Top global talking points

You're listening to the Macro Brief, the podcast that looks at the issues driving financial markets across the globe. This episode was recorded for publication on the 23rd of October 2025 by HSBC Global Investment Research. All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player. And remember to like and subscribe to the Macro Brief wherever you get your podcasts. Hello and welcome to the Macro Brief. I'm Eileen Van Dyne in New York and today in our New York studio we're discussing the key topics from the recent IMF World Bank meetings in Washington DC. Just a reminder, every year thousands of politicians, policymakers, businesses and investors meet to discuss the global economic outlook. Anything from is the US economy going up or down, how much of a game changer is AI, tariff pain, has it been overestimated, can emerging markets keep outperforming, how worried should we be about corporate defaults. To discuss this and much more, I'm joined by three of my colleagues that we're right there in the center of the action in DC and in many of the conversations held there. Janet Henry, Global Chief Economist, Murat Ulgen, Global Head of Macro Strategy, and Paul Mackle, our Global Head of FX Research. Welcome everyone. Janet, let's get right to it. What's the mood around the US economic outlook? Well, in Washington, the mood was really quite bullish about markets and about ongoing economic resilience because growth this year, not just in the US but globally, has been more resilient than had been feared certainly around Liberation Day. US growth has been slower than 2024, but it's still pretty resilient. And certainly our outlook is that we are looking for things to moderate a little bit over the course of the next six months. We've got slower employment growth. We've still got the lagged impacts of tariffs feeding through. And so a lot of the questions are obviously about how much the Federal Reserve can cut interest rates. And we think, yes, we will get rate cuts in October and in December, but actually disagree with the market in terms of expectations for more aggressive rate cuts next year. And I think regarding the mood, a lot of discussion still coming through about the role of the fiscal stimulus, the big beautiful bill, and the impact that that will have on the income distribution skew in the US. And so, yes, resilience, but that's despite quite a lot of uncertainty. Murat, that's something that you've been talking about quite a lot in terms of your takeaways from the IMF meetings, right? Yes, in detailing, I think this is probably the only certainty. That's uncertainty. And I mean, look, the whole week of meetings were held against the backdrop of a lot of things happening. I mean, one of which Janet has mentioned, the future direction of the US economy, but also the performance of risky assets, which has been very strong this year, whether this will continue towards the end of the year or whether there are any reasons that this would change. Clearly, we were holding the meetings in an environment of government shutdown, and data blackout, which is causing an additional layer of uncertainty. China-US tensions on tariffs, renewed tensions very recently, gold prices ripping. So, lots going on, definitely a lot of layers of uncertainty. But look, I wouldn't say the mood was generally very downbeat, especially when it comes to emerging markets. The performance across asset classes this year has been very strong, the strongest since 2017. And clearly investors were kind of looking for ideas and opportunities across all asset classes, and whether this can continue towards the end of the year. Speaking of asset classes, Paul, what does all this mean for the dollar? And what kind of questions were you getting about that? Well, that's the topical question, of course. But just to follow on from Murat's thinking that also the turnout at the events was incredible. That was a huge turnout for through the whole week, which was fantastic to see. But coming back to the question on the dollar, it was top of mind amongst investors, like where are we going next on this currency? And I think the reason why is because a big part of their performance was driven by the weak dollar. And of course, the dollar's fall has stalled over the last few months. I think there's still a general belief, and we would subscribe to it too, that it's not complete. There's still some further decline to come as the Fed is in its easing cycle, and we're still thinking about the backdrop for risky assets still being relatively positive. And we're also thinking about what tends to occur when the Fed is easing, and when recession probabilities in the US are quite low, the dollar tends to sag. So we still think that there's some innings left in this weak dollar story, but it's not going to be in perpetuity. And I think that's a very different message than perhaps some others out there. Yeah, but it wasn't just about uncertainty, Aline. The mood was surprisingly optimistic in a lot of meetings, and it wasn't just regarding emerging markets. I mean, there was still a lot of optimism regarding AI, and many people in Washington saying, yes, yes, this might be a bubble to some degree, but are still riding the wave, still really buying into the idea, not just of a demand-led improvement in AI-related spending, but also the potential productivity gains. And also in the US context, the financial sector deregulation, very important. So the discussions around AI, is it fair to say that they've broadened beyond people looking at tech companies or the tech sector and across policymakers, across investors in a broader sense? Like, is it more of a macro discussion now? I mean, Janet, you've been saying that this is more like a demand story at the moment, more investment demand across the world. We haven't yet seen the supply effects or productivity effects. It may take a while. It may take a while. But if there's one thing we've learned in the space of the last 20 years regarding AI, is that the impact is not linear. It kind of went exponential in 2023 regarding chat GPT. And of course, since then, we've had the China advances regarding deep seek. But more, that's absolutely right. Where we've seen the biggest impact so far is on the demand side. You've seen it in the Asian trade story, a lot of the great resilience so far this year on the trade side isn't just about U.S. front loading. You've still got the AI hardware story and supply chain story playing out in Asia and parts of the emerging economies. As much as we can all point to anecdotes in certain areas where AI has led to some efficiency gains, and obviously, it's perceived to have played a role in some of the rise in graduate unemployment, the fact is there's very little evidence so far of an economy wide impact on productivity growth. Most of the academic literature suggests it's going to be an early 2030s story, but the truth is we just don't know at the moment. And the reason why it is important at the moment is that U.S. growth is strong, but employment growth is very, very weak. And that is the big assessment that policy makers are having to make at the moment. Is it just that you can have still relatively resilient GDP growth with little or no employment growth? I mean, I was going to shift gears a little bit because the other thing that stood out for me is all the debates about fiscal, what's happening in a developed world, in France, in the U.K., we haven't heard that much, neither for the U.S. If anything yields have been falling, that was the background, maybe a little bit of news from Japan. Paul, you follow it very closely. But I'm going to tie it back to the emerging markets argument because I think there is a view out there that emerging markets are risk asset class. They perform well because they are in a relatively better shape. These are GEM strategies they publish, they're calling the good place. So do you mean better shape from a fiscal perspective? Yeah, the macro balances and the policy direction. And actually, there is a thinking that perhaps there's a risk premium compression as emerging markets have been delivering better policy, more foreseeable, predictable and conventional. And the debt levels are lower, no major excesses, either fiscal or current common. I mean, there are obviously exceptions, but as a general broad asset class. So there was this question whether this is a compression of the risk premium vis-à-vis the developed world. And I think that's a key point. So what it means on a forward-looking basis from the currency perspective is that it's not just going to be about a weak dollar or soft dollar that can benefit these currencies. The local factors in a number of different places are on the positive side. So we could see some decoupling, where I mean, we always have to be careful using that word decoupling. But at a certain extent, these currencies can hopefully trade on more of their own merits, their local merit rather than just a byproduct of the soft dollar. It's interesting you mentioned decoupling because that was exactly what came to mind, even though a strong U.S. economy or a resilient U.S. economy usually has a positive impact more broadly. Is that actually necessary to maintain some of these positive trends that you're discussing? Or is there like the U.S. its own story and the rest of the world a different story? Well, this is one of the points that Paul's been making in some of the meetings. You know, so much of the uncertainty so far this year has weighed until relatively recently on the U.S. dollar. But Paul keeps emphasizing you don't forget your relatives. And that's where Japan has come up in some of those conversations, hasn't it, Paul? Absolutely. It's not just about Japan. It's what's been going on in France and how it's been impacting the euro at times. And of course, we still got big things in front of us with the UK and sterling. So yes, I mean, through most of this year, we've just been inundated with having to digest U.S. policy uncertainty and what it means for the dollar. But we've had a very strong reminder about other issues that can impact the respective currencies. So I need to ask you tariffs. We probably between us talked about tariffs more than we ever had in the first few months of this year. Did this come up much? Is this still a pain area to come? What's the view on tariffs? It's still a big talking point. Okay. But generally, most people perceive that tariffs have not had such a negative impact on inflation or on growth than perhaps they had feared. So one of the key points I've been making is that where we've seen the tariff impact feed through in the U.S. already is on those products where you had tariffs imposed at the earlier stage. So on China, for instance. So if you look at the biggest increase in prices in the U.S., it has been in the audio equipment and some household goods and other more expensive products that did have tariffs on them coming through to the U.S. But you also saw a lot of front loading. So what you had over the summer was more tariffs. We will get more tariffs on various sectors, not just later this year, but early next year. And some of those inventories that were built up earlier in the year, especially on inputs and intermediate goods, have actually been run down to some degree. So certainly we are looking for more pass-through in the coming months. But probably too much discussion on tariffs relative to the other big supply shock on the U.S., which is sharply lower immigration. Right. Yeah. And I know we've written a bit about that, especially this week. I think the number of what they call border encounters, so interactions between people trying to get into the U.S. and authorities there, is down 90 percent versus a year ago. So dramatic, dramatic drop. It is. And obviously, you know, this is one of the issues that the Fed itself is grappling with, how much of the slowdown in the labor market is demand. Company is not firing, but not hiring either. And how much of it is, it's not just the lack of border incursions, but how many people are self-deporting. So it's really difficult to know what's happening at the moment regarding the supply side of the labor market. But back to tariffs, the interesting thing to me, and Janet, as you always say, tariffs are a negative demand side shock for the rest of the world. And it's interesting that, you know, that bit, and also trade diversion from China, which for some countries keeping a lid on inflation, it has opened up room for many economies around the world to cut rates irrespective of the Fed. This easing cycle hasn't been led by the Fed, which is very interesting. Fed, you might argue, is a bit of a laggard in this easing cycle. So there might be decoupling on that front. There has been, I mean, ECBS finishes easing cycle. Well, that's the projection. And a lot of emerging market countries have cut interest rates without, you know, Fed easing. And now, perhaps they will have an additional room as the Fed is cutting rates. So that's an interesting angle. The other bit is tons of discussion whether tariffs so far have an impact on inflation. That's because companies have had mitigation strategies with thinking that this could be one-off, but maybe they're not one-off. So perhaps, you know, there is a case to be made that this will be passed more into consumer prices going into 2026. I don't think there is a clear view out there, but it was an interesting discussion point. It was. Is it something you asked a lot of policymakers about in your, you know, 20-plus roundtables with central bank governors and such like you asked them about this trade diversion? I did. And the answer is very varied. I mean, from the policymakers on the ASEAN side, you see they do see impact of trade diversion from China. And this is helping with, you know, broader speaking, keeping inflation in check. But in Europe, it hasn't been the case. I didn't receive a similar response. And I think it's to your argument, it's more about companies eating it in their margins in Europe. Yeah. Well, I mean, the ECB has highlighted it in European Commission, the trade diversion risk from China. And certainly European imports, including the UK's from China, have been very, very strong, but you're not seeing it in the consumer prices level. So, you know, time will tell how much of this is just going through in terms of a margin expansion and higher profits by European companies. And whether we actually see some of it come through at the actual consumer price inflation level. And is tariffs a factor trade? Is that as much of a driving factor for currencies as it was maybe a few months ago, Paul? Or what's your view on that? I'd say less so. I think very much it was front and center through the first quarter and clearly around liberation day and the subsequent weeks thereafter. But you can see just the sensitivity to exchange rates around the headlines just hasn't been that much for different exchange rates. You know, I'm a little bit wary of saying let's move on and it doesn't matter anymore. Of course. Of course, when you start to think that, then suddenly it will matter. But it's interesting that there's been a change in behavior to the reaction function of different currencies to these headlines. So look, we're running out of time. So a couple of things I wanted to cover. In terms of risks ahead, what should we be worrying about? A lot of our clients have been asking about corporate defaults. Are there credit problems brewing? Any views on that? What have you heard? What are your views? No, I'm glad you raised this because that was a major talking point last week. And clearly investors are, you know, looking at the price action. And we've seen actually dollars strengthening a bit and US Treasury is rallying. Is this hard binger of any risk of episode? That was definitely discussed. But the credit strategist in the team they've published good reports. The way they view it is this is more the area of private credit. Whereas the more publicly traded site high yield credit, things are relatively well contained and they're not expecting defaults to rise, you know, beyond anything ordinary. But still lots of question marks because private credit hasn't completely gone through a credit cycle is a relatively new product, maybe where the leverage is a little bit higher. So that's still a major question mark for investors and, you know, they're trying to seek answer whether this will lead into any risk of episode. Yeah. And I think that's interesting because as Murat had pointed out that you did see the dollar strengthen a little bit when there were some tremors around this, around this story of sorts. And that says something about the reaction function of the currency. You know, many people were quick to say that, oh, it's no longer a safe haven currency. And that's why it's going to keep falling when in fact it's demonstrating some old behaviors. It's flickering when this risk aversion has been popping up more recently. The more traditional risk on risk off relationship. It seems to be peering through. Yes. Yes. And you know, the other topic you haven't mentioned, but might be related to a lot of this. You were asked in every meeting Paul, weren't you about gold? Gold, gold, gold. Where are we going next with gold? And then the more people ask about it, and then you see how quickly it rises, but you can also see how quickly it falls. Yes. Yes. I think there was one moment by the start of one meeting and the end of the meeting had fallen $300 an ounce. But look, I think Jim Steele has been very clear about his view about why it's still a bullish backdrop for this precious metal. And I think he's been spot on about it. But with these uncertainties that we've all been talking about, it's still quite constructive for that precious metal. Yeah. Really interesting. Let's wrap it up with a quick takeaway from each of you of something that you've learned about or heard about in the last few weeks that will impact the way you're looking at 2026. Well, there's still a lot of uncertainty even for 2026. But as I say, my overriding takeaway from Washington is that the tone was a lot more optimistic than I had anticipated, given the number of challenges that are being faced. And there is huge optimism. Still on the AI story, even why people are still saying that it might be a bubble. And there was a lot of discussion from the US side regarding stablecoins. But you're not hearing that enthusiasm from Europe at all. Interesting. Paul? I think that given the number of questions on where is the dollar heading next, points to there's some apprehension about whether the dollar has bottom and could rise. That to me is the pain trade for many in financial markets. And this is something that is in the back of our mind. I mean, I certainly think there's been a lot more negativity or caution about how people are thinking for the outlook for Europe, as an example. And obviously that feeds into their view about the euro. Yeah, that's true. There was a lot of caution. We didn't meet many optimists on Europe, did we, Paul? Correct. Yeah, for me, two things actually. One, probably to the upside and the other one to the downside. And as we discussed, a balanced view, we're going into 2026. What's happening in the credit market, particularly in the private side, private credit, is something that drew a lot of attention. So obviously we'll follow it very, very closely. You know, we have a base case, we were credit strategist, but you know, something that really deserves attention on the upside. There was something that I haven't paying enough attention to, but it came, you know, to my radar. That's the talk of a huge wave of deregulation that is coming in the U.S. in the financial market and in the crypto space, which some people argue could be another round of stimulus for the economy going into 2026. So that would be interesting to follow. Really good ideas, lots of great feedback. Thank you for joining me in New York, second year running. Thank you, Aline. Thank you very much. Before we go, a reminder to check out the latest edition of our sister podcast Under the Banyan Tree, where hosts Fred Newman and Harold van der Linde put Asian markets and economics into context. This week's edition was recorded in front of a live studio audience and features discussions on China's economy, technology and electric vehicles. So very complimentary to what we have just been talking about on this podcast. And finally, you can get a touch with us at [email protected] if you have any questions or comments. That's it from us this week. From all of us here, thanks for listening, and please join us again next week on The Macro Brief.