HSBC Asset Management reports that 2026 has seen sharp swings in rate expectations for the Bank of England (BoE) and European Central Bank (ECB), with markets shifting from anticipating rate cuts to now pricing in hikes due to rising oil-linked inflation risks [1]. Despite this policy volatility, HSBC notes that volatility in bonds, currencies, and equities remains low, and overall asset performance is resilient, suggesting a disconnect between rate turbulence and broader market calm [1].
HSBC observes that central bank expectations are swinging sharply, with policymakers on both sides of the Atlantic adopting a tougher stance and expressing concerns about second-round effects from the commodities shock [1]. At the start of the year, market expectations were for two cuts from the BoE, but this has reversed to two hikes, with policy forecasts moving in tandem with spot oil prices [1].
The report emphasizes that in a supply-shocked and radically uncertain environment, such instability in rate expectations is not surprising, and forward guidance has become less effective [1]. HSBC further highlights that the cost of capital is increasingly influenced by fiscal, industrial, and geopolitical factors, rather than just policy rates, indicating a shift in the macro regime [1].
CONCLUSION
HSBC's analysis points to a notable divergence between volatile central bank rate expectations and the resilience of broader asset markets. The evolving macro regime is being shaped by fiscal, industrial, and geopolitical influences, with traditional forward guidance losing effectiveness. Investors should be aware of these dynamics as policy uncertainty persists.