HSBC remains constructive on risk assets despite a fresh uptick in oil prices driven by renewed tensions in the Middle East, the bank's Chief Multi-Asset Strategist Max Kettner said. Kettner emphasized that the escalation in the region "is not affected by this renewed escalation," pointing market focus instead to the Q2 earnings season as a more meaningful influence on asset prices.
Within its latest positioning, HSBC highlighted subdued sequential quarter-over-quarter earnings growth expectations in the United States despite elevated consensus estimates for the period. The bank noted that U.S. banks have "got off to a good start" in the reporting cycle, but overall forward momentum remains limited.
HSBC reiterated its strategic preference to broaden exposure away from the U.S. bias, favoring an overweight allocation to the eurozone. At the same time, the bank warned that any further unwind in momentum "should spell more trouble for US small caps in the coming weeks," flagging risk for that segment of equity markets.
On tactical signals, Kettner said the firm's sentiment and positioning framework "doesn't yet point to any sell signal," and described systematic investor positioning as "just about neutral." He added that HSBC's framework for U.S. Treasuries is "moving closer to a buy signal," indicating a shift in fixed income preference.
Regarding oil markets, HSBC observed that sudden escalations historically have a tendency to unwind quickly and that the recent tensions do not alter the near-term supply glut. Consistent with that assessment, the bank remains "heavily UW oil" in its asset allocation.
However, HSBC acknowledged the renewed tensions do have implications for interest rates. The bank said front-end relative value "still essentially trades like an oil-proxy," a dynamic that has reinforced its overweight stance in gilts.
Lastly, HSBC pointed to the downside surprise in June's U.S. inflation print as a potential early sign that what it called "US exceptionalism" could be unwinding in the second half of the year. The bank presented this inflation surprise as a variable that could influence trend direction across rates and risk assets going forward.
Context and implications
- Q2 earnings season is cited as the primary near-term driver for risk asset performance.
- HSBC favors eurozone equities while warning of potential trouble for U.S. small caps if momentum continues to unwind.
- The bank remains heavily underweight oil while moving closer to a buy signal on U.S. Treasuries and maintaining an overweight in gilts.