HSBC Asset Management observes that 2026 has brought sharp swings in rate expectations for the Bank of England and European Central Bank, with markets moving from cuts to hikes as Oil-linked inflation risks rise. Despite this, volatility in bonds, currencies and equities remains low and broad asset performance is resilient, underscoring the growing role of fiscal, industrial and geopolitical factors in shaping the macro regime.

Rates turbulence versus market resilience

"If rates are so volatile, why are broader financial markets so calm? Central bank expectations are swinging sharply in 2026, but overall asset class performance has been resilient. And that disconnect may signal something important about the macro regime."

"First, policy hikes are back on the table. A few hikes from the Bank of England (BoE) or European Central Bank (ECB) always felt like a stretch. But policymakers on both sides of the Atlantic are talking tougher and worrying about second‑round effects from the commodities shock."

"Second, short-rate volatility feels unusually high. Market expectations started the year pricing two cuts for the BoE, but now it’s two hikes. Policy forecasts have swung alongside spot oil prices."

"In a radically uncertain and supply‑shocked world, that instability shouldn’t surprise us. It’s an environment where forward guidance has become less effective."

"The deeper point is this: the cost of capital isn’t just about policy rates. Fiscal and industrial policies, and geopolitics, are steering the macro regime now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)