted returns. In particular, it can reduce portfolio duration, generate income and potentially enhance returns as spreads tighten. For securitised credit, low correlation to regular fixed income, and lower correlation to stocks than corporate bonds could make it a key option for multi-asset portfolios. Given the high starting income levels and relatively wide securitised credit spread (compared to history), the combination of both factors could generate an attractive total return for investors. 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, IMF. Data as at 7.30am UK time 25 April 2025. Lens on… Yielding to pressure While the sharp drop in US equities following President Trump’s 2 April tariff announcements likely rattled the US administration, the spike in longer-dated yields was probably the deciding factor behind the 9 April decision to delay implementing reciprocal tariffs on most countries. The sharp weakening of the US dollar – as opposed to a desired gradual depreciation – likely played a role too. The same combination also seems to have led the administration to back away from suggestions that Fed Chair Powell’s position was under scrutiny earlier last week. Rising longer-dated US Treasury yields are important for two main reasons. First, with federal debt level already elevated and rising, higher borrowing rates can undermine the administration’s tax cutting ambitions. Second, the 30y yield drives mortgage rates in the US. While off their recent 2023 highs, mortgage rates are still around 7%, a level not seen on a sustained basis since the early 2000s. Failure to deliver tax cuts, combined with higher mortgage rates, would undermine already-fragile consumer confidence, adding to downside growth risks – something that the US administration is keen to avoid. Uncertain earnings Q1 earnings season continues in the US, and after another week of big market whipsaws, all eyes are on the profit growth outlook and the potential impact of tariffs. Analysts expect year-on-year (yoy) profit growth in the S&P 500 of 10% for 2025 and 15% for 2026. For Q1, Factset data shows expected yoy growth of 7.2%. As normal, expectations have fallen ahead of results season, but with a quarter of companies having now reported their figures, the beats are less than average. Outlook statements have been vague to non-existent to boot, with more downgrades possible. As for the Magnificent 7, analysts expect them to grow by around 15% yoy in Q1, which, while high, is less than half their growth rate last year. And while their profits continue to grow faster than the rest of the S&P 493, the gap is fading. The focus here is on competition/ capex spend and whether heady valuations remain justified. The Mag 7 index has fallen by 23% peak-to-trough this year. And while there could be selective value emerging within, it still trades on an elevated 12m forward PE of 24x. Some equity analysts prefer the equal weighted index, where growth expectations are lower, but so is the 16x PE. Sector picks in Asia A surge in stock market volatility across Asia has dented returns from a number of major sectors in Q2, with IT and consumer discretionary the hardest hit. Export-heavy industries like technology and consumer goods have proved particularly vulnerable to changes in global trade policy. By contrast, more defensive areas like consumer staples, utilities and healthcare have performed relatively well. Despite the uncertainty, analysts still expect average earnings growth in Asia ex-Japan to just about push into double digits in 2025-2026. That’s being driven by the region’s burgeoning tech-related sectors, with optimism over long-term demand for semiconductors and hardware, and areas like AI, robotics, and e-commerce. Meanwhile, materials, financials, and healthcare are all potentially well-placed to benefit from regional infrastructure development, a resilient domestic backdrop, and the expansion of the middle classes – particularly in areas like India. Some Asian analysts see the market continuing to offer broad sector diversification and attractively-valued quality-growth opportunities, albeit with a focus on careful stock selection given the backdrop of policy uncertainty. 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 is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg. Data as at 7.30am UK time 25 April 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 25 April 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 Risk market sentiment improved on signs of potential easing in global trade tensions, despite the IMF’s downgrades to its GDP forecast due to a recent “surge in policy uncertainty”. Investors continued to monitor corporate earnings releases and assess the Fed’s policy outlook following remarks from officials. The US dollar paused for breath after recent weakness, while core government bond yields extended their modest declines. US and euro credit spreads further compressed, with HY outperforming IG. In the stock markets, the US experienced broad-based gains, led by the tech-dominant Nasdaq. European equities further rebounded, and Japan’s Nikkei 225 advanced as exporters recovered ground, with trade negotiations and the upcoming BoJ policy meeting in focus. Other Asian markets also posted decent gains, led by Hong Kong’s Hang Seng. Meanwhile, LatAm markets rallied, including stocks in Mexico and Brazil. In commodities, oil prices retreated. Gold consolidated after reaching a record high, while copper continued to rise. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/radical-uncertainty-and-growth/

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2025-04-25 07:04

Key takeaways Despite the 90-day tariff reprieve, investors and corporates continue to face elevated policy uncertainty and rotate into more defensive markets, sectors and currencies. Short-term USD and US equity market weakness will likely linger, but a US recession is not our base case (although the risk is higher). We prefer multi-asset diversification and quality assets and remain overweight on gold. The Eurozone looks more promising with fiscal support, more EU cooperation and lower-than-perceived earnings exposure to US tariffs. Our more positive view on Germany also supports an upgrade of Europe ex-UK equities to overweight. Japan’s high export exposure to the US and a strong yen lead to a downgrade of Japanese equities to neutral. We focus on domestically oriented companies in Asia. With only 3% of earnings derived from US exports and more policy stimulus to support AI adoption, consumption and private companies, we expect Chinese equities to stay resilient and await tactical opportunities from mispricing caused by the tariffs to capture structural growth opportunities. We favour the internet, consumption, financial and industrial leaders, as well as quality SOEs paying high dividends. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/short-term-usd-and-us-equity-weakness-will-likely-persist/

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2025-04-23 12:02

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/usd-s-safe-haven-brand-in-doubt/

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2025-04-22 12:01

Key takeaways US tariffs and heightened uncertainty look set to deliver a significant blow to global growth through various channels. US inflation is likely to rise, but lower energy prices, stronger FX, and China trade diversion could lower inflation elsewhere. We recently lowered our global GDP growth forecasts to 2.3% for both 2025 and 2026. The pace of US policy shifts since the ‘Liberation Day’ announcements has been dramatic. The reciprocal tariffs, related financial market turmoil, the US’s rapid Uturn, and a doubling down on mainland China tariffs will undoubtedly weigh on trade flows, investment plans, and broader activity. And for many economies the impact is likely to be substantial. Relative winners and losers The tariff turmoil is bad news for the global economy but there will still be relative winners and losers. Countries with lower exposure to US imports of tariffed items, particularly if also set to benefit from China and EU fiscal stimulus, will be more immune, and vice versa. Others could gain by supplying goods currently sourced from China, if US trade actions make them prohibitively expensive. Vietnam, Mexico, Thailand, and India are top of that list, if they can avoid large tariffs themselves. Meanwhile, economies like Brazil could benefit if China sources more agricultural products from outside the US. Note: Mexico and Canada are exempt from the baseline 10% tariff. Source: IMF DOTS The biggest uncertainty effects may be in the US itself. At a minimum, there will be enormous disruptions to supply chains for a vast array of small and large US companies. The tariffs might slow imports and push up prices for companies and consumers. US profit margins are likely to be squeezed. And companies reliant on foreign components could be less competitive in international markets and consumer goods prices will rise. Sector-specific vulnerabilities As well as overall dependence, product mix of trade flows will also determine the direct impact. Some products are exempt from the 10% baseline reciprocal tariffs – either because they fit into the categories of energy and critical minerals, or because the US can’t easily source them domestically – for example zinc, tin, and other base metals. Products that face higher tariffs include autos, steel, and aluminium (already in place), and, potentially, pharmaceuticals and semiconductors. US-China breakdown The main area of bilateral trade with the US that looks set to plummet is between the US and China. However, the world’s two largest economies are less reliant on each other than in the past: just over 13% of US imports are from mainland China and less than 15% of mainland China’s exports go to the US. On the other side of the relationship, only c7% of US exports go to mainland China and only c6% of mainland China’s imports are from the US (Chart 2). Inflationary impact The path for inflation is uncertain, but tariffs are likely to mean US goods prices are higher, even if much of the tariff impact weighs more on US growth. That risk is clearly being reflected in consumer surveys, with inflation expectations rising (Chart 3). Elsewhere, weaker growth, lower oil and gas prices, and recent currency appreciation point to lower inflation. Trade diversion may also mean a near-term disinflationary impulse as goods intended for the US market are re-routed: just how much depends on how many more trade actions are taken by other countries vis-a-vis China. Source: Macrobond Source: Macrobond Our forecasts We recently lowered our global GDP growth forecasts to 2.3% (from 2.5%) for 2025 and to 2.3% (from 2.7%) for 2026. Our forecasts for nearly every economy have been lowered, even Canada and Mexico, which were not hit by additional tariffs in April, in response to the deteriorating outlook for US growth. There has been a more diverse impact on our inflation and monetary policy forecasts. Although we have lowered our US growth forecast materially to 1% 4Q/4Q in 2025, the deteriorating growth-inflation trade-off means we have not changed our long-held Federal Funds view of no more than 75bp of rate cuts in 2025-26. We expect stronger policy responses elsewhere, including more from the European Central Bank and many emerging economies, even though we are not expecting aggressive rate cuts. It is not just monetary policy that could soften the blow from trade uncertainty, which is already spurring fiscal, deregulatory, and structural measures from Europe to Asia. Note: *India data is calendar year forecast here for comparability. Previous forecasts are shown in parenthesis and are from the Macro Monthly dated 20 December 2024. Green indicates an upward revision, red indicates a downward revision. Source: Bloomberg, HSBC Economics Source: Bloomberg, HSBC ⬆Positive surprise – actual is higher than consensus, ⬇ Negative surprise – actual is lower than consensus, ➡ Actual is in line with consensus Source: LSEG Eikon, HSBC https://www.hsbc.com.my/wealth/insights/market-outlook/macro-monthly/tariff-risks-weighing-on-global-growth/

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2025-04-22 08:05

Key takeaways Escalating tariff tensions between China and the US pose heightened risks to economic growth… …but may also prompt more support for consumption, along with additional monetary and fiscal easing. With larger-than-expected external shocks, China will need to act decisively and quickly to support domestic demand. China data review (March, Q1 2025) GDP growth rose 5.4% y-o-y in Q1 with upside surprises in March’s industrial production and retail sales pointing to stronger domestic activity ahead of the recent tariff escalations. Accelerated policy support, backed by fiscal spending, alongside some improvement in consumer sentiment have likely helped, though the property sector remained a weak point. Meanwhile, frontloading of exports ahead of tariff uncertainty also provided a cushion. Industrial production was up 7.7% y-o-y in March, boosted by the strongerthan-expected exports activity from frontloading and supply chain rejigging. The ongoing domestic policy push to promote equipment upgrading, technology and Artificial Intelligence development will also remain key for supporting the manufacturing sector; equipment and Hi-Tech manufacturing production rose 10.9% and 9.7% y-o-y in Q1, respectively. Retail sales rose by 5.9% y-o-y in March, driven by increased purchases from the trade-in programmes, which have been effective in lifting sales in home appliances (up 35% y-o-y), communications goods (29% y-o-y) and autos (5.5% y-o-y). While overall autos sales were more muted compared to the other categories, this is partly due to ongoing price cuts as a result of competition. Electric Vehicle sales on the other hand have been performing strongly. Headline CPI stayed in contraction, falling by 0.1% y-o-y in March, owing to weaker food prices and softer global crude oil prices weighing down energy costs. However, Core CPI rebounded to 0.5% y-o-y supported by a modest rebound in services. Meanwhile, PPI saw a deeper fall of 2.5% y-o-y due to lower global commodity prices, overcapacity concerns and ongoing pressures in the property sector. Exports saw a broad-based increase in March, up 12.4% y-o-y, as companies sought to frontload shipments ahead of potentially higher tariffs being imposed. Meanwhile, imports continued to stay low, falling by 4.3% y-o-y, due in part to weaker global commodity prices for iron ore and crude oil which weighed on imports value. While frontloading has provided some cushion and the recent pauses in some tariffs can also help, external headwinds have clearly risen. More domestic support to counter tariffs Trade tensions continue to climb. In the recent round of escalations, President Trump sharply raised tariffs on Chinese goods to 145% (effective as of 9 April), prompting countermeasures from China which raised reciprocal tariffs on US goods to 125% (effective as of 12 April). But this may be the upper limit for tariff actions. Alongside China’s tariff announcement, it stated that it will not respond to further US tariff hikes (MOFCOM, 11 April). Meanwhile, the recent US electronics exemptions mean Chinese goods in these categories (RMB102bn or c23% of US imports from China) only face 20% tariffs, as opposed to 145%, although the exemption may only be temporary. To mitigate tariff impacts, China is strengthening diplomatic engagement globally. For example, it recently signed 45 bilateral cooperation agreements with Vietnam across areas including Artificial Intelligence, agriculture and sport (Xinhua, 14 April), while China’s Commerce Minister has held discussions with the EU, ASEAN, G20, BRICS, and Saudi Arabia on countering US tariffs. More domestic policy support Policymakers may need to provide more domestic support for economic growth to counter tariffs, including more fiscal and monetary easing, and expanded policies for consumption. Premier Li Qiang conducted a field survey in Beijing on 15 April and stressed the importance of stimulating inner circulation and boosting consumption to counter external headwinds (Stcn, 15 April). Expanded consumer goods trade-ins: These initiatives have seen robust participation since their launch last year, with over 100mn home appliance trade-ins completed (People’s Daily, 12 April). Funding has doubled this year (to RMB300bn) and more product categories are expected to be added. Guangzhou has said that residents from Hong Kong, Macau, Taiwan, and foreigners with permanent residence are eligible for trade-in subsidies (Securities Times, 12 April). Boosting service consumption: Last week, China unveiled plans to support consumption in health and sports (Xinhua, 11 April). Local governments, including Hohhot, have introduced childcare subsidy policies, with more expected to join. Two dairy producers have also launched subsidy programmes worth RMB2.8bn in April (Xinhua, 11 April). And a "Shop in China" campaign will promote consumption nationwide focusing on goods, dining, and cultural tourism (Xinhua, 14 April). Other measures in the pipeline: Policies to raise household incomes, expand public services based on residency, and stabilise property – a key drag on household wealth and consumer confidence – are accelerating. Property saw renewed pressure in the first 14 days of April, as new home sales in 30 major cities fell 11% y-o-y, underscoring the need for intensified policy support, including from local government funds and potential direct central government funding. Source: Wind, HSBC Source: Wind, HSBC Exporters selling locally: The Ministry of Commerce has pledged to help exporters boost domestic sales, by helping with market access, distribution channels, financial services and logistics (Xinhua, 11 April). The ministry has convened discussions with industry associations, retailers, and logistics firms, with many announcing that they would help exporters go domestic through increasing purchases. Among them, JD.com pledged RMB200bn for the cause (Cailianshe, 11 April). Source: LSEG Eikon * Past performance is not an indication of future returns Source: LSEG Eikon. As of 15 April 2025, market close https://www.hsbc.com.my/wealth/insights/market-outlook/china-in-focus/more-domestic-support-to-counter-tariffs/

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2025-04-17 12:01

Key takeaways US equity markets sold off after Fed Chair Jerome Powell indicated no “Fed put” despite slower US growth outlook and market volatility triggered by tariff uncertainty. Powell reiterated the wait-and-see approach, as he expected inflation to rise and the labour market to come under pressure due to higher tariffs. We now project US GDP growth to slow to 1.6% for 2025 (down from 1.9% previously) and 1.3% for 2026 (down from 1.8% previously). On the inflation front, we have raised US CPI forecasts to 2.9% in 2025 and 3.1% in 2026. We continue to see potential headwinds from fiscal tightening and downward revisions to 2025 earnings as tariff uncertainty persists. In this challenging environment, we maintain a defensive strategy with a strong focus on multi-asset diversification, active management and long-term structural themes to mitigate market volatility. What happened? US equity markets sold off after Fed Chair Jerome Powell indicated no “Fed put” despite slower US growth outlook and market volatility triggered by tariff uncertainty. In his speech delivered at the Economic Club of Chicago, Powell cautioned that tariff-induced price rises may end up becoming more persistent, and the labour market conditions could come under pressure. In response to a media question about the “Fed put” to support financial markets, Powell said “no” to dismiss market expectations of immediate central bank intervention to boost the equity markets. Powell pushed back against any idea of disorderly market behaviour or anything that would need the central bank to step in right now. He said the financial markets remained orderly and functioning well, citing abundant reserves and healthy liquidity conditions. He reconfirmed policymakers are in no hurry to change the central bank's benchmark policy rate and said the Fed remained well positioned to wait for greater clarity before considering any policy adjustments. Regarding the tariff impact on inflation, Powell said the level of the tariff increases announced so far was significantly larger than anticipated, adding that the inflationary effects could also be more persistent. Powell noted both survey- and market-based measures of near-term inflation expectations have moved up significantly, but longer-term inflation expectations appear to remain well anchored, as market-based break evens continue to run close to 2%. Powell emphasised the need to prevent tariffs from triggering a persistent rise in inflation, ensuring that a one-time price increase does not become an ongoing inflation problem. We think this is good news for the bond market. Both the markets and the Fed expect lower rates and weaker growth by the end of 2025. The Fed’s own median projections expect two 0.25% rate cuts by end-2025. Traders are just taking that impulse further, as they brace for the possibility that the economic hit of tariffs will slow economic activity beyond policymakers’ predictions. Higher tariffs and increased global trade frictions will result in slower global growth and higher inflation in the US. We have downgraded US and global growth forecasts for both 2025 and 2026 to reflect the negative impact of tariff escalation and growing policy uncertainty under the new US administration. In the US, we have cut GDP growth forecasts to 1.6% from 1.9% for 2025 and to 1.3% from 1.8% for 2026. Our lower US growth forecasts have factored in the impact of tariffs and the policy uncertainty emanating from Washington. But we do not expect the US economy to slide into a recession as we expect the Fed to start cutting policy rate in June. On the inflation front, we have raised US CPI forecasts to 2.9% in 2025 and 3.1% in 2026. Investment implications We continue to see potential headwinds from fiscal tightening and downward revisions to 2025 earnings as tariff uncertainty persists. In this challenging environment, we maintain a defensive strategy with strong focus on multi-asset diversification, active management and long-term structural themes to mitigate market volatility. We continue to look for short-term USD weakness and US equity market underperformance compared to Europe and Asia. As investors rotate away from USD assets, we are bearish on USD. Gold should continue to benefit. On the equity front, we maintain a neutral stance and continue to take a defensive sector stance in the West and focus on quality and large caps. We think rotation flows will support German and Eurozone stocks and have upgraded Europe ex-UK equities to overweight. We maintain our overweight on Asia ex-Japan equities despite very high two-way US-China tariffs. Chinese equities only derive 3% of earnings from US exports and we expect more domestic stimulus. We further intensify our focus on domestically oriented companies. We have downgraded Japanese stocks to neutral due to the country’s high exposure to US exports and the strong JPY. HSBC’s new macroeconomic forecasts Source: HSBC Global Research forecasts, HSBC Global Private Banking and Wealth as at 17 April 2025. Forecasts are subject to change. On fixed income, US Treasuries have temporary lost their appeal as a safe haven, especially longer-dated bonds, but they represent some value for long-term investors. The first signs of an economically damaging slowdown in global trade are already emerging and the Fed may be forced to acknowledge the risk to growth and employment. We believe this should support DM government bonds and we focus on 7-10-year maturities. We favour UK gilts, Eurozone sovereign, Eurozone and UK IG bonds. We remain neutral on DM and EM credit as credit spreads may remain choppy with some potential for overshooting. Despite our new forecasts for weaker US growth, we do not expect any shift in Fed policy. The financial markets should not expect a “Fed put” to come to the rescue amid market volatility. We continue to expect the Fed to deliver three rate cuts this year, beginning in June. The three rate cuts would be 0.25% in each quarter, leaving the Fed funds rate at 3.75% by year-end. https://www.hsbc.com.my/wealth/insights/market-outlook/special-coverage/powell-signals-no-fed-put-despite-slower-growth-and-market-volatility/

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