Global Macro: Hawkish pivot shapes risk landscape – HSBC

§ 01 Executive Snapshot

• What: HSBC's Investment Weekly discusses the hawkish pivot of central banks influenced by macroeconomic factors.
• Who: HSBC Asset Management, central banks including ECB, Bank of Japan, Bank of England, and Federal Reserve.
• Why it matters: The report underscores a complex macro landscape shaped by inflation and geopolitical concerns, affecting risk assets and central bank policies.

§ 02 Key Developments

• Higher oil prices and a surge in China's exports are reshaping the global macroeconomic backdrop.
• The Federal Reserve is expected to keep interest rates unchanged and eliminate any bias towards easing in its upcoming statements.
• HSBC believes that supernormal profits and manageable funding costs can support risk assets through 2026.

§ 03 Strategic Context

• The hawkish shift at central banks is a response to spikier inflation and changing global economic dynamics.
• The report indicates that geopolitical risks and market volatility are complicating the macroeconomic landscape but may not derail market performance.

§ 04 Strategic Implications

• Immediate market consequences include potential volatility in risk assets as central banks adjust their policies in response to inflation.
• Long-term implications suggest that markets may continue to perform well through 2026, driven by profitability and capital costs.

§ 05 Risks & Constraints

• Potential risks include episodic volatility in markets driven by geopolitical tensions and inflation spikes.
• The complicated environment for central banks may lead to unpredictable policy shifts that could affect market stability.

§ 06 Watchlist / Forward Signals

• Monitoring the Federal Reserve's statements and projections for indications of future rate changes will be crucial.
• Future developments in geopolitical de-escalation could signal improved market performance or increased volatility.