The focal point for markets this week is the FOMC meeting, with futures and swaps pricing in a 92% probability of a rate cut. Today brings Germany’s industrial production data, alongside remarks from the ECB’s Cipollone and the BoE’s Taylor and Lombardelli. On Tuesday, attention turns to US JOLTS job openings, as well as commentary from the ECB’s Nagel and the BoJ’s Ueda. China’s CPI and PPI will open Wednesday’s session, followed by the FOMC’s rate decision and Chair Powell’s presser, likely to be scrutinised given gaps in key data amid the government shutdown. In the UK, Chancellor Reeves will appear before the Treasury Select Committee to defend the budget, while remarks from the ECB’s Lagarde will also be in focus. Thursday brings US initial jobless claims and the trade balance, with comments from the ECB’s Guindos before the central bank enters its quiet period ahead of the 18 December meeting. The BoE’s Bailey will speak on financial stability. Friday rounds out the week with CPI releases from France and Germany, UK industrial production, and remarks from the Fed’s Goolsbee and Hammack.
Markets navigated hawkish BoJ chatter, broadly weaker US data and news of a potential premature change at the Fed’s helm. The week kicked-off with Governor Ueda’s hawkish speech raising the implied probability of a December hike, currently 132%, immediately sparking a strengthening of the yen, unwinding of carry trades, and a global bond market sell-off. The yield on the 10-year UST closed the week 12bps higher at 4.14%. Meanwhile, the S&P Index rose 0.31%. The dollar, DXY Index, lost ground amid the increasing likelihood of an impending cut, closing 0.47% lower on the week. Oil remained supported, gaining 0.87% to $63.75pb, as the US and Russia failed to reach an agreement to end the war in Ukraine.
We heard that President Trump is expected to nominate his preferred candidate for Fed Chair, reportedly White House Economic Director Kevin Hassett. Hassett is a known proponent of the aggressive interest rate cuts sought by the President. However, any nominee’s ability to immediately implement such a policy is constrained, as monetary policy decisions are made by a majority vote within the FOMC, which includes seven governors and five Reserve Bank presidents.
US data signalled further weakness, as the US manufacturing contraction unexpectedly deepened to a four-month low of 48.2 in November (down from 48.7). This contraction, marked by a decline in new orders relative to inventory and increased job losses, argues strongly for a December Fed rate cut. Headline and core PCE deflators both matched consensus at 2.8%yoy, following 2.7% and 2.9% in August, respectively. However, PCE non-housing services inflation remains sticky above 3%yoy indicating that progress towards the Fed’s 2% inflation goal is stalling. Despite a slight uptick in prices paid in manufacturing, and the sticky services inflation, upside risks to prices have not really materialised, leaving room for the Fed to ease policy. The ISM prices paid indexes point to moderating inflation pressures, and the University of Michigan consumer sentiment survey showed inflation expectations eased further in December. We believe the Fed has room to front-load rate cuts to protect the labour market from widespread job losses, resulting in pressure on the dollar.
Elsewhere, Euro Area GDP growth eased to 1.4%yoy in Q3 2025, down from Q2’s revised 1.6%, though the first three quarters grew by 1.5%. Growth was supported by moderate domestic demand (1.7%yoy) and a rebound in exports (1.4%) following a US trade agreement, while imports continued to weigh down the figure. Furthermore, the Euro Area composite PMI continued its upward trend, hitting 52.8 in November, driven by the services sector reaching a 30-month high amid stronger sales and rising demand.
Over in China, trade data released this morning showed a rebound in exports (+5.9%), pushing the nation’s trade surplus above $1tn for the first time. China’s top leaders designated strengthening domestic demand as their main economic priority for 2026, while signalling a balanced approach to stimulus. Authorities vowed to build a strong domestic market and grow “new productive forces,” maintaining “proactive” fiscal and “moderately loose” monetary stances but using “cross-cyclical” policy adjustments to balance support with debt risk.
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