2025-05-05 08:05

Key takeaways The BoJ delivered a dovish hold in May… …with markets less certain about a rate hike this year. The JPY weakened as a result, alongside receding “safe haven” flows. On 1 May, the Bank of Japan (BoJ) kept its policy rate unchanged by unanimous decision, continuing to guide the uncollateralised overnight call rate at around 0.5%, as widely expected. The tone of the meeting was rather dovish, with the latest BoJ forecasts (Table 1) suggesting downside risks to both growth and inflation. In our economists’ view, BoJ’s inflation forecasts edged lower, but not sufficiently enough to suggest its 2% price stability goal has been derailed. BoJ Governor Ueda’s press conference dwelt on the heightened uncertainty around the economic outlook vis-à-vis US tariffs but said that the BoJ would raise rates further if the economy continued to move in line with its outlook. Our economists expect the BoJ to hike once more this year, most likely in October; while markets are less sure for now, with a 25bp rate hike by year-end viewed as a coin toss (Bloomberg 1 May 2025). NA=Not applicable, as BoJ only starts to provide FY27 forecasts in its Outlook for Economic Activity and Prices (April 2025). Source: Bloomberg, HSBC Source: Bloomberg, HSBC The dovish hold by the BoJ has hit the JPY, alongside receding “safe haven” flows with the S&P 500 Index edging higher (Chart 2). Positioning wise, net long positions on the JPY among speculative traders recently climbed to an all-time high, according to data from the Commodity Futures Trading Commission (as of 22 April 2025). This could temper the enthusiasm for an extension. The path looks choppy ahead, as undershooting (market fear) and overshooting (market relief, short squeeze, or even temporary USD funding stress) of USD-JPY are likely. A short squeeze in USD-JPY could continue, if previously accumulated net long JPY positions continue to unwind as trade tensions ease. China’s Commerce Ministry said in a statement that it had noted senior US officials repeatedly expressing their willingness to talk to Beijing about tariffs (Bloomberg, 2 May 2025). Japan officials said that they aim to accelerate the talks from mid-May and achieve a trade agreement with the US in June (Bloomberg, 2 May 2025). On the other hand, an alleviation of tariff-induced downside risk to Japan’s growth could revive market expectations about the BoJ’s rate hikes. If there happens to be any FX clause in the potential trade agreement, which has thus far been denied (Bloomberg, 2 May 2025), that could also send USD-JPY lower. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/jpy-bojs-dovish-hold-met-with-a-short-squeeze/

2025-05-05 07:04

Key takeaways “Liberation Day” occurred on 2 April, but the latest data show the tariff threat was already affecting the US economy in Q1. Consumer spending was stronger than expected while equipment investment and inventories provided sizeable boosts to growth, as households and firms tried to get ahead of tariff-driven price rises. Indian fixed income returns were subdued in early 2025 as investors fretted over the country’s economic resilience to global headwinds. But that reversed sharply in March after the Reserve Bank of India finally kicked off its easing cycle. April saw oil prices dip below USD60/bbl for the first time since early 2021. This has come amid increasing concerns over the global demand outlook on the back of trade tensions, and some weaker US data. But OPEC+ policymaking has been a decisive factor. Chart of the week – The first 100 days of Trump 2.0 The first 100 days of Trump 2.0 have been a rollercoaster ride in investment markets. Volatility has been driven by policy uncertainty, requiring investors to not only consider what the landing zone for tariff policy might be, but also how much damage may have already been done. Since the president’s inauguration on 20 January, the US dollar has been the weakest G10 currency, falling by more than 7% in GBP terms. While gradual depreciation may have been a policy objective of the new administration, the depth of the correction has hastened questions about a possible end of “US exceptionalism”. And the surging gold price – up by 22% in the first 100 days – has reinforced a sense of investor uncertainty. US stocks have been laggards too – the S&P 500 has been among the worst performing stock indexes. Meanwhile, we’ve had market correlations going haywire between stocks and bonds, and interest rates and dollar crosses. The critical issue now is what happens next? At least part of the answer depends on how the macro facts evolve relative to what investors are currently assuming. The consensus seems to believe in a return to normal patterns, with growth and profits softening, then re-accelerating. But the problem with this is that recent trends in markets have been anything but normal and policy uncertainty is still ultra-high. It means staying invested and preparing portfolios for continued regime uncertainty and elevated market volatility is still the right strategy. That involves more granular country, regional, and factor allocations – and integrating assets and strategies that tend to be uncorrelated to stocks, including alternatives. Market Spotlight Power hungry A major new study by the International Energy Agency projects that electricity demand from data centres worldwide will more than double by 2030 to around 945 terawatt-hours. That’s slightly more than the entire electricity consumption of Japan today. Easily the biggest driver of this increase is AI, with power demand from AI-optimised data centres on course to quadruple by 2030. In the US – which currently accounts for around half the world’s data centres – power consumption from these facilities looks set to account for almost half the growth in electricity demand over the same period. This intense demand growth could be potentially transformational for the electricity industry, which has seen no growth for two decades, as well as other sectors. Recent analysis by some specialists pinpoints key areas where the asset class could participate. They see opportunities in high-growth areas of the communications and energy infrastructure sectors, but among the biggest is in utilities. Here, there is a broad range of companies across all regions and markets exposed to different aspects of the data centre growth dynamic, and investment opportunities across the sector. 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 02 May 2025. Lens on… Wait and see “Liberation Day” occurred on 2 April, but the latest data show the tariff threat was already affecting the US economy in Q1. Consumer spending was stronger than expected while equipment investment and inventories provided sizeable boosts to growth, as households and firms tried to get ahead of tariff-driven price rises. However, this was not enough to offset a surge in goods imports, which led GDP to contract for the first time since Q1 2022. While business and consumer spending were robust in Q1 and, on most measures, the labour market continues to hold up, a swathe of surveys point to a meaningful slowdown at some point. Where does this leave the Fed ahead of its May meeting? Most likely, it will maintain a “wait and see” approach as it looks through the policy and data fog. However, one helpful development was a weak March core PCE inflation print, which suggests underlying price pressures were diminishing prior to any tariff-induced increase. Combined with well-behaved market-based inflation expectations, this should allow the FOMC to cut rates gradually from June. India’s bond appeal Indian fixed income returns were subdued in early 2025 as investors fretted over the country’s economic resilience to global headwinds. But that reversed sharply in March after the Reserve Bank of India finally kicked off its easing cycle. Inflation is now well within the central bank’s 4% target range, and expected to remain in retreat. For global allocators, higher real yields have been a key attraction of Indian bonds – but there are other catalysts at play too. The main one, of course, is that the domestic orientation of India’s economy is a key advantage. It makes Indian assets less sensitive to shifts in global risk sentiment, and so a potentially attractive way to diversify global portfolios. Technical factors are also playing a role. Moves by the RBI to improve market liquidity, and the government’s pursuit of fiscal consolidation should be positive for bond supply-demand dynamics. And India’s strong FX reserve buffers help to counter volatility in capital flows and cushion currency volatility. Meanwhile, inclusion in global government bond indices, including GBI-EM and, later this year, FTSE, are also expected to grow global interest – and is a further potential reason for including India fixed income in a strategic allocation. With friends like these April saw oil prices dip below USD60/bbl for the first time since early 2021. This has come amid increasing concerns over the global demand outlook on the back of trade tensions, and some weaker US data. But OPEC+ policymaking has been a decisive factor. The cartel surprised investors in early April by announcing plans to significantly boost headline output in May. There is now speculation there could be an even higher output target for June, set to be decided next Monday. Why would OPEC+ do this now? The simple reason is that Saudi Arabia is frustrated with rising levels of non-compliance among members – with countries such as Iraq, Kazakhstan, and the UAE pumping well above their quotas. Perhaps the pain associated with a further fall in prices will force future discipline. It’s a risky strategy. But the implication is much lower oil prices than we have been used to in recent years. Just as 2025 inflation forecasts are being upgraded, the supply shock is welcome news for Western economies and major emerging markets such as India and China. And with inflation expectations closely tied to oil prices, the Fed has a bit more breathing space to cut rates. 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 02 May 2025. Key Events and Data Releases Last week The week ahead Source: HSBC Asset Management. Data as at 7.30am UK time 02 May 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 were mixed as investors assessed Q1 corporate earnings, macro data and ongoing global trade developments. US Q1 GDP contracted on a surge in imports, though the ISM manufacturing index declined less than anticipated, ahead of April’s non-farm payrolls data. The US dollar index further rebounded, while core government bonds edged higher. US and European credit spreads widened modestly after two weeks of narrowing. In stock markets, US indices broadly gained, as tech stocks led the rallies on some positive earnings. European markets mostly advanced, driven by strong Q1 results in the financial and defence sectors. Japan’s Nikkei 225 rose as dovish BoJ comments weighed on the yen, boosting export-oriented stocks. Other Asian markets, including Hong Kong’s Hang Seng and India’s Sensex, recorded gains, though the Shanghai Composite closed slightly lower ahead of Labour Day holidays. In commodities, oil prices fell amid concerns over a weaker demand outlook, while gold extended its recent consolidation. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-weekly/the-first-100-days-of-trump-2/

2025-04-28 08:05

Key takeaways The ECB cut rates by 25bp in April, in line with expectations. The EUR is stronger than what its yield differential implies, which could be explained by the EUR’s safe haven persona. The EUR is likely to strengthen against the USD (but at a slower pace) in the weeks ahead. On 17 April, the European Central Bank (ECB) delivered a 25bp cut, bringing the deposit rate to 2.25%. This was its sixth consecutive cut (and the seventh in total for this cycle since last July), in line with market expectations. “Economic risks are starting to materialise,” noted Bank of Finland governor Ollie Rehn. He added that, “There are few good reasons to pause rates…and the ECB shouldn’t rule out larger cuts” (Bloomberg, 24 April 2025), illustrating the increasingly dovish sentiment within the ECB governing council. Markets may also be more attuned to the deteriorating economic outlook in the Eurozone and the prospect of more rate cuts to come, with further easing of c62bp by the end of the year in the price (Bloomberg, 23 April 2025). It is worth noting that the EUR looks rich relative to its rate differentials (Chart 1). It may not be enough to turn sentiment on the EUR, but it is another factor likely to quell the topside, especially if the Federal Reserve is offering a pause policy when the ECB is still cutting. Source: Bloomberg, HSBC Source: Bloomberg, HSBC Meanwhile, the EUR is exhibiting a “risk off” persona (Chart 2), perhaps aided by the timely afterglow of the European fiscal policy U-turn in 1Q25. On the flip side, US political uncertainty has diminished the USD’s “safe haven” brand. Uncertainty around US trade policy is likely to persist, alongside “tariff on-tariff off” headlines, and news flow around the multiple trade negotiations. The key challenge is whether the flows into EUR continue, and this relies on a “risk off” mood being evident more often than not. If the mood music around trade changes, so too will the EUR. All things considered, a move higher in EUR-USD seems more probable than not in the weeks ahead. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/eur-s-safe-haven-persona/

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/

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/

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/