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[Updated] Focus on earnings while rising US recession fears and Fed rate cut expectations seem overdone

7 Aug 2024

Willem Sels

Global Chief Investment Officer

HSBC Global Private Banking and Wealth

Lucia Ku

Global Head of Wealth Insights

HSBC Wealth and Personal Banking

Key takeaways

  • Weaker-than-expected US job data and mixed earnings for some big tech companies have raised recession fears and Fed rate cut expectations. We think both are exaggerated. While we remain overweight on US equities with a balanced sector exposure, we downgrade US Treasuries and UK gilts. We still favour investment grade for their attractive spreads and diversification benefits.
  • While China’s Third Plenum focused on 1) new quality productive forces; 2) technological innovation; 3) macroeconomic policy governance; 4) integrated urban and rural development; and 5) further opening-up foreign trades and investment, we think more near-term policy stimulus would be needed to sustain economic recovery. We stay neutral on Chinese stocks and favour corporate governance reform winners, quality SOEs and internet leaders. 
  • The 2024 Indian Budget centred on driving fiscal discipline, as well as near and medium-term growth. Projected FY25 fiscal deficit is now down to 4.9% while gross and net borrowing will be lowered to INR14tr and INR11.6tr, respectively. Other positive measures, such as employment and skilling programmes for the youth, loan limit increases for small firms, capital expenditure and raising capital gains tax should help boost the consumption, industrials and financials sectors.

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