December 11 – Bloomberg (Caleb Mutua): “Oracle Corp.’s new investment-grade notes are now trading more like junk bonds, as delays on the completion dates for some data centers add to fears about profits from its artificial intelligence investments… Meanwhile, the cost of protecting Oracle’s debt against default rose as much as 14.4 bps on Friday to 151.3 bps… The measure is poised to finish at its highest level since 2009 for a second-straight session. Oracle is among tech bellwethers borrowing heavily in the public and private debt markets to finance AI efforts.”
Financial conditions: zero. Credit: zero. Leveraged Loans: zero. Leverage: zero. Hedge funds: zero. Basis trade: zero. Bonds: one.
How is it that such critical topics garner not even a mention? Today’s extraordinary environment demands much more from the journalists asking questions at Chair Powell’s post-meeting press conferences.
Blackrock's Jeffrey Rosenberg provided valuable post-press conference analysis (Bloomberg TV):
“The piece that’s missing from this conversation, however, is financial conditions. And that if your goals are conflicting – and it’s sort of a tie – I think you break the tie with financial conditions. But they’re just not discussing that at all anymore, which could come back to haunt them. That’s the piece of the conversation. (Bloomberg’s) Mike Mckee, maybe next press conference, it will be interesting to ask that question. Because they used to talk about it all the time. The whole point of the balance sheet was portfolio rebalance. The impact of the k-shaped recovery - they’ve had a lot to do with that in terms of the wealth effect - is supported by the balance sheet and the Fed’s activities. They absolved themselves of any of that. I think there’s more there to unpack.”
Much more to unpack. It might not yet be obvious to most, but years of excessively loose conditions have come back to haunt the system. And for the Federal Reserve to “absolve” itself from the whole issue is a dereliction of its responsibility to safeguard system stability.
Jeffrey Rosenberg is one of the outstanding macro thinkers of this period. If “it’s sort of a tie” between the stable prices and full employment mandates, “you break the tie with financial conditions.” I’ll go further.
If inflation has remained above target for going on five years, responsible central bank management dictates prudent focus on financial conditions. In elevated inflationary environments, odds favor upside inflation persistence and upside surprises. Moreover, the longer inflationary pressures are accommodated by loose conditions, the greater the eventual tightening that must be imposed to break inflationary biases and psychology.
As for the full employment mandate, I would argue it’s today sort of a tie between evidence of resilience versus downside risks. Here again, financial conditions are key. With a 4.4% unemployment rate (September), a much stronger-than-expected 7.658 million job openings (October), and ongoing historically low weekly unemployment claims, loose conditions significantly reduce the near-term risk of labor market weakness. From this angle, financial conditions analysis would underscore the focus on the price stability mandate.
Most importantly, the Federal Reserve’s overarching responsibility to safeguard monetary and system stability dictates a sound financial conditions analytical framework and management approach. This is an area where contemporary central banking has completely broken down. Repeated massive QE programs and years of loose “money” accommodation unleashed speculative forces that came to dominate global finance. And it is leveraged securities speculation that today largely dictates financial conditions. “Risk on” leveraged speculation stokes self-reinforcing liquidity excess. Lurking “risk off”, meanwhile, risks triggering deleveraging, illiquidity, market dislocation, and panic.
The Fed has slashed rates 175 bps in 15 months, despite extraordinarily loose financial conditions. Such accommodation pushed Bubble excess to speculative blow-off extremes – AI, leveraged lending, private Credit, crypto, M&A, etc. Money Market Fund Assets, my proxy for the expansion of “repo” financed levered speculation, have inflated $1.352 TN, or 21.4%, since the Fed began easing monetary policy (9/18/24). The past 19 weeks' $579 billion, or 22% annualized, expansion pushed the historic three-year monetary inflation to $3.023 TN, or 65%.
December 10 – Financial Times (Kate Duguid and Claire Jones): “The Federal Reserve has said it will launch a $40bn short-term bond-buying programme just weeks after it stopped shrinking its balance sheet following repeated bouts of strain in money markets. The US central bank said… it would begin purchasing Treasury bills… starting on December 12. Its decision comes after interest rates in overnight lending markets jumped last month… Some Fed officials had expressed concern that rates in the repo market, which forms a vital part of the financial system’s plumbing, had repeatedly become unmoored from other borrowing costs the central bank sets.”
December 11 – Bloomberg (Alex Harris): “The Federal Reserve’s plan to buy $40 billion of Treasury bills a month, a bigger chunk than previously expected, triggered a flurry of revisions in Wall Street banks’ 2026 debt issuance forecasts while sending borrowing costs lower. The central bank said it will start buying bills Friday in a bid to ease short-term interest rates by rebuilding reserves in the financial system. Barclays estimates the Fed could wind up buying close to $525 billion of T-bills in 2026 from a previous forecast of $345 billion, with net issuance to private investors estimated at just $220 billion from $400 billion previously.”
QE is back, unsurprisingly.
Chair Powell: “As a separate matter, we also decided to initiate purchases of shorter-term Treasury securities solely for the purpose of maintaining an ample supply of reserves over time, thus supporting effective control of our policy rate.”
“In light of the continued tightening in money market interest rates relative to our administered rates, and other indicators of reserve market conditions, the Committee judged that reserve balances have declined to ample levels. Accordingly, at today’s meeting, the Committee decided to initiate purchases of shorter-term Treasury securities (mainly Treasury bills) for the sole purpose of maintaining an ample supply of reserves over time.”
“So, we knew [tighter funding market conditions] was going to come. When it finally did come, it came a little quicker than expected, but we were absolutely there to take the actions that we said we would take. So, we took those actions are today. We announced that we’re resuming reserve management purchases. That is completely separate from monetary policy. It’s just we need to keep an ample supply of reserves out there.”
“Completely separate from monetary policy” – really? It’s worth noting that Fed assets have inflated from $3.77 TN to $6.54 TN ($2.77 TN, or 73%) since the Fed restarted QE in September 2019. A good question would be why today’s still inflated Fed balance sheet is insufficient from a system liquidity perspective? And at $40 TN a month, the latest QE program is formidable. The FMOC is clearly hoping that a shot of liquidity will help stabilize the “repo” market, while somewhat easing year-end funding pressures. The problem is that previously impactful $40 TN Fed liquidity operations these days confront massively inflated “repo,” funding, and derivative markets, not to mention the enormous “basis trade” and speculative leverage that has ballooned over the past three years.
December 8 – Bloomberg (Alexandra Harris): “Sponsored repo activity, in which dealer-banks net two sides of a trade and hold less capital against it, spiked to a record as firms maneuver to take pressure off their balance sheets. As a result, the overnight market for repurchase agreements ease. Transactions totaled to an all-time high $3.26 trillion as of Dec. 5, from $2.67 trillion the prior session… The roughly $593 billion increase is the largest ever and the $3.26 trillion surpasses the previous record of $2.77 trillion reached on Dec. 1. Repo pressures tend to climb toward the end of the year as banks pare their activity in order to shore up their balance sheets for regulatory purposes, pushing cash out of the private space. In addition, dealer holdings of Treasuries reached a record $473 billion…”
December 8 – Bloomberg (Alice Atkins): “A surge in hedge-fund bets in US interest-rate swaps risks a repeat of the kind of volatility markets saw in April, according to the Bank for International Settlements. The funds have ramped up exposure to Treasuries since the second quarter of 2024, largely through the so-called swap trade, as the popular cash-futures basis trade has stagnated, the BIS said… The strategy involves raising funds in the repo market to buy cash bonds while simultaneously shorting the comparable interest-rate swap to exploit discrepancies in price. The size of the trade reached $631 billion in the second quarter of this year, up from $281 billion in the first quarter of 2024, the paper said.”
I understand why Fed officials are happy to avoid discussing financial conditions. Furthermore, it might be convenient to just extricate QE from the monetary policy discussion. But the issue of the Fed’s liquidity backstop is now more critical to markets than ever. Stocks rallied and the 10-year Treasury yield declined four bps Wednesday on the news of a larger-than-expected QE program.
Of course, the Fed would restart QE as soon as securities funding markets began to turn unstable. The critical issue today is not insufficient reserves. The problem is system fragility caused by a massive increase in speculative leverage. The surge in speculator borrowings creates self-reinforcing system liquidity that fuels asset inflation, speculative excess, and perilous Bubbles. But this structure is inherently fragile. It malfunctions in reverse, with deleveraging leading to liquidity destruction and market dislocation.
I wrote in 2019 that the QE restart was a major policy error. At the time, repo instability was an important market mechanism ready to impose some discipline and disincentivize speculative leveraging. The seemingly stabilizing effect of Fed QE was actually highly destabilizing, as was made clear with the scope of March 2020 deleveraging and near financial meltdown. The Fed’s $5 TN pandemic QE program was a monetary fiasco.
QE has been fundamental to financial, market, economic, and social maladjustment: Inflation, asset price Bubbles, inequality and the “k-shaped” economy, social and political strife. More specifically, QE fueled the historic AI mania and arms race, the cryptocurrency Bubble, and speculative Bubbles more generally.
Arguably, QE’s most consequential impact has been the perception of unassailable “repo” rate and liquidity stability. To be sure, confidence in the Fed’s “repo” market liquidity backstop has been fundamental to the proliferation of highly levered “arbitrage” and “relative value” trading strategies that profit from small but reliable spreads between instruments (i.e., “basis trade”/ Treasuries vs. futures, Treasuries vs. swaps, higher-yielding MBS/corporate bonds/ABS vs. Treasuries).
At some point, a most perilous Bubble dynamic takes hold. This occurs when a Bubble has inflated to the point where market operators realize that highly elevated systemic risk guarantees rapid and forceful central bank responses to waning liquidity and faltering Bubbles. One could argue this juncture was reached in late-2022 (gilt-led bond deleveraging) to early-2023 (Silicon Valley Bank/SVB collapse and bank run). The Fed/GSE’s rapid $500 billion SVB liquidity response was integral to the ongoing historic speculative leveraging “blowoff”.
Resulting liquidity distortions have been monumental. Beyond market excess, liquidity overabundance has accommodated egregious Washington deficit spending. Trillions of speculative leverage shelved the imposition of market discipline on our reckless spendthrift government (of both parties).
Years and decades of monetary inflation and leveraged speculation have created today’s intractable predicament: frighteningly too much “money” aggressively engaged in speculative finance. It’s one colossal Bubble comprised of Crowded Trades virtually everywhere. Markets are dysfunctional, dysfunctionality that has been largely masked by “blowoff” speculative excess and resulting liquidity overabundance. Now, however, pockets of de-risking and deleveraging have begun to emerge. Key hedge fund strategies are faltering, illuminating serious Crowding issues. Resulting volatility and instability will lead to a problematic cycle of speculative deleveraging.
December 12 – Wall Street Journal (Gregory Zuckerman and Peter Rudegeair): “Unprecedented turbulence at a pair of quantitative hedge funds managed by the industry pioneer Renaissance Technologies is causing the firm to consider adjusting its trading models, according to people familiar... The… firm, founded by the mathematician Jim Simons, uses machine learning and predetermined algorithms to bet on and against thousands of stocks at any given time. Renaissance told clients it is weighing an adjustment in its trading models after the two funds, which together manage nearly $20 billion, suffered their worst months ever in October before surging in November. Renaissance’s investing algorithms weren’t prepared for recent, unusual moves in the shares of some small companies, including so-called meme stocks, people… said. The famously secretive firm is now examining ways to reduce the volatility of these funds, the people said.”
December 8 – Bloomberg (Marcus Ashworth): “Regulators are finally starting to appreciate how much major government debt markets are being dominated by a handful of hedge funds. There’s a head of steam building around the issue; the Bank for International Settlements released an important analysis last week of the leverage involved, with the Bank of England's December Financial Stability Report also highlighting the risks to financial stability posed by the trading strategy. But we need to be careful about letting the air of out of this bubble. What’s clear from both reports is that central bankers don’t have a coherent plan for reducing the leverage that’s metastasized in sovereign bonds in recent years. Asking nicely hasn’t worked; the dilemma is how to get hedge funds to suddenly reduce their market share without triggering a market meltdown…”
It just has the feel of the walls starting to close in. The cryptocurrency Bubble is faltering, with vulnerable tech/AI Bubbles shadowing somewhat behind. Speculative leverage is on the regulator radar. Meanwhile, the midterms are now only 11 months away, as Trump politics suffers cataclysmic degradation. We should fully expect the administration to painstakingly pull out all the stops – no matter how unconventional or outrageous.
December 11 – New York Times (Alan Rappeport and Colby Smith): “The Trump administration accelerated its deregulatory push… by asking the Financial Oversight Stability Council, a financial crisis-era government panel that monitors threats to the financial system, to take steps to ease regulations that they claim are strangling economic growth. The focus on deregulation comes as President Trump looks to jump-start economic output ahead of midterm elections next year… The loosening of regulations has been described by Mr. Trump’s advisers as the third pillar of his plan to unleash the nation’s economic potential.”
December 11 – CNBC (Steve Liesman): “Treasury Secretary Scott Bessent is proposing a major change in how the government approaches financial regulation and stability… In a letter set to be released…, Bessent will recommend altering the approach of the Financial Stability Oversight Council. Whereas the agency’s focus had been tightening regulations and oversight of the institutions it oversees, the new plan will switch that, and push for looser regulation and a freer approach. The letter will say, ‘the Council will work with and support member agencies in considering whether aspects of the U.S. financial regulatory framework impose undue burdens and negatively impact economic growth, thereby undermining financial stability’.”
December 11 – Bloomberg (Daniel Flatley): “Treasury Secretary Scott Bessent said he would continue his campaign to reduce financial regulations, highlighting the Trump administration’s effort to bolster economic security amid concerns over persistent inflation and affordability. ‘Economic growth is critical to financial stability,’ Bessent said in a letter accompanying the 2025 annual report for the Financial Stability Oversight Council… Administration officials have already moved to overhaul a range of financial regulations this year, including relaxing capital requirements that lenders have said limit their ability to act as intermediaries in the Treasuries market and eliminating post-crisis curbs on leveraged lending.”
December 11 – Bloomberg (Caitlin Reilly): “The Treasury Department is preparing to release a corporate tax workaround that would deliver large tax savings to companies including Salesforce Inc. and Qualcomm Inc. The tax guidance, which could come as early as next week, would allow companies to take full advantage of lucrative research and development tax breaks included in President Donald Trump’s ‘One Big Beautiful’ tax bill, according to people familiar…”
Ten-year Treasury yields were up 17 bps in two weeks to the highest yield since September 3rd. Five-year yields rose Wednesday to an almost four-month high of 3.81% ahead of the FOMC statement. This yield then fell to a Thursday low of 3.68%, before ending the week back up at 3.74%. The three-month-to-10-year Treasury spread widened to 56 bps (widest since Sept/Oct ’22 bond instability). The spread has widened 178 bps since the Fed cut rates in September 2024.
The bond market has reason to gaze around the table and wonder who’s the sucker. The Fed restarted QE with inflation now deeply embedded. If speculative Bubbles are sustained, debt markets will have to digest massive AI-related borrowings. And if Bubbles falter, the administration will employ all available resources to goose the markets and economy ahead of the midterms.
December 9 – Bloomberg (Laura Davison): “President Donald Trump indicated he would judge a new Federal Reserve chair by whether they immediately move to cut interest rates. Trump responded ‘yes’ when asked in an interview with Politico if a quick reduction of borrowing costs would be a litmus test for his handpicked central bank leader. ‘Yes. Well, this guy... should too,’ Trump told Politico…, referring to current Fed Chair Jerome Powell. ‘I think he’s a combination of not a smart person and doesn’t like Trump’.”
A pertinent question Friday evening in the Oval Office: “How big a role do you want to personally play in a decision by the Fed on interest rates?”
President Trump: “Well, you know, I’ve made a lot of money. I’ve been very successful, and I think my role should be at least out recommending – they don’t have to follow what I say. But we’re going to be choosing a new Fed person in the pretty near future. They went out with 71 different people – all economists and Trump. Of the 71 people, I got it right and one other person – I think from the Wharton School of Finance, my alma mater, got it right. Two people got it right – but I was one of them. So, I think I should certainly have a role in talking to whoever the head of the Fed is… I’ve done great. I’ve made a lot of money - very successful. I think my voice should be heard.”
December 12 – Wall Street Journal (Meridith McGraw, Nick Timiraos and Brian Schwartz): “President Trump said he was leaning toward choosing either former Fed governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the Federal Reserve next year…During a… meeting with Warsh on Wednesday…, the president pressed Warsh on whether he could trust him to support interest-rate cuts if he were chosen to lead the central bank… ‘He thinks you have to lower interest rates,’ Trump said of Warsh. ‘And so does everybody else that I’ve talked to. Trump said he thought the next Fed chair should consult with him on where to set interest rates. ‘Typically, that’s not done anymore. It used to be done routinely. It should be done,’ Trump said. ‘It doesn’t mean—I don’t think he should do exactly what we say. But certainly we’re—I’m a smart voice and should be listened to.'Asked where he wants interest rates to be a year from now, Trump said, ‘1% and maybe lower than that.’ He said rate cuts would help the U.S. Treasury reduce the costs of financing $30 trillion in government debt. ‘We should have the lowest rate in the world,’ he said.”
The Trump shtick is really wearing thin. From Indiana, the House and Senate, the judiciary, grand juries, and even within MAGA, the spectacular Trump power blast has dissipated. Focused on the Achilles heel of the Trump agenda, Scott Bessent prioritized Treasury market placation. But bond traders and levered speculators have eyes and ears. The President presents a major bond market problem, and the unfolding disarray at the Federal Reserve risks a highly destabilizing crisis of confidence.
December 12 – Financial Times (Claire Jones): “Top Federal Reserve officials have said that the US central bank must not be complacent on fighting inflation, as they warned that long-term borrowing costs will rise if Americans lose faith in policymakers. Kansas City Fed chief Jeff Schmid… said ‘I continue to hear concerns about inflation’ in his conversations with businesses and households in the US West and Midwest. ‘Inflation remains too high, the economy shows continued momentum, and the labour market — though cooling — remains largely in balance,’ he wrote… Goolsbee echoed Schmid’s sentiment on inflation, saying on Friday that, ‘given that inflation has been above our target for four and a half years, further progress on it has been stalled for several months, and almost all the businesspeople and consumers we have spoken to in the district lately identify prices as a main concern’. Another four non-voters launched ‘shadow dissents’, showing on the central bank’s projections that they preferred to keep rates steady rather than the quarter-point reduction…”
For Posterity:
December 12 – Financial Times (Robin Wigglesworth): “The darkest depths of winter still lie ahead for America’s capital markets: “Earlier this year, the only remaining Democrat commissioner left on the US Securities and Exchange Commission eviscerated the ‘Jenga-like’ dismantlement of the financial regulator. Yesterday [Caroline Crenshaw] went even further… Her Brookings speech… — titled The Rubble and the Rebuild — still read as a final primal scream at the remarkable evisceration of financial regulation that has happened in 2025.
“It has been unsettling to see how precipitously one Commission is willing to undo the work of the Commission that came before it — all without a single notice-and-comment rulemaking to date. I’m concerned that the fundamental precepts upon which our markets have been built — tenets that have, by and large, kept our markets safe for both issuers and investors alike — are being eroded. I fear that the very core of our intricate market structure is under attack. And instead of safeguarding our markets for investors to fund their retirements in safe and sustainable ways, we are moving in a direction where markets start to look like casinos. The problem with casinos, of course, is that in the long run the house always wins.”
The appetite to deregulate has been rapacious; the analysis of the costs and benefits of our policies has been non-existent; and, the repercussions, I would argue, could be dire. We live in an echo chamber where politicians and policymakers make their own truth through repetition. But, the markets have a way of correcting themselves — not always immediately, but over time. So, I think the true advisability of these policies will reveal themselves eventually. I certainly wouldn’t be alone in analogising the trend toward deregulation in the current environment to the period prior to the stock market crash in 1929… Of late, we have frequently been told that today is a ‘new day’ at the Commission. But anyone aware of our place in the calendar knows that with each successive day the nights grow longer. I fear that the darkest depths of winter still lie ahead for America’s capital markets.”
For the Week:
The S&P500 dipped 0.6% (up 16.1% y-t-d), while the Dow gained 1.0% (up 13.9%). The Utilities declined 1.3% (up 12.9%). The Banks jumped another 3.6% (up 29.2%), and the Broker/Dealers added 1.2% (up 31.0%). The Transports advanced 1.9% (up 10.1%). The S&P 400 Midcaps rose 0.9% (up 7.4%), and the small cap Russell 2000 gained 1.2% (up 14.4%). The Nasdaq100 dropped 1.9% (up 19.9%). The Semiconductors slumped 3.6% (up 41.2%). The Biotechs retreated 1.8% (up 26.3%). With bullion rallying $102, the HUI gold index jumped 5.6% (up 154.3%).
Three-month Treasury bill rates ended the week at 3.5275%. Two-year government yields dipped four bps to 3.52% (down 72bps y-t-d). Five-year T-note yields gained three bps to 3.74% (down 64bps). Ten-year Treasury yields rose five bps to 4.18% (down 38bps). Long bond yields gained five bps to 4.85% (up 6bps). Benchmark Fannie Mae MBS yields added five bps to 5.18% (down 66bps).
Italian 10-year yields rose six bps to 3.55% (up three bps y-t-d). Greek 10-year yields gained six bps to 3.46% (up 24bps). Spain's 10-year yields added four bps to 3.31% (up 25bps). German bund yields jumped six bps to 2.86% (up 49bps). French yields gained five bps to 3.58% (up 38bps). The French to German 10-year bond spread narrowed about one to 72 bps. U.K. 10-year gilt yields rose four bps to 4.52% (down 5bps). U.K.’s FTSE equities index slipped 0.2% (up 18.1% y-t-d).
Japan’s Nikkei 225 Equities Index increased 0.7% (up 27.4% y-t-d). Japan’s 10-year “JGB” added a basis point to 1.95% (up 85bps y-t-d). France’s CAC40 slipped 0.6% (up 9.3%). The German DAX equities index increased 0.7% (up 21.5%). Spain’s IBEX 35 equities index rose 1.0% (up 45.4%). Italy’s FTSE MIB index added 0.2% (up 27.3%). EM equities were mostly higher. Brazil’s Bovespa index rallied 2.2% (up 33.7%), and Mexico’s Bolsa index rose 2.1% (up 30.7%). South Korea’s Kospi gained 1.6% (up 73.7%). India’s Sensex equities index declined 0.5% (up 8.6%). China’s Shanghai Exchange Index slipped 0.3% (up 16.0%). Turkey’s Borsa Istanbul National 100 index jumped 2.8% (up 15.1%).
Federal Reserve Credit declined $17.3 billion last week to $6.490 TN. Fed Credit was down $2.399 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit expanded $2.764 TN, or 74%. Fed Credit inflated $3.679 TN, or 131%, since November 7, 2012 (683 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $14.1bn last week to $3.081 TN. “Custody holdings” were down $215 billion y-o-y, or 6.5%.
Total money market fund assets (MMFA) were little changed at a record $7.655 TN - with a 19-week surge of $579 billion, or 22% annualized. MMFA were up $884 billion, or 13.1%, y-o-y - and ballooned a historic $3.023 TN, or 65%, since October 26, 2022.
Total Commercial Paper increased $8.1 billion to $1.313 TN. CP has expanded $226 billion y-t-d and $157 billion, or 13.6%, y-o-y.
Freddie Mac 30-year fixed mortgage rates increased three bps to 6.22% (down 38bps y-o-y). Fifteen-year rates rose 10 bps to 5.54% (down 30bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up two bps to 6.53% (down 62bps).
Currency Watch:
December 8 – Bloomberg (Anya Andrianova): “Global foreign-exchange trading surged to an all-time high this year, averaging $9.5 trillion per day in April after US President Donald Trump’s trade tariffs roiled markets, according to the Bank for International Settlements. The impact of the tariffs was ‘substantial,’ driving an unexpected drop in the US dollar and accounting for more than $1.5 trillion of the average daily over-the-counter transactions in April… Overall FX trading rose more than a quarter from the previous survey in 2022 and surpassed an estimated peak during the pandemic-induced turbulence of March 2020…”
For the week, the U.S. Dollar Index declined 0.6% to 98.399 (down 9.3% y-t-d). On the upside, the Swedish krona increased 1.4%, the Swiss franc 1.1%, the Mexican peso 0.9%, the euro 0.8%, the Brazilian real 0.6%, the New Zealand dollar 0.5%, the Canadian dollar 0.3%, the Singapore dollar 0.3%, the British pound 0.3%, the South African rand 0.3%, and the Australian dollar 0.2%. On the downside, the South Korean won declined 0.4%, the Japanese yen 0.3%, and the Norwegian krone 0.3%. The Chinese (onshore) renminbi increased 0.23% versus the dollar (up 3.46% y-t-d).
Commodities Watch:
December 6 – Bloomberg (Yihui Xie): “China’s central bank added to its gold reserves for a 13th straight month… Bullion held by the People’s Bank of China rose by 30,000 troy ounces last month, bringing the total to around 74.12 million troy ounces. The current buying cycle began in November 2024.”
The Bloomberg Commodities Index dropped 2.7% (up 10.3% y-t-d). Spot Gold rallied 2.4% to $4,300 (up 63.8%). Silver surged 6.2% to $61.9608 (up 114.4%). WTI crude sank $2.64, or 4.4%, to $57.44 (down 20%). Gasoline fell 4.5% (down 13%), and Natural Gas sank 22.2% to $4.113 (up 14%). Copper fell 1.9% (up 33%). Wheat slipped 0.6% (down 3%), and Corn fell 1.2% (down 6%). Bitcoin recovered $1,000, or 1.1%, to $90,340 (down 3.6%).
Market Instability Watch:
December 11 – Bloomberg (Chris Bryant): “Anyone wanting reassurance that building the infrastructure for artificial intelligence isn’t going to break the bank, won’t have enjoyed Oracle Corp.’s latest earnings report. Wall Street’s de facto barometer of AI fears served up several unwelcome surprises, including $10 billion of quarterly cash burn and a massive increase in capital spending. More worrying, it failed to satisfactorily answer two simple questions: Just how much is all of this going to cost, and what happens if its cornerstone customer, OpenAI, can’t pay?”
December 11 – Bloomberg (Caleb Mutua): “A measure of Oracle Corp.’s credit risk reached a fresh 16-year high Thursday, after the database company’s higher spending on data centers and other equipment raised fresh doubts about how quickly the firm can generate profit from its huge artificial intelligence investments. The cost of protecting the company’s debt against default for five years rose as much as 0.17 percentage point to around 1.41 percentage point a year, the highest intraday level since April 2009…”
December 11 – Bloomberg (James Crombie): “Oracle’s bonds are trading closer to junk than investment grade Thursday morning -- as its stock plummets -- highlighting a key risk to credit markets for next year. If they get cut to junk, flooding the market with the software company’s current $100 billion in debt would test high-yield managers with tight limits on single name holdings. Oracle’s woes should also get credit investors worrying about the broader impact of relevering after years of debt prudence. Besides AI spending, a big M&A revival threatens to significantly boost supply of public corporate debt at a time when demand can’t be guaranteed.”
December 12 – Bloomberg (Brody Ford): “Oracle Corp. has pushed back the completion dates for some of the data centers it’s developing for the artificial intelligence model developer OpenAI to 2028 from 2027, according to people familiar... The delays are largely due to labor and material shortages, said the people… Oracle has been working to deliver on a $300 billion contract to supply the computing power necessary to train and run OpenAI’s models since it was inked this summer. Even with the delays, the timelines for the projects in the US remain ambitious for sites that are set to become some of the largest in the world.”
December 12 – Financial Times (Robin Wigglesworth): “In October, Renaissance Technologies suffered a nightmare, with its two public hedge funds abruptly losing about 15%, before soaring back in November. Yet for a lot of other big quantitative investors, the autumn was mostly plain sailing. Why? We don’t know how RenTech’s fabled employee-only Medallion fund has fared, but for its RIEF and RIDA vehicles — which collectively manage more than $20bn — October was among their worst months ever. Both funds rebounded by double digits last month, but are still heading for another poor year. This has been a topsy-turvy year for many investors, but RenTech’s autumnal woes encapsulate how it has been an exceptionally turbulent year for quantitative ones. Hedge funds that rely on sophisticated modelling and systematic trading have been rattled by a series of mini-crises that insiders say have been mildly reminiscent of the violent ‘quant quake’ that rattled the entire industry in August 2007.”
U.S. Credit Trouble Watch:
December 11 – Bloomberg (Brian Chappatta): “In the span of just a few hours on Friday, private credit firms found themselves in the crosshairs of lawmakers and regulators on both sides of the aisle in Washington. First it was Elizabeth Warren, who… urged top banking cops in the US to stress test the $1.7 trillion market… Then, in what could be a more consequential move, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency did away with 2013 guidance around leveraged loans — rules that bankers complained hamstrung their ability to lend and helped lay the groundwork for private credit to blossom.”
December 8 – Bloomberg (Francesca Veronesi): “The amount of capital that private credit firms have deployed reached a record last year, according to a new report from the Alternative Credit Council, with the larger players like Ares Management Corp., Apollo Global Management Inc. and Blackstone Inc. playing an increasingly dominant role. Capital deployed in private credit deals ballooned to $592.8 billion in 2024, a 78% year-on-year increase from the $333.4 billion deployed the previous year... That year’s deployment level also dwarfs the amount seen in 2021 and 2022, which came in at $127 billion and $203 billion, respectively.”
December 9 – Fortune (Nino Paoli): “Tech companies are issuing more debt now than before the dot-com crash as a rapid infrastructure buildout unfolds in the AI boom, Moody’s Analytics Chief Economist Mark Zandi said… Even after adjusting for inflation, big tech companies are issuing more bonds than during the late 1990s… ‘While the increasingly aggressive (and creative) borrowing by AI companies won’t be their downfall, if they do fall short of investors’ expectations and their stock prices suffer, their debts could quickly become a problem,’ Zandi wrote. ‘Borrowing by AI companies should be on the radar screen as a mounting potential threat to the financial system and broader economy.’ The 10 largest AI companies, including Meta, Amazon, Nvidia and Alphabet, will issue more than $120 billion this year, Zandi said…”
December 10 – Financial Times (Mary McDougall and Alexandra Heal): “Private credit ‘is a buyer beware’ market, the head of Canada’s largest pension fund said… John Graham, chief executive of Canada Pension Plan Investment Board, told the Financial Times that the $561bn fund mainly invested directly in private credit rather than funds. He said to non-investment grade private credit investors: ‘It’s a ‘buyer beware’ market. You should be sophisticated and you should know what you’re buying.’ While Graham thought private credit served a useful role in the system, distributing risk broadly, he had concerns over the ‘speed at which deals are getting done’. ‘We have to make sure that we aren’t compromising on due diligence,’ he said…”
December 11 – Bloomberg (Alexandre Rajbhandari): “Apollo Global Management Inc. compared the potential risks of some US insurers moving to the Cayman Islands with the swift collapse of Silicon Valley Bank, which triggered a crisis among regional lenders. The British overseas territory is the ‘home of regulatory arbitrage,’ Apollo said…, which said Cayman’s insurance market insufficiently manages risk and doesn’t hold sufficient assets against its liabilities. Silicon Valley Bank’s 2023 implosion sprang from similar factors, Apollo said. ‘Cayman may become the insurance sector’s SVB moment,’ according to the presentation, which said the US insurance system’s exposure to the territory more than doubled in two years and is continuing to grow’.”
December 8 – Bloomberg (Tracy Alloway, Michael MacKenzie and Joe Weisenthal): “The chief investment officer of one of the world’s biggest bond funds is warning of ‘dangerous’ assumptions in the credit market, where inflated ratings may be giving investors a false sense of security… ‘It is very, very dangerous to assume something has an investment-grade rating just because the rating agencies assign a rating to it,’ Dan Ivascyn, chief investment officer at Pacific Investment Management Co., said... ‘There’s been so much growth in lending to lower-quality companies. And again, the last major cycle was lending to lower-quality households.’ The warning comes as private credit expands rapidly…”
December 11 – Bloomberg (Reshmi Basu, Eliza Ronalds-Hannon and Steven Church): “Days after First Brands Group collapsed into bankruptcy, Marathon Asset Management founder Bruce Richards laid out a plain case for a rescue loan: ‘Great company, bad balance sheet.’ Two months later, Marathon and others that provided the auto-parts supplier with $1.1 billion are seeing the super-senior debt crater at a speed that bankruptcy experts say is virtually unprecedented. And as the loan plunged from 100 cents on the dollar to as low as 30 cents on Wednesday, the finger-pointing has been swift. It’s also left some fretting about the urgent need for new money.”
December 8 – Financial Times (Eric Platt, Amelia Pollard, Jill R Shah and Sujeet Indap): “The $1.1bn loan First Brands secured to stabilise its business at the start of its bankruptcy dropped in value on Monday, in a sign that the company’s attempt to quickly reorganise its finances is foundering. The so-called debtor-in-possession loan, provided by a cadre of existing First Brands senior lenders in September, was quoted by trading desks between 69 and 72 cents on the dollar, down 20 cents from Friday… ‘Once you start untangling the Gordian knot, it gets murkier and murkier,’ said one person familiar... ‘You’re getting more clarity on how little clarity you have as time goes on’.”
December 8 – Bloomberg (Tatiana Darie): “Despite high-profile bankruptcies that spooked investors a few months ago, the market for leveraged loan sales is wide open — signaling that the credit cycle isn’t turning just yet. At over $900 billion, leveraged-loan issuance this year is so far running just behind 2024 and 2017, making this the third-best year in over a decade.”
December 9 – Wall Street Journal (Telis Demos): “Having trouble trying to figure out how the U.S. consumer is doing lately? You aren’t alone. Now, the increasing migration of consumer lending to less-visible parts of the financial system is only adding to the difficulty. Private credit is exploding onto the scene in what is known as alternative consumer lending. Analysts at KBW tallied up new private-credit funding deals this year for financial-technology firms in consumer lending and estimated that those deals could support nearly $140 billion in lending globally over the next few years. That is a big surge from under $10 billion in 2024… This lending includes things like buy now, pay later arrangements, as well as other kinds of personal loans. And if more lending is funded by private deals, it could also start to change how investors should think about data on consumer debt.”
Global Credit and Financial Bubble Watch:
December 8 – Bloomberg (Ronan Martin): “Companies are hurrying to the bond market for cheap M&A funding while the going is good, long before their deals are even completed. That’s made this quarter the biggest in four years for acquisition financing at $113 billion globally, one of the highest tallies on record… On just one day last week, Merck & Co Inc. and GE HealthCare Technologies Inc. raised a combined $9.25 billion, both for buyouts… These sales are a sign of how strong credit sentiment is heading into the end of 2025, with corporate spreads near record low levels and fund flows continuing to pour in.”
Trump Administration Watch:
December 10 – Bloomberg (Eric Martin, Patricia Garip, Ben Bartenstein and Weilun Soon): “US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela, marking a serious escalation of tensions between the two countries. ‘We’ve just seized a tanker on the coast of Venezuela — large tanker, very large, largest one ever seized, actually,’ President Donald Trump said… ‘And other things are happening.’ A senior Trump administration official referred to the ship as ‘a stateless vessel’ that was last docked in Venezuela… The US action may make it much harder for Venezuela to export its crude, as other shippers are now likely to be more reluctant to load its cargoes. Most of the nation’s oil goes to China, usually through intermediaries, at steep discounts owing to sanctions risk.”
December 10 – Politico (Giselle Ruhiyyih Ewing): “President Donald Trump ratcheted up his threats against Colombia…, telling reporters Colombian President Gustavo Petro is ‘next’ in the White House’s regional campaign against drug trafficking. While initially, Trump told reporters ‘I haven’t really thought too much about’ Petro, his comments quickly swerved into serious saber-rattling… ‘Colombia is producing a lot of drugs,’ Trump said. ‘So he better wise up or he’ll be next. He’ll be next soon. I hope he’s listening, he’s going to be next.’ Trump’s comments mark a sharp escalation of Trump’s threats against the Colombian leader.”
December 10 – Reuters (Marianna Parraga and Jonathan Saul): “More than 30 U.S.-sanctioned oil vessels doing business in Venezuela could face punishment by Washington after the Coast Guard seized a supertanker carrying Venezuelan crude for export, according to shipping data.”
December 8 – Wall Street Journal (Alexander Ward and Lindsay Wise): “President Trump backed away from a vow to release video of a controversial Sept. 2 attack on an alleged drug boat in the Caribbean, including a portion showing the killing of two men who survived the initial strike. The president last week said he would ‘certainly release’ the footage… Democrats said after viewing the video… that the follow-up attack on the two survivors may have constituted a war crime. Republicans have defended the strike, but some have also joined in calling for the video to be released. Trump… told reporters he would leave the final decision on whether to make it public to Defense Secretary Pete Hegseth. ‘Whatever Pete Hegseth wants to do is OK with me,’ the president said…”
December 11 – Reuters (Nolan D. McCaskill and Richard Cowan): “The U.S. Senate… rejected competing proposals by Republicans and Democrats to address a looming healthcare crisis, leaving some 24 million Americans vulnerable to significantly higher insurance premiums beginning on January 1 when a federal subsidy expires. Barring any late breakthroughs, Congress will begin an end-of-year holiday recess sometime next week and not return until January 5, after new premiums are locked in for those who had relied on the Affordable Care Act enhanced subsidy.”
December 8 – Wall Street Journal (Natalie Andrews, Siobhan Hughes and Lindsay Wise): “Republicans have yet to coalesce around a healthcare strategy just days before an expected vote on extending enhanced Obamacare subsidies, triggering concerns from some GOP lawmakers about a voter backlash. The Senate is expected to vote this week on a Democratic-backed measure to extend the enhanced healthcare subsidies for three years… Republicans haven’t yet united around an alternative proposal, as they struggle with how—or whether—to extend the subsidies and address issues that animate conservatives such as healthcare fraud.”
December 11 – Associated Press (Isabella Volmert, Obed Lamy and Thomas Beaumont): “Indiana’s Republican-led Senate decisively rejected a redrawn congressional map Thursday that would have favored their party, defying months of pressure from President Donald Trump and delivering a stark setback to the White House ahead of next year’s midterm elections. The vote was overwhelmingly against the proposed redistricting, with more Republicans opposing than supporting the measure, signaling the limits of Trump’s influence even in one of the country’s most conservative states.”
December 9 – Axios (Rebecca Falconer): “Elon Musk told Katie Miller… that DOGE, the Trump administration’s cost-cutting department he spearheaded, was ‘somewhat successful.’ It’s a rare comment from Musk regarding the work DOGE did earlier this year, and hints at his lingering dissatisfaction with the inner workings of U.S. politics. ‘We were a little bit successful,’ Musk said… when asked if he thought DOGE was a success. ‘We were somewhat successful.’ But, he added, he wouldn't take on the project again.”
December 8 – Financial Times (Sujeet Indap, Alexandra White and Patrick Temple-West): “The Trump administration is accelerating a shift in power from the investor to the boardroom, leading some to predict that it is fostering the end of the era of shareholder capitalism in the US. Boosted by some Republican states, Donald Trump is quickly chipping away at the long-standing structures and institutions underpinning the influence of shareholders, from proxy advisers and large passive asset managers to bedrock securities and corporation law.”
December 8 – Bloomberg (Hadriana Lowenkron and Skylar Woodhouse): “President Donald Trump said he would approve an executive order this week establishing ‘ONE RULE’ on artificial intelligence aimed at limiting state-level policies regulating the technology. ‘I will be doing a ONE RULE Executive Order this week. You can’t expect a company to get 50 Approvals every time they want to do something,’ Trump posted…”
December 8 – Bloomberg (Erin Ailworth, Michael Hirtzer, and Ilena Peng): “US growers say the Trump administration’s $12 billion aid package brings temporary relief, but is unlikely to kickstart a lasting recovery for the American farm economy. President Donald Trump… unveiled a package to a key base of support that includes as much as $11 billion in one-time payments to crop farmers who have been hit hard by his tariff regime and low crop prices. ‘This is kind of a Band-Aid — we need more markets more than we need aid,’ said Missouri farmer Marty Richardson… ‘We’re already buying seed for next year and fertilizer, and we’re behind the eight ball’.”
December 10 – Bloomberg (Hadriana Lowenkron and Patpicha Tanakasempipat): “President Donald Trump plans to speak to the leaders of Thailand and Cambodia as more than half a million people flee a revived border clash, one of eight conflicts the US leader has claimed credit for ending. Fighting between the neighbors, which has killed at least 12 people, erupted over the weekend along their 500-mile frontier. Both sides exchanged artillery fire, and Thailand deployed F-16 jets after accusing Cambodia of firing rockets into civilian areas.”
China Trade War Watch:
December 9 – Bloomberg (Nectar Gan, Lucille Liu, Allen Wan and Philip Glamann): “Donald Trump’s decision to allow Nvidia Corp. to sell advanced chips to China marks more than just a shift in US tech policy. It also raises questions about how far he’ll go to steady ties with Xi Jinping. The Republican leader granted America’s most-valuable company permission on Tuesday to export its high-end H200 chip to China, watering down years of US national security safeguards. While he pledged Nvidia’s top products would remain off bounds, the move gives China access to semiconductors at least a generation ahead of its best technology.”
December 9 – Reuters (Joe Cash): “China’s Premier Li Qiang… urged trading partners to reject rising protectionism… Beijing is now facing broadening tensions with major trading partners beyond the U.S., which are calling on China to do more to reform its $19 trillion economy and reduce its dependence on exports to support growth. China’s second-ranking official pressed the heads of the IMF, World Bank, World Trade Organization and others to strengthen global governance in response to the growing number of economies imposing levies on imported goods… ‘Since the beginning of the year, the threat of tariffs has loomed over the global economy, with various trade restrictions proliferating and severely impacting global economic activity… The mutually destructive consequences of tariffs are becoming increasingly apparent, and calls from all sides to uphold free trade are growing ever stronger,’ Li added.”
December 10 – Wall Street Journal (Raffaele Huang and Brian Spegele): “The U.S. invented the most powerful artificial-intelligence models and controls access to the most advanced computer chips, but China has an ace to play in the global AI contest. China now has the biggest power grid the world has ever seen. Between 2010 and 2024, its power production increased by more than the rest of the world combined. Last year, China generated more than twice as much electricity as the U.S. Some Chinese data centers are now paying less than half what American ones pay for electricity. ‘In China, electricity is our competitive advantage,’ Liu Liehong, head of China’s National Data Administration, said…”
December 12 – Bloomberg: “China is considering a package of incentives worth as much as $70 billion to bankroll and support its chipmaking industry, pouring more state money into a sector it deems pivotal to its technological conflict with the US. Officials are deliberating proposals to earmark a package of subsidies and other financing support in the range of 200 billion yuan ($28bn) to 500 billion yuan, people familiar… said…”
Trade War Watch:
December 9 – Bloomberg (Josh Wingrove): “President Donald Trump threatened to impose an additional 5% tariff on imports from Mexico if the country did not release water that his administration says must be allowed to flow under a treaty, escalating a fight with a major trading partner. ‘I have authorized documentation to impose a 5% Tariff on Mexico if this water isn’t released, IMMEDIATELY,’ Trump posted… ‘The longer Mexico takes to release the water, the more our Farmers are hurt. Mexico has an obligation to FIX THIS NOW’.”
December 9 – Bloomberg (Jennifer A Dlouhy): “US Trade Representative Jamieson Greer is set to speak with a top Indonesian official this week in hopes of salvaging a trade framework at risk of collapsing… Greer is planning to talk with Airlangga Hartarto, the Indonesian coordinating minister for Economic Affairs, in an effort to revive a deal struck in July that would see US tariffs on Indonesian goods reduced from a threatened 32% to 19% in exchange for a series of concessions. But US officials now believe Jakarta is reneging on agreements to eliminate non-tariff barriers on American industrial and agricultural exports as well as digital trade issues…”
December 8 – Bloomberg (Shruti Srivastava and Sudhi Ranjan Sen): “Two separate US delegations are in New Delhi this week to hold talks with their Indian counterparts, seeking to repair bilateral ties even as a trade deal remains elusive. Allison Hooker, under secretary of state for political affairs, will meet senior Indian officials including Foreign Secretary Vikram Misri during her visit from Dec. 7-11… A separate delegation led by Rick Switzer, deputy US trade representative, is expected to arrive Tuesday.”
December 10 – Associated Press: “Mexico’s Congress approved… most of the tariff increases proposed by the government on more than 1,400 products imported from China and other countries that do not have free trade agreements with Mexico. The Senate passed the measure… following the lower chamber… The governing Morena party of President Claudia Sheinbaum, who said the tariffs were necessary to spur domestic production, controls both chambers.”
December 7 – Bloomberg (James Regan): “French President Emmanuel Macron warned that the European Union may be forced to take ‘strong measures’ against China, including potential tariffs, if Beijing fails to address its widening trade imbalance with the bloc. ‘I’m trying to explain to the Chinese that their trade surplus isn’t sustainable because they’re killing their own clients, notably by importing hardly anything from us any more,’ Macron told Les Echos newspaper…”
Constitution Watch:
December 8 – Bloomberg (Zoe Tillman): “A key US Supreme Court justice indicated he wants to protect the Federal Reserve’s independence as the conservative majority weighed giving President Donald Trump power to fire members of the Federal Trade Commission and similar independent agencies. During arguments…, Justice Brett Kavanaugh raised questions about the Fed several times. He asked the administration’s top lawyer, US Solicitor General John Sauer, to address opponents’ arguments that adopting a broad interpretation of Trump’s firing power in the FTC case ultimately would undermine the central bank’s independence. ‘I share those concerns,’ said Kavanaugh…”
December 8 – Associated Press (Mark Sherman): “The Supreme Court… seemed likely to expand presidential control over independent federal agencies, signaling support for President Donald Trump’s firing of board members. The court’s conservative majority suggested it would overturn a unanimous 90-year-old decision that has limited when presidents can fire agencies’ board members — in part to try to ensure decision making free of political influence — or leave it with only its shell intact. Justice Brett Kavanaugh said the crux of the issue is that the officials who direct the agencies ‘are exercising massive power over individual liberty and billion-dollar industries’ without being accountable to anyone.”
December 11 – Bloomberg (Jennifer A. Dlouhy and Leah Nylen): “Hollywood has a rich history of personal vendettas, political discord and uncertain loyalties shaping the industry. It just usually doesn’t involve the US president. Donald Trump’s declaration that he will involve himself in the proposed sale of Warner Bros. Discovery Inc. has thrust an already tumultuous battle between Netflix Inc. and Paramount Skydance Corp. over some of the crown jewels of Tinseltown into uncharted waters. The decision to inject himself is particularly extraordinary given Trump’s own conflicts and interests, according to legal experts. Trump has already signaled one personal precondition for a sale: new ownership of longtime bogeyman CNN…”
December 10 – Wall Street Journal (Brian Schwartz and Alex Leary): “The fate of Warner Bros. Discovery could hinge on a frequent subject of President Trump’s ire: CNN. President Trump told reporters… the ownership of CNN should change regardless of which company buys Warner and that it is ‘imperative that CNN be sold.’ Behind the scenes in recent days, Trump has repeatedly told allies that CNN should either be sold or get new leadership…The president has been unwavering in meetings with allies about his position on CNN and he has connected its future to deal negotiations with Warner Bros… The president’s intervention in corporate dealmaking raises fresh questions about how a transaction might proceed.”
December 9 – New York Times (Charlie Savage): “By thrusting himself into negotiations over rival bids by Netflix and Paramount to buy Warner Bros., President Trump is once again testing the boundaries of his power at a time when the Supreme Court is cutting back on Congress’s ability to check presidential authority. A law empowering the government to block mergers does not specify a personal role for presidents to leverage that authority on a whim or for their own benefit. Congress gave that power to two agencies — the Federal Trade Commission and the Justice Department’s antitrust division — to use based on their analysis of market power concentration and consumer harm.”
Budget Watch:
December 10 – Bloomberg (Daniel Flatley): “The US posted a budget deficit of $278 billion in November after calendar adjustments, slightly smaller than in the same month a year earlier. The adjusted gap narrowed by $16 billion from November 2024… Over the first two months of the current fiscal year, the deficit was down 16% from the year-earlier period… Revenues climbed by 14% in November from a year earlier. The increase was helped by higher customs duties, which totaled $32 billion for the month.”
U.S./Russia/China/Europe/Iran Watch:
December 11 – Politico (Nette Nostlinger): “NATO Chief Mark Rutte urged member countries to do more to prepare for the possibility of large-scale war, warning that Russia may be ready to attack the alliance within five years. ‘We are Russia’s next target. And we are already in harm’s way,’ Rutte said… ‘Russia has brought war back to Europe, and we must be prepared for the scale of war our grandparents and great grandparents endured.’ Although he welcomed the decision by NATO members to increase overall military spending to 5% of gross domestic product annually by 2035, Rutte argued more needed to be done, saying alliance members must shift to a ‘wartime mindset’.”
December 10 – Axios (Zachary Basu): “The Trump administration is engaged in open hostilities with the European Union, turning long-simmering feuds over free speech, Ukraine and mass migration into official U.S. policy. The EU’s $140 million fine of Elon Musk's X platform lit the fuse on a conflict the Trump administration was already primed for — and which it formalized in a new National Security Strategy that casts Europe as a geopolitical villain. ‘They’re destroying their countries,’ Trump told Politico, slamming European nations as ‘decaying’ and ‘weak’… The EU penalized X… after regulators found the platform had misled users, obscured key advertising information and blocked researchers from accessing public data. A furious Musk responded by accusing the EU of stifling free speech through ‘bureaucratic tyranny’ — rallying far-right leaders and millions of followers behind the hashtag #AbolishTheEU. Poland’s Foreign Minister Radoslaw Sikorski… shot back… ‘Go to Mars. There’s no censorship of Nazi salutes there’.”
December 11 – Politico (Ketrin Jochecova): “Donald Trump should not get involved in European democracy, Ursula von der Leyen said…, days after the U.S. president launched a stinging attack on Europe. ‘It is not on us, when it comes to elections, to decide who the leader of the country will be, but on the people of this country… That’s the sovereignty of the voters, and this must be protected,’ the European Commission president said… Nobody else is supposed to interfere, without any question,’ the Commission chief added in response to a question about the U.S. National Security Strategy, which was published last week and caused uproar in Europe.”
China vs. Japan Watch:
December 8 – Reuters (Chang-Ran Kim and Ben Blanchard): “Japan is threatening China militarily which is ‘completely unacceptable’, Chinese Foreign Minister Wang Yi told his German counterpart… Speaking during a meeting with German Foreign Minister Johann Wadephul in Beijing…, Wang said that given this year is the 80th anniversary of the end of World War Two, Japan, ‘as a defeated nation’, should have acted with greater caution. ‘Yet now, its current leader is trying to exploit the Taiwan question - the very territory Japan colonised for half a century, committing countless crimes against the Chinese people - to provoke trouble and threaten China militarily. This is completely unacceptable,’ Wang said…”
December 6 – Bloomberg (Kanoko Matsuyama): “Chinese and Japanese ties, already frayed by Prime Minister Sanae Takaichi’s comments on Taiwan, came under further strain this weekend after a Chinese fighter aircraft trained fire-control radar on Japanese military jets for the first time… The two countries gave conflicting accounts of events, with Tokyo claiming a Chinese fighter jet locked radar on its planes over international waters on Saturday, and Beijing accusing Japanese jets of disrupting its air training.”
December 11 – Wall Street Journal (Jason Douglas): “Two U.S. B-52 bombers flew in formation with Japanese fighters over the Sea of Japan, a conspicuous display of U.S. support for Tokyo as it battles Chinese anger over remarks Prime Minister Sanae Takaichi made about Taiwan. The exercise came a day after Russian and Chinese warplanes conducted their own joint patrol in the seas around Japan’s southern islands… ‘This bilateral exercise reaffirms the strong will between Japan and the U.S. not to tolerate unilateral changes to the status quo by force,’ Japan’s Ministry of Defense said…”
December 9 – Wall Street Journal (Jason Douglas): “Russian and Chinese bombers flew near Japan and South Korea in a joint patrol Tuesday that Tokyo described as a show of force… The military exercise, which Russian state media said lasted around eight hours, comes amid a series of Chinese reprisals against Tokyo over remarks last month by Japanese Prime Minister Sanae Takaichi suggesting that Japan might be dragged into any conflict over Taiwan… The joint Chinese patrol with Russia follows another tense incident on Saturday, when Japan said Chinese warplanes locked radar on Japanese military aircraft near Okinawa…”
December 9 – Bloomberg (Alastair Gale): “As military tensions between China and Japan reach the highest level in more than a decade, the sparsely populated island of Yonaguni finds itself right on the front lines. Sitting just 68 miles east of Taiwan, Yonaguni marks the tail end of an archipelago stretching north to Japan’s main islands… Ever since former US House Speaker Nancy Pelosi’s trip to Taipei in 2022 prompted China to fire missiles that landed near Yonaguni, Japan has accelerated plans for its largest military buildup in at least four decades. Up and down the 160-strong Ryukyu island chain, Japan is quickly putting in place missile batteries, radar towers, ammunition storage sites and other combat facilities.”
December 6 – Financial Times (Demetri Sevastopulo and Leo Lewis): “Japan has urged the US to give Prime Minister Sanae Takaichi more public support after expressing frustration at the level of backing she received following comments about Taiwan that enraged China. Tokyo thinks top US officials have not offered enough support for Japan… Shigeo Yamada, Japan’s ambassador in Washington, has asked the Trump administration to step up its public support for Tokyo…”
New World Order Watch:
December 9 – Bloomberg (Michael Nienaber and Kamil Kowalcze): “German Chancellor Friedrich Merz said the rules-based alliance of normative values once binding the US and Europe has come to an end, posing unprecedented challenges for his country. ‘What we once called the normative West no longer exists in this form,’ Merz said… ‘At best, it is still a geographical designation, but no longer a normative bond that holds us together.’ The new US national security strategy published last week has made it clear that Vice President JD Vance’s speech lambasting Europe in February at the Munich Security Conference was not a slip-up, but the beginning of a US strategic realignment, Merz said.”
December 9 – Axios (Andrew Pantazi): “President Trump offered a grim assessment of America's closest allies in a new interview, dismissing European nations as ‘decaying’ while embracing authoritarian leaders who enforce strict borders. The broadside lands as Europe is already rattled by Trump's tariffs and his push for a Ukraine peace deal that European leaders fear favors Russia and marginalizes the rest of the continent. In a wide-ranging sit-down with Politico's Dasha Burns, Trump backed his administration's new national security strategy, which calls for the U.S. to ‘cultivate resistance to Europe’s current trajectory.’ The White House released the strategy last week, calling it the ‘Trump Corollary to the Monroe Doctrine.’ ‘NATO calls me ‘Daddy,’’ Trump told Burns. ‘I have a lot to say about it.’ Europe, Trump said, is ‘decaying.’ He blamed immigration, saying ‘many of those countries will not be viable countries any longer.’ He singled out London Mayor Sadiq Khan as ‘a horrible, vicious, disgusting mayor,’ and lamented changes to Paris and London due to immigration.”
December 9 – Politico (Alexander Burns): “President Donald Trump denounced Europe as a ‘decaying’ group of nations led by ‘weak’ people in an interview with POLITICO, belittling the traditional U.S. allies for failing to control migration and end the Russia-Ukraine war, and signaling that he would endorse European political candidates aligned with his own vision for the continent. The broadside attack against European political leadership represents the president’s most virulent denunciation to date of these Western democracies… ‘I think they’re weak,’ Trump said of Europe’s political leaders. ‘But I also think that they want to be so politically correct.’ ‘I think they don’t know what to do,’ he added. ‘Europe doesn’t know what to do’.”
Ukraine War Watch:
December 9 – Associated Press (Paolo Santalucia and Illia Novikov): “Ukrainian President Volodymyr Zelenskyy has reaffirmed his strong refusal to cede any territory, resisting U.S. pressure for painful concessions to Russia as he moved ahead Tuesday to rally more European support for his country. ‘Undoubtedly, Russia insists for us to give up territories. We, clearly, don’t want to give up anything. That’s what we are fighting for,’ Zelenskyy told reporters… ‘Do we consider ceding any territories? According to the law we don’t have such right,’ he said. ‘According to Ukraine’s law, our constitution, international law, and to be frank, we don’t have a moral right either’.”
December 9 – Wall Street Journal (Laurence Norman, Anastasiia Malenko and Alexander Ward): “President Trump dialed up pressure on Ukraine to swiftly accept a U.S.-designed peace plan, hardening his position toward the embattled country and its European backers, who insist U.S. security guarantees are vital to a peace deal. Exacerbating tensions between Europe and Washington, Trump lambasted European leaders as weak and said Russia holds the cards in any peace negotiation with Ukraine. Ukrainian President Volodymyr Zelensky ‘is going to have to get on the ball and start accepting things,’ Trump said…, adding that Ukraine ‘is losing’.”
The S&P500 dipped 0.6% (up 16.1% y-t-d), while the Dow gained 1.0% (up 13.9%). The Utilities declined 1.3% (up 12.9%). The Banks jumped another 3.6% (up 29.2%), and the Broker/Dealers added 1.2% (up 31.0%). The Transports advanced 1.9% (up 10.1%). The S&P 400 Midcaps rose 0.9% (up 7.4%), and the small cap Russell 2000 gained 1.2% (up 14.4%). The Nasdaq100 dropped 1.9% (up 19.9%). The Semiconductors slumped 3.6% (up 41.2%). The Biotechs retreated 1.8% (up 26.3%). With bullion rallying $102, the HUI gold index jumped 5.6% (up 154.3%).
Three-month Treasury bill rates ended the week at 3.5275%. Two-year government yields dipped four bps to 3.52% (down 72bps y-t-d). Five-year T-note yields gained three bps to 3.74% (down 64bps). Ten-year Treasury yields rose five bps to 4.18% (down 38bps). Long bond yields gained five bps to 4.85% (up 6bps). Benchmark Fannie Mae MBS yields added five bps to 5.18% (down 66bps).
Italian 10-year yields rose six bps to 3.55% (up three bps y-t-d). Greek 10-year yields gained six bps to 3.46% (up 24bps). Spain's 10-year yields added four bps to 3.31% (up 25bps). German bund yields jumped six bps to 2.86% (up 49bps). French yields gained five bps to 3.58% (up 38bps). The French to German 10-year bond spread narrowed about one to 72 bps. U.K. 10-year gilt yields rose four bps to 4.52% (down 5bps). U.K.’s FTSE equities index slipped 0.2% (up 18.1% y-t-d).
Japan’s Nikkei 225 Equities Index increased 0.7% (up 27.4% y-t-d). Japan’s 10-year “JGB” added a basis point to 1.95% (up 85bps y-t-d). France’s CAC40 slipped 0.6% (up 9.3%). The German DAX equities index increased 0.7% (up 21.5%). Spain’s IBEX 35 equities index rose 1.0% (up 45.4%). Italy’s FTSE MIB index added 0.2% (up 27.3%). EM equities were mostly higher. Brazil’s Bovespa index rallied 2.2% (up 33.7%), and Mexico’s Bolsa index rose 2.1% (up 30.7%). South Korea’s Kospi gained 1.6% (up 73.7%). India’s Sensex equities index declined 0.5% (up 8.6%). China’s Shanghai Exchange Index slipped 0.3% (up 16.0%). Turkey’s Borsa Istanbul National 100 index jumped 2.8% (up 15.1%).
Federal Reserve Credit declined $17.3 billion last week to $6.490 TN. Fed Credit was down $2.399 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit expanded $2.764 TN, or 74%. Fed Credit inflated $3.679 TN, or 131%, since November 7, 2012 (683 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $14.1bn last week to $3.081 TN. “Custody holdings” were down $215 billion y-o-y, or 6.5%.
Total money market fund assets (MMFA) were little changed at a record $7.655 TN - with a 19-week surge of $579 billion, or 22% annualized. MMFA were up $884 billion, or 13.1%, y-o-y - and ballooned a historic $3.023 TN, or 65%, since October 26, 2022.
Total Commercial Paper increased $8.1 billion to $1.313 TN. CP has expanded $226 billion y-t-d and $157 billion, or 13.6%, y-o-y.
Freddie Mac 30-year fixed mortgage rates increased three bps to 6.22% (down 38bps y-o-y). Fifteen-year rates rose 10 bps to 5.54% (down 30bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up two bps to 6.53% (down 62bps).
Currency Watch:
December 8 – Bloomberg (Anya Andrianova): “Global foreign-exchange trading surged to an all-time high this year, averaging $9.5 trillion per day in April after US President Donald Trump’s trade tariffs roiled markets, according to the Bank for International Settlements. The impact of the tariffs was ‘substantial,’ driving an unexpected drop in the US dollar and accounting for more than $1.5 trillion of the average daily over-the-counter transactions in April… Overall FX trading rose more than a quarter from the previous survey in 2022 and surpassed an estimated peak during the pandemic-induced turbulence of March 2020…”
For the week, the U.S. Dollar Index declined 0.6% to 98.399 (down 9.3% y-t-d). On the upside, the Swedish krona increased 1.4%, the Swiss franc 1.1%, the Mexican peso 0.9%, the euro 0.8%, the Brazilian real 0.6%, the New Zealand dollar 0.5%, the Canadian dollar 0.3%, the Singapore dollar 0.3%, the British pound 0.3%, the South African rand 0.3%, and the Australian dollar 0.2%. On the downside, the South Korean won declined 0.4%, the Japanese yen 0.3%, and the Norwegian krone 0.3%. The Chinese (onshore) renminbi increased 0.23% versus the dollar (up 3.46% y-t-d).
Commodities Watch:
December 6 – Bloomberg (Yihui Xie): “China’s central bank added to its gold reserves for a 13th straight month… Bullion held by the People’s Bank of China rose by 30,000 troy ounces last month, bringing the total to around 74.12 million troy ounces. The current buying cycle began in November 2024.”
The Bloomberg Commodities Index dropped 2.7% (up 10.3% y-t-d). Spot Gold rallied 2.4% to $4,300 (up 63.8%). Silver surged 6.2% to $61.9608 (up 114.4%). WTI crude sank $2.64, or 4.4%, to $57.44 (down 20%). Gasoline fell 4.5% (down 13%), and Natural Gas sank 22.2% to $4.113 (up 14%). Copper fell 1.9% (up 33%). Wheat slipped 0.6% (down 3%), and Corn fell 1.2% (down 6%). Bitcoin recovered $1,000, or 1.1%, to $90,340 (down 3.6%).
Market Instability Watch:
December 11 – Bloomberg (Chris Bryant): “Anyone wanting reassurance that building the infrastructure for artificial intelligence isn’t going to break the bank, won’t have enjoyed Oracle Corp.’s latest earnings report. Wall Street’s de facto barometer of AI fears served up several unwelcome surprises, including $10 billion of quarterly cash burn and a massive increase in capital spending. More worrying, it failed to satisfactorily answer two simple questions: Just how much is all of this going to cost, and what happens if its cornerstone customer, OpenAI, can’t pay?”
December 11 – Bloomberg (Caleb Mutua): “A measure of Oracle Corp.’s credit risk reached a fresh 16-year high Thursday, after the database company’s higher spending on data centers and other equipment raised fresh doubts about how quickly the firm can generate profit from its huge artificial intelligence investments. The cost of protecting the company’s debt against default for five years rose as much as 0.17 percentage point to around 1.41 percentage point a year, the highest intraday level since April 2009…”
December 11 – Bloomberg (James Crombie): “Oracle’s bonds are trading closer to junk than investment grade Thursday morning -- as its stock plummets -- highlighting a key risk to credit markets for next year. If they get cut to junk, flooding the market with the software company’s current $100 billion in debt would test high-yield managers with tight limits on single name holdings. Oracle’s woes should also get credit investors worrying about the broader impact of relevering after years of debt prudence. Besides AI spending, a big M&A revival threatens to significantly boost supply of public corporate debt at a time when demand can’t be guaranteed.”
December 12 – Bloomberg (Brody Ford): “Oracle Corp. has pushed back the completion dates for some of the data centers it’s developing for the artificial intelligence model developer OpenAI to 2028 from 2027, according to people familiar... The delays are largely due to labor and material shortages, said the people… Oracle has been working to deliver on a $300 billion contract to supply the computing power necessary to train and run OpenAI’s models since it was inked this summer. Even with the delays, the timelines for the projects in the US remain ambitious for sites that are set to become some of the largest in the world.”
December 12 – Financial Times (Robin Wigglesworth): “In October, Renaissance Technologies suffered a nightmare, with its two public hedge funds abruptly losing about 15%, before soaring back in November. Yet for a lot of other big quantitative investors, the autumn was mostly plain sailing. Why? We don’t know how RenTech’s fabled employee-only Medallion fund has fared, but for its RIEF and RIDA vehicles — which collectively manage more than $20bn — October was among their worst months ever. Both funds rebounded by double digits last month, but are still heading for another poor year. This has been a topsy-turvy year for many investors, but RenTech’s autumnal woes encapsulate how it has been an exceptionally turbulent year for quantitative ones. Hedge funds that rely on sophisticated modelling and systematic trading have been rattled by a series of mini-crises that insiders say have been mildly reminiscent of the violent ‘quant quake’ that rattled the entire industry in August 2007.”
U.S. Credit Trouble Watch:
December 11 – Bloomberg (Brian Chappatta): “In the span of just a few hours on Friday, private credit firms found themselves in the crosshairs of lawmakers and regulators on both sides of the aisle in Washington. First it was Elizabeth Warren, who… urged top banking cops in the US to stress test the $1.7 trillion market… Then, in what could be a more consequential move, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency did away with 2013 guidance around leveraged loans — rules that bankers complained hamstrung their ability to lend and helped lay the groundwork for private credit to blossom.”
December 8 – Bloomberg (Francesca Veronesi): “The amount of capital that private credit firms have deployed reached a record last year, according to a new report from the Alternative Credit Council, with the larger players like Ares Management Corp., Apollo Global Management Inc. and Blackstone Inc. playing an increasingly dominant role. Capital deployed in private credit deals ballooned to $592.8 billion in 2024, a 78% year-on-year increase from the $333.4 billion deployed the previous year... That year’s deployment level also dwarfs the amount seen in 2021 and 2022, which came in at $127 billion and $203 billion, respectively.”
December 9 – Fortune (Nino Paoli): “Tech companies are issuing more debt now than before the dot-com crash as a rapid infrastructure buildout unfolds in the AI boom, Moody’s Analytics Chief Economist Mark Zandi said… Even after adjusting for inflation, big tech companies are issuing more bonds than during the late 1990s… ‘While the increasingly aggressive (and creative) borrowing by AI companies won’t be their downfall, if they do fall short of investors’ expectations and their stock prices suffer, their debts could quickly become a problem,’ Zandi wrote. ‘Borrowing by AI companies should be on the radar screen as a mounting potential threat to the financial system and broader economy.’ The 10 largest AI companies, including Meta, Amazon, Nvidia and Alphabet, will issue more than $120 billion this year, Zandi said…”
December 10 – Financial Times (Mary McDougall and Alexandra Heal): “Private credit ‘is a buyer beware’ market, the head of Canada’s largest pension fund said… John Graham, chief executive of Canada Pension Plan Investment Board, told the Financial Times that the $561bn fund mainly invested directly in private credit rather than funds. He said to non-investment grade private credit investors: ‘It’s a ‘buyer beware’ market. You should be sophisticated and you should know what you’re buying.’ While Graham thought private credit served a useful role in the system, distributing risk broadly, he had concerns over the ‘speed at which deals are getting done’. ‘We have to make sure that we aren’t compromising on due diligence,’ he said…”
December 11 – Bloomberg (Alexandre Rajbhandari): “Apollo Global Management Inc. compared the potential risks of some US insurers moving to the Cayman Islands with the swift collapse of Silicon Valley Bank, which triggered a crisis among regional lenders. The British overseas territory is the ‘home of regulatory arbitrage,’ Apollo said…, which said Cayman’s insurance market insufficiently manages risk and doesn’t hold sufficient assets against its liabilities. Silicon Valley Bank’s 2023 implosion sprang from similar factors, Apollo said. ‘Cayman may become the insurance sector’s SVB moment,’ according to the presentation, which said the US insurance system’s exposure to the territory more than doubled in two years and is continuing to grow’.”
December 8 – Bloomberg (Tracy Alloway, Michael MacKenzie and Joe Weisenthal): “The chief investment officer of one of the world’s biggest bond funds is warning of ‘dangerous’ assumptions in the credit market, where inflated ratings may be giving investors a false sense of security… ‘It is very, very dangerous to assume something has an investment-grade rating just because the rating agencies assign a rating to it,’ Dan Ivascyn, chief investment officer at Pacific Investment Management Co., said... ‘There’s been so much growth in lending to lower-quality companies. And again, the last major cycle was lending to lower-quality households.’ The warning comes as private credit expands rapidly…”
December 11 – Bloomberg (Reshmi Basu, Eliza Ronalds-Hannon and Steven Church): “Days after First Brands Group collapsed into bankruptcy, Marathon Asset Management founder Bruce Richards laid out a plain case for a rescue loan: ‘Great company, bad balance sheet.’ Two months later, Marathon and others that provided the auto-parts supplier with $1.1 billion are seeing the super-senior debt crater at a speed that bankruptcy experts say is virtually unprecedented. And as the loan plunged from 100 cents on the dollar to as low as 30 cents on Wednesday, the finger-pointing has been swift. It’s also left some fretting about the urgent need for new money.”
December 8 – Financial Times (Eric Platt, Amelia Pollard, Jill R Shah and Sujeet Indap): “The $1.1bn loan First Brands secured to stabilise its business at the start of its bankruptcy dropped in value on Monday, in a sign that the company’s attempt to quickly reorganise its finances is foundering. The so-called debtor-in-possession loan, provided by a cadre of existing First Brands senior lenders in September, was quoted by trading desks between 69 and 72 cents on the dollar, down 20 cents from Friday… ‘Once you start untangling the Gordian knot, it gets murkier and murkier,’ said one person familiar... ‘You’re getting more clarity on how little clarity you have as time goes on’.”
December 8 – Bloomberg (Tatiana Darie): “Despite high-profile bankruptcies that spooked investors a few months ago, the market for leveraged loan sales is wide open — signaling that the credit cycle isn’t turning just yet. At over $900 billion, leveraged-loan issuance this year is so far running just behind 2024 and 2017, making this the third-best year in over a decade.”
December 9 – Wall Street Journal (Telis Demos): “Having trouble trying to figure out how the U.S. consumer is doing lately? You aren’t alone. Now, the increasing migration of consumer lending to less-visible parts of the financial system is only adding to the difficulty. Private credit is exploding onto the scene in what is known as alternative consumer lending. Analysts at KBW tallied up new private-credit funding deals this year for financial-technology firms in consumer lending and estimated that those deals could support nearly $140 billion in lending globally over the next few years. That is a big surge from under $10 billion in 2024… This lending includes things like buy now, pay later arrangements, as well as other kinds of personal loans. And if more lending is funded by private deals, it could also start to change how investors should think about data on consumer debt.”
Global Credit and Financial Bubble Watch:
December 8 – Bloomberg (Ronan Martin): “Companies are hurrying to the bond market for cheap M&A funding while the going is good, long before their deals are even completed. That’s made this quarter the biggest in four years for acquisition financing at $113 billion globally, one of the highest tallies on record… On just one day last week, Merck & Co Inc. and GE HealthCare Technologies Inc. raised a combined $9.25 billion, both for buyouts… These sales are a sign of how strong credit sentiment is heading into the end of 2025, with corporate spreads near record low levels and fund flows continuing to pour in.”
Trump Administration Watch:
December 10 – Bloomberg (Eric Martin, Patricia Garip, Ben Bartenstein and Weilun Soon): “US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela, marking a serious escalation of tensions between the two countries. ‘We’ve just seized a tanker on the coast of Venezuela — large tanker, very large, largest one ever seized, actually,’ President Donald Trump said… ‘And other things are happening.’ A senior Trump administration official referred to the ship as ‘a stateless vessel’ that was last docked in Venezuela… The US action may make it much harder for Venezuela to export its crude, as other shippers are now likely to be more reluctant to load its cargoes. Most of the nation’s oil goes to China, usually through intermediaries, at steep discounts owing to sanctions risk.”
December 10 – Politico (Giselle Ruhiyyih Ewing): “President Donald Trump ratcheted up his threats against Colombia…, telling reporters Colombian President Gustavo Petro is ‘next’ in the White House’s regional campaign against drug trafficking. While initially, Trump told reporters ‘I haven’t really thought too much about’ Petro, his comments quickly swerved into serious saber-rattling… ‘Colombia is producing a lot of drugs,’ Trump said. ‘So he better wise up or he’ll be next. He’ll be next soon. I hope he’s listening, he’s going to be next.’ Trump’s comments mark a sharp escalation of Trump’s threats against the Colombian leader.”
December 10 – Reuters (Marianna Parraga and Jonathan Saul): “More than 30 U.S.-sanctioned oil vessels doing business in Venezuela could face punishment by Washington after the Coast Guard seized a supertanker carrying Venezuelan crude for export, according to shipping data.”
December 8 – Wall Street Journal (Alexander Ward and Lindsay Wise): “President Trump backed away from a vow to release video of a controversial Sept. 2 attack on an alleged drug boat in the Caribbean, including a portion showing the killing of two men who survived the initial strike. The president last week said he would ‘certainly release’ the footage… Democrats said after viewing the video… that the follow-up attack on the two survivors may have constituted a war crime. Republicans have defended the strike, but some have also joined in calling for the video to be released. Trump… told reporters he would leave the final decision on whether to make it public to Defense Secretary Pete Hegseth. ‘Whatever Pete Hegseth wants to do is OK with me,’ the president said…”
December 11 – Reuters (Nolan D. McCaskill and Richard Cowan): “The U.S. Senate… rejected competing proposals by Republicans and Democrats to address a looming healthcare crisis, leaving some 24 million Americans vulnerable to significantly higher insurance premiums beginning on January 1 when a federal subsidy expires. Barring any late breakthroughs, Congress will begin an end-of-year holiday recess sometime next week and not return until January 5, after new premiums are locked in for those who had relied on the Affordable Care Act enhanced subsidy.”
December 8 – Wall Street Journal (Natalie Andrews, Siobhan Hughes and Lindsay Wise): “Republicans have yet to coalesce around a healthcare strategy just days before an expected vote on extending enhanced Obamacare subsidies, triggering concerns from some GOP lawmakers about a voter backlash. The Senate is expected to vote this week on a Democratic-backed measure to extend the enhanced healthcare subsidies for three years… Republicans haven’t yet united around an alternative proposal, as they struggle with how—or whether—to extend the subsidies and address issues that animate conservatives such as healthcare fraud.”
December 11 – Associated Press (Isabella Volmert, Obed Lamy and Thomas Beaumont): “Indiana’s Republican-led Senate decisively rejected a redrawn congressional map Thursday that would have favored their party, defying months of pressure from President Donald Trump and delivering a stark setback to the White House ahead of next year’s midterm elections. The vote was overwhelmingly against the proposed redistricting, with more Republicans opposing than supporting the measure, signaling the limits of Trump’s influence even in one of the country’s most conservative states.”
December 9 – Axios (Rebecca Falconer): “Elon Musk told Katie Miller… that DOGE, the Trump administration’s cost-cutting department he spearheaded, was ‘somewhat successful.’ It’s a rare comment from Musk regarding the work DOGE did earlier this year, and hints at his lingering dissatisfaction with the inner workings of U.S. politics. ‘We were a little bit successful,’ Musk said… when asked if he thought DOGE was a success. ‘We were somewhat successful.’ But, he added, he wouldn't take on the project again.”
December 8 – Financial Times (Sujeet Indap, Alexandra White and Patrick Temple-West): “The Trump administration is accelerating a shift in power from the investor to the boardroom, leading some to predict that it is fostering the end of the era of shareholder capitalism in the US. Boosted by some Republican states, Donald Trump is quickly chipping away at the long-standing structures and institutions underpinning the influence of shareholders, from proxy advisers and large passive asset managers to bedrock securities and corporation law.”
December 8 – Bloomberg (Hadriana Lowenkron and Skylar Woodhouse): “President Donald Trump said he would approve an executive order this week establishing ‘ONE RULE’ on artificial intelligence aimed at limiting state-level policies regulating the technology. ‘I will be doing a ONE RULE Executive Order this week. You can’t expect a company to get 50 Approvals every time they want to do something,’ Trump posted…”
December 8 – Bloomberg (Erin Ailworth, Michael Hirtzer, and Ilena Peng): “US growers say the Trump administration’s $12 billion aid package brings temporary relief, but is unlikely to kickstart a lasting recovery for the American farm economy. President Donald Trump… unveiled a package to a key base of support that includes as much as $11 billion in one-time payments to crop farmers who have been hit hard by his tariff regime and low crop prices. ‘This is kind of a Band-Aid — we need more markets more than we need aid,’ said Missouri farmer Marty Richardson… ‘We’re already buying seed for next year and fertilizer, and we’re behind the eight ball’.”
December 10 – Bloomberg (Hadriana Lowenkron and Patpicha Tanakasempipat): “President Donald Trump plans to speak to the leaders of Thailand and Cambodia as more than half a million people flee a revived border clash, one of eight conflicts the US leader has claimed credit for ending. Fighting between the neighbors, which has killed at least 12 people, erupted over the weekend along their 500-mile frontier. Both sides exchanged artillery fire, and Thailand deployed F-16 jets after accusing Cambodia of firing rockets into civilian areas.”
China Trade War Watch:
December 9 – Bloomberg (Nectar Gan, Lucille Liu, Allen Wan and Philip Glamann): “Donald Trump’s decision to allow Nvidia Corp. to sell advanced chips to China marks more than just a shift in US tech policy. It also raises questions about how far he’ll go to steady ties with Xi Jinping. The Republican leader granted America’s most-valuable company permission on Tuesday to export its high-end H200 chip to China, watering down years of US national security safeguards. While he pledged Nvidia’s top products would remain off bounds, the move gives China access to semiconductors at least a generation ahead of its best technology.”
December 9 – Reuters (Joe Cash): “China’s Premier Li Qiang… urged trading partners to reject rising protectionism… Beijing is now facing broadening tensions with major trading partners beyond the U.S., which are calling on China to do more to reform its $19 trillion economy and reduce its dependence on exports to support growth. China’s second-ranking official pressed the heads of the IMF, World Bank, World Trade Organization and others to strengthen global governance in response to the growing number of economies imposing levies on imported goods… ‘Since the beginning of the year, the threat of tariffs has loomed over the global economy, with various trade restrictions proliferating and severely impacting global economic activity… The mutually destructive consequences of tariffs are becoming increasingly apparent, and calls from all sides to uphold free trade are growing ever stronger,’ Li added.”
December 10 – Wall Street Journal (Raffaele Huang and Brian Spegele): “The U.S. invented the most powerful artificial-intelligence models and controls access to the most advanced computer chips, but China has an ace to play in the global AI contest. China now has the biggest power grid the world has ever seen. Between 2010 and 2024, its power production increased by more than the rest of the world combined. Last year, China generated more than twice as much electricity as the U.S. Some Chinese data centers are now paying less than half what American ones pay for electricity. ‘In China, electricity is our competitive advantage,’ Liu Liehong, head of China’s National Data Administration, said…”
December 12 – Bloomberg: “China is considering a package of incentives worth as much as $70 billion to bankroll and support its chipmaking industry, pouring more state money into a sector it deems pivotal to its technological conflict with the US. Officials are deliberating proposals to earmark a package of subsidies and other financing support in the range of 200 billion yuan ($28bn) to 500 billion yuan, people familiar… said…”
Trade War Watch:
December 9 – Bloomberg (Josh Wingrove): “President Donald Trump threatened to impose an additional 5% tariff on imports from Mexico if the country did not release water that his administration says must be allowed to flow under a treaty, escalating a fight with a major trading partner. ‘I have authorized documentation to impose a 5% Tariff on Mexico if this water isn’t released, IMMEDIATELY,’ Trump posted… ‘The longer Mexico takes to release the water, the more our Farmers are hurt. Mexico has an obligation to FIX THIS NOW’.”
December 9 – Bloomberg (Jennifer A Dlouhy): “US Trade Representative Jamieson Greer is set to speak with a top Indonesian official this week in hopes of salvaging a trade framework at risk of collapsing… Greer is planning to talk with Airlangga Hartarto, the Indonesian coordinating minister for Economic Affairs, in an effort to revive a deal struck in July that would see US tariffs on Indonesian goods reduced from a threatened 32% to 19% in exchange for a series of concessions. But US officials now believe Jakarta is reneging on agreements to eliminate non-tariff barriers on American industrial and agricultural exports as well as digital trade issues…”
December 8 – Bloomberg (Shruti Srivastava and Sudhi Ranjan Sen): “Two separate US delegations are in New Delhi this week to hold talks with their Indian counterparts, seeking to repair bilateral ties even as a trade deal remains elusive. Allison Hooker, under secretary of state for political affairs, will meet senior Indian officials including Foreign Secretary Vikram Misri during her visit from Dec. 7-11… A separate delegation led by Rick Switzer, deputy US trade representative, is expected to arrive Tuesday.”
December 10 – Associated Press: “Mexico’s Congress approved… most of the tariff increases proposed by the government on more than 1,400 products imported from China and other countries that do not have free trade agreements with Mexico. The Senate passed the measure… following the lower chamber… The governing Morena party of President Claudia Sheinbaum, who said the tariffs were necessary to spur domestic production, controls both chambers.”
December 7 – Bloomberg (James Regan): “French President Emmanuel Macron warned that the European Union may be forced to take ‘strong measures’ against China, including potential tariffs, if Beijing fails to address its widening trade imbalance with the bloc. ‘I’m trying to explain to the Chinese that their trade surplus isn’t sustainable because they’re killing their own clients, notably by importing hardly anything from us any more,’ Macron told Les Echos newspaper…”
Constitution Watch:
December 8 – Bloomberg (Zoe Tillman): “A key US Supreme Court justice indicated he wants to protect the Federal Reserve’s independence as the conservative majority weighed giving President Donald Trump power to fire members of the Federal Trade Commission and similar independent agencies. During arguments…, Justice Brett Kavanaugh raised questions about the Fed several times. He asked the administration’s top lawyer, US Solicitor General John Sauer, to address opponents’ arguments that adopting a broad interpretation of Trump’s firing power in the FTC case ultimately would undermine the central bank’s independence. ‘I share those concerns,’ said Kavanaugh…”
December 8 – Associated Press (Mark Sherman): “The Supreme Court… seemed likely to expand presidential control over independent federal agencies, signaling support for President Donald Trump’s firing of board members. The court’s conservative majority suggested it would overturn a unanimous 90-year-old decision that has limited when presidents can fire agencies’ board members — in part to try to ensure decision making free of political influence — or leave it with only its shell intact. Justice Brett Kavanaugh said the crux of the issue is that the officials who direct the agencies ‘are exercising massive power over individual liberty and billion-dollar industries’ without being accountable to anyone.”
December 11 – Bloomberg (Jennifer A. Dlouhy and Leah Nylen): “Hollywood has a rich history of personal vendettas, political discord and uncertain loyalties shaping the industry. It just usually doesn’t involve the US president. Donald Trump’s declaration that he will involve himself in the proposed sale of Warner Bros. Discovery Inc. has thrust an already tumultuous battle between Netflix Inc. and Paramount Skydance Corp. over some of the crown jewels of Tinseltown into uncharted waters. The decision to inject himself is particularly extraordinary given Trump’s own conflicts and interests, according to legal experts. Trump has already signaled one personal precondition for a sale: new ownership of longtime bogeyman CNN…”
December 10 – Wall Street Journal (Brian Schwartz and Alex Leary): “The fate of Warner Bros. Discovery could hinge on a frequent subject of President Trump’s ire: CNN. President Trump told reporters… the ownership of CNN should change regardless of which company buys Warner and that it is ‘imperative that CNN be sold.’ Behind the scenes in recent days, Trump has repeatedly told allies that CNN should either be sold or get new leadership…The president has been unwavering in meetings with allies about his position on CNN and he has connected its future to deal negotiations with Warner Bros… The president’s intervention in corporate dealmaking raises fresh questions about how a transaction might proceed.”
December 9 – New York Times (Charlie Savage): “By thrusting himself into negotiations over rival bids by Netflix and Paramount to buy Warner Bros., President Trump is once again testing the boundaries of his power at a time when the Supreme Court is cutting back on Congress’s ability to check presidential authority. A law empowering the government to block mergers does not specify a personal role for presidents to leverage that authority on a whim or for their own benefit. Congress gave that power to two agencies — the Federal Trade Commission and the Justice Department’s antitrust division — to use based on their analysis of market power concentration and consumer harm.”
Budget Watch:
December 10 – Bloomberg (Daniel Flatley): “The US posted a budget deficit of $278 billion in November after calendar adjustments, slightly smaller than in the same month a year earlier. The adjusted gap narrowed by $16 billion from November 2024… Over the first two months of the current fiscal year, the deficit was down 16% from the year-earlier period… Revenues climbed by 14% in November from a year earlier. The increase was helped by higher customs duties, which totaled $32 billion for the month.”
U.S./Russia/China/Europe/Iran Watch:
December 11 – Politico (Nette Nostlinger): “NATO Chief Mark Rutte urged member countries to do more to prepare for the possibility of large-scale war, warning that Russia may be ready to attack the alliance within five years. ‘We are Russia’s next target. And we are already in harm’s way,’ Rutte said… ‘Russia has brought war back to Europe, and we must be prepared for the scale of war our grandparents and great grandparents endured.’ Although he welcomed the decision by NATO members to increase overall military spending to 5% of gross domestic product annually by 2035, Rutte argued more needed to be done, saying alliance members must shift to a ‘wartime mindset’.”
December 10 – Axios (Zachary Basu): “The Trump administration is engaged in open hostilities with the European Union, turning long-simmering feuds over free speech, Ukraine and mass migration into official U.S. policy. The EU’s $140 million fine of Elon Musk's X platform lit the fuse on a conflict the Trump administration was already primed for — and which it formalized in a new National Security Strategy that casts Europe as a geopolitical villain. ‘They’re destroying their countries,’ Trump told Politico, slamming European nations as ‘decaying’ and ‘weak’… The EU penalized X… after regulators found the platform had misled users, obscured key advertising information and blocked researchers from accessing public data. A furious Musk responded by accusing the EU of stifling free speech through ‘bureaucratic tyranny’ — rallying far-right leaders and millions of followers behind the hashtag #AbolishTheEU. Poland’s Foreign Minister Radoslaw Sikorski… shot back… ‘Go to Mars. There’s no censorship of Nazi salutes there’.”
December 11 – Politico (Ketrin Jochecova): “Donald Trump should not get involved in European democracy, Ursula von der Leyen said…, days after the U.S. president launched a stinging attack on Europe. ‘It is not on us, when it comes to elections, to decide who the leader of the country will be, but on the people of this country… That’s the sovereignty of the voters, and this must be protected,’ the European Commission president said… Nobody else is supposed to interfere, without any question,’ the Commission chief added in response to a question about the U.S. National Security Strategy, which was published last week and caused uproar in Europe.”
China vs. Japan Watch:
December 8 – Reuters (Chang-Ran Kim and Ben Blanchard): “Japan is threatening China militarily which is ‘completely unacceptable’, Chinese Foreign Minister Wang Yi told his German counterpart… Speaking during a meeting with German Foreign Minister Johann Wadephul in Beijing…, Wang said that given this year is the 80th anniversary of the end of World War Two, Japan, ‘as a defeated nation’, should have acted with greater caution. ‘Yet now, its current leader is trying to exploit the Taiwan question - the very territory Japan colonised for half a century, committing countless crimes against the Chinese people - to provoke trouble and threaten China militarily. This is completely unacceptable,’ Wang said…”
December 6 – Bloomberg (Kanoko Matsuyama): “Chinese and Japanese ties, already frayed by Prime Minister Sanae Takaichi’s comments on Taiwan, came under further strain this weekend after a Chinese fighter aircraft trained fire-control radar on Japanese military jets for the first time… The two countries gave conflicting accounts of events, with Tokyo claiming a Chinese fighter jet locked radar on its planes over international waters on Saturday, and Beijing accusing Japanese jets of disrupting its air training.”
December 11 – Wall Street Journal (Jason Douglas): “Two U.S. B-52 bombers flew in formation with Japanese fighters over the Sea of Japan, a conspicuous display of U.S. support for Tokyo as it battles Chinese anger over remarks Prime Minister Sanae Takaichi made about Taiwan. The exercise came a day after Russian and Chinese warplanes conducted their own joint patrol in the seas around Japan’s southern islands… ‘This bilateral exercise reaffirms the strong will between Japan and the U.S. not to tolerate unilateral changes to the status quo by force,’ Japan’s Ministry of Defense said…”
December 9 – Wall Street Journal (Jason Douglas): “Russian and Chinese bombers flew near Japan and South Korea in a joint patrol Tuesday that Tokyo described as a show of force… The military exercise, which Russian state media said lasted around eight hours, comes amid a series of Chinese reprisals against Tokyo over remarks last month by Japanese Prime Minister Sanae Takaichi suggesting that Japan might be dragged into any conflict over Taiwan… The joint Chinese patrol with Russia follows another tense incident on Saturday, when Japan said Chinese warplanes locked radar on Japanese military aircraft near Okinawa…”
December 9 – Bloomberg (Alastair Gale): “As military tensions between China and Japan reach the highest level in more than a decade, the sparsely populated island of Yonaguni finds itself right on the front lines. Sitting just 68 miles east of Taiwan, Yonaguni marks the tail end of an archipelago stretching north to Japan’s main islands… Ever since former US House Speaker Nancy Pelosi’s trip to Taipei in 2022 prompted China to fire missiles that landed near Yonaguni, Japan has accelerated plans for its largest military buildup in at least four decades. Up and down the 160-strong Ryukyu island chain, Japan is quickly putting in place missile batteries, radar towers, ammunition storage sites and other combat facilities.”
December 6 – Financial Times (Demetri Sevastopulo and Leo Lewis): “Japan has urged the US to give Prime Minister Sanae Takaichi more public support after expressing frustration at the level of backing she received following comments about Taiwan that enraged China. Tokyo thinks top US officials have not offered enough support for Japan… Shigeo Yamada, Japan’s ambassador in Washington, has asked the Trump administration to step up its public support for Tokyo…”
New World Order Watch:
December 9 – Bloomberg (Michael Nienaber and Kamil Kowalcze): “German Chancellor Friedrich Merz said the rules-based alliance of normative values once binding the US and Europe has come to an end, posing unprecedented challenges for his country. ‘What we once called the normative West no longer exists in this form,’ Merz said… ‘At best, it is still a geographical designation, but no longer a normative bond that holds us together.’ The new US national security strategy published last week has made it clear that Vice President JD Vance’s speech lambasting Europe in February at the Munich Security Conference was not a slip-up, but the beginning of a US strategic realignment, Merz said.”
December 9 – Axios (Andrew Pantazi): “President Trump offered a grim assessment of America's closest allies in a new interview, dismissing European nations as ‘decaying’ while embracing authoritarian leaders who enforce strict borders. The broadside lands as Europe is already rattled by Trump's tariffs and his push for a Ukraine peace deal that European leaders fear favors Russia and marginalizes the rest of the continent. In a wide-ranging sit-down with Politico's Dasha Burns, Trump backed his administration's new national security strategy, which calls for the U.S. to ‘cultivate resistance to Europe’s current trajectory.’ The White House released the strategy last week, calling it the ‘Trump Corollary to the Monroe Doctrine.’ ‘NATO calls me ‘Daddy,’’ Trump told Burns. ‘I have a lot to say about it.’ Europe, Trump said, is ‘decaying.’ He blamed immigration, saying ‘many of those countries will not be viable countries any longer.’ He singled out London Mayor Sadiq Khan as ‘a horrible, vicious, disgusting mayor,’ and lamented changes to Paris and London due to immigration.”
December 9 – Politico (Alexander Burns): “President Donald Trump denounced Europe as a ‘decaying’ group of nations led by ‘weak’ people in an interview with POLITICO, belittling the traditional U.S. allies for failing to control migration and end the Russia-Ukraine war, and signaling that he would endorse European political candidates aligned with his own vision for the continent. The broadside attack against European political leadership represents the president’s most virulent denunciation to date of these Western democracies… ‘I think they’re weak,’ Trump said of Europe’s political leaders. ‘But I also think that they want to be so politically correct.’ ‘I think they don’t know what to do,’ he added. ‘Europe doesn’t know what to do’.”
Ukraine War Watch:
December 9 – Associated Press (Paolo Santalucia and Illia Novikov): “Ukrainian President Volodymyr Zelenskyy has reaffirmed his strong refusal to cede any territory, resisting U.S. pressure for painful concessions to Russia as he moved ahead Tuesday to rally more European support for his country. ‘Undoubtedly, Russia insists for us to give up territories. We, clearly, don’t want to give up anything. That’s what we are fighting for,’ Zelenskyy told reporters… ‘Do we consider ceding any territories? According to the law we don’t have such right,’ he said. ‘According to Ukraine’s law, our constitution, international law, and to be frank, we don’t have a moral right either’.”
December 9 – Wall Street Journal (Laurence Norman, Anastasiia Malenko and Alexander Ward): “President Trump dialed up pressure on Ukraine to swiftly accept a U.S.-designed peace plan, hardening his position toward the embattled country and its European backers, who insist U.S. security guarantees are vital to a peace deal. Exacerbating tensions between Europe and Washington, Trump lambasted European leaders as weak and said Russia holds the cards in any peace negotiation with Ukraine. Ukrainian President Volodymyr Zelensky ‘is going to have to get on the ball and start accepting things,’ Trump said…, adding that Ukraine ‘is losing’.”
December 9 – Financial Times (Christopher Miller and Henry Foy): “Donald Trump’s envoys have given Volodymyr Zelenskyy days to respond to a proposed peace deal requiring Ukraine to accept territorial losses in exchange for unspecified US security guarantees… Ukraine’s president told his European counterparts that he had been pressed, during a two-hour call on Saturday, to take a swift decision by Trump’s special envoy Steve Witkoff and the US president’s son-in-law Jared Kushner. A person with knowledge of the timeline proposed to Kyiv said Trump was hoping for a deal agreed ‘by Christmas’.”
December 8 – Wall Street Journal (Anastasiia Malenko, Max Colchester and Noemie Bisserbe): “European powers are pushing to have a bigger say in the U.S.-led peace process to ensure that Ukraine isn’t forced to accept a deal that leaves it, and the rest of Europe, vulnerable to future Russian aggression. The leaders of the U.K., France and Germany met in British Prime Minister Keir Starmer’s Downing Street residence with Ukrainian President Volodymyr Zelensky on Monday… Territory and security guarantees for Ukraine remain the major sticking points. After the meeting, the Ukrainian leader said, ‘Russia is insisting we give up land, we don’t want to give anything away.’ Zelensky added that he couldn’t cede land legally or morally. ‘This is what we are fighting for,’ Zelensky told reporters. ‘Americans are looking for compromise as of now, I’ll be honest’.”
December 7 – Politico (Nahal Toosi): “Donald Trump Jr. criticized corruption in Ukraine and suggested… his father may walk away from the country if it doesn’t make peace with Russia… Trump Jr. stressed that Ukraine has long been hamstrung by corruption in its official ranks and argued that such graft is fueling the war in both Moscow and Kyiv. He also took shots at Ukrainian President Volodymyr Zelenskyy… ‘Because of the war, and because he’s one of the great marketers of all times, Zelenskyy became a borderline deity, especially to the left, where he could do no wrong, he was beyond reproach,’ Trump Jr. said. When asked if the U.S. president could walk away from Ukraine, the younger Trump said, ‘I think he may’.”
December 6 – Financial Times (Lee Harris and Jamie John): “Insurance prices for vessels trading in the Black Sea have tripled over the past month and are set to keep climbing following recent Ukrainian attacks on ships and ports in the region, insurance brokers say… War risk insurance prices have risen from about 0.25 to 0.3% of a ship’s value in early November to between 0.5 and 0.75% this week…, bringing price rises to as much as 250%.”
Taiwan Watch:
December 7 – Reuters (Tim Kelly, Chang-Ran Kim, and Ben Blanchard): “A Chinese carrier strike group launched intense air operations near Japan over the weekend as the East Asian neighbours traded diplomatic barbs in an escalating dispute, further straining ties. The encounters in waters close to Japan’s southwest island chain come after Prime Minister Sanae Takaichi warned last month that Tokyo could respond to any Chinese military action against Taiwan that also threatened Japan's security.”
December 10 – Bloomberg (Josh Xiao): “China conducted the maiden flight of what is considered to be the world’s largest drone mothership, underscoring its advances in unmanned aerial vehicles capable of unleashing weaponized swarms. The unmanned ‘Jiutian’ completed its first mission in the northwestern province of Shaanxi… The aerial vehicle has been likened to an aircraft carrier for its ability to host multiple drones and missiles.”
AI Bubble/Arms Race Watch:
December 11 – CNBC (Jordan Novet): “On Wednesday, Oracle told investors that it would ramp up capital expenditures in the current fiscal year to $50 billion from an earlier forecast of $35 billion because of new contracts from the likes of Meta and Nvidia. That’s not the only way the software giant plans to supply robust computing power to meet soaring demand. It’s also ratcheting up leases. As of Nov. 30, Oracle had $248 billion in lease commitments for data centers and cloud capacity commitments that will run for 15 to 19 years, the company disclosed… That’s up 148% from the end of August.”
December 8 – Financial Times (Peter Barber): “The world is witnessing a building frenzy on a scale not seen since the 19th century, but this time it is data centres rather than railways. Google, Amazon, Microsoft and Meta will spend more than $400bn on data centres in 2026, on top of more than $350bn this year, as they battle for supremacy in artificial intelligence. Law firms hired by the ‘hyperscalers’, such as Amazon Web Services, Microsoft Azure and Google Cloud, are among the beneficiaries of the rush to build out the companies’ booming cloud services businesses. ‘I don’t have a deal on my desk that’s less than $4bn to $5bn’ says Melissa Kalka, a partner at Kirkland & Ellis, which has more than 100 lawyers working on data centres full time.”
December 12 – Bloomberg (Neil Callanan and Paula Seligson): “Two data center billionaires minted before anything is even built. A borrower seeking a loan for 150% of the construction cost. And companies that are using financial engineering to keep liabilities off their balance sheets. For the skeptics, those are some of the examples of why the artificial intelligence data center boom is getting out of hand. There’s a frenzy of development going on to support the AI revolution, and with it an insatiable demand for debt to fund it. Some estimate the overall infrastructure roll-out cost could reach $10 trillion, and with so many lenders lining up to throw cash at the assets, the fear is a bubble is building that could eventually leave equity and credit players facing substantial pain.”
December 7 – Bloomberg (Ryan Vlastelica): “Wall Street’s sentiment toward companies associated with artificial intelligence is shifting, and it’s all about two companies: OpenAI is down, and Alphabet Inc. is up. The maker of ChatGPT is no longer seen as being on the cutting edge of AI technology and is facing questions about its lack of profitability and the need to grow rapidly to pay for its massive spending commitments. Meanwhile, Google’s parent is emerging as a deep-pocketed competitor with tentacles in every part of the AI trade. ‘OpenAI was the golden child earlier this year, and Alphabet was looked at in a very different light,’ said Brett Ewing, chief market strategist at First Franklin Financial Services. ‘Now sentiment is much more tempered toward OpenAI’.”
December 8 – Financial Times (Kai-Fu Lee): “When Chinese artificial intelligence company DeepSeek released its R1 large language model in January, America’s Nasdaq index fell 3% in one day. The model rivalled market-leading US AI models in performance while using a fraction of their computing power… What’s more, it was made available open-source. Anyone could download it free and adapt it for their own commercial use. Today, there is more reason than ever to believe Chinese AI companies can rival their US peers. DeepSeek’s latest two new models match the reasoning performance of OpenAI’s GPT-5 and Google’s Gemini-3 Pro. The runaway success of R1 and Alibaba’s Qwen have made open-source models the norm in China. Companies like Baidu, Zhipu, Moonshot AI and Meituan all allow users to download their cutting-edge models, interrogate how they work and adapt them. Contrasted with the secretive development of LLMs in the US, they offer a distinct Chinese pathway for progress in AI.”
December 8 – Bloomberg (Bailey Lipschultz): “CoreWeave Inc. shares fell after the company unveiled plans to raise $2 billion by issuing debt that can be exchanged for shares. The… artificial intelligence infrastructure company is offering the notes due in 2031 with a 1.5% to 2% coupon… Shares fell as much as 7% to $82.10 in premarket trading. The… firm will issue the convertible notes in a private offering…”
December 11 – Reuters (Lucy Raitano): “As AI fever has propelled global stocks to record highs, the data centres needed to power the technology are increasingly being financed with debt, adding to concerns about the risks. A UBS report last month said AI data centre and project financing deals surged to $125 billion so far this year, from $15 billion in the same period in 2024, with more supply from the sector expected to be pivotal for credit markets in 2026. ‘Public and private credit seems to have become a major source of funding for AI investments, and its rapid growth raised some concerns,’ said Anton Dombrovskiy, fixed income portfolio specialist at T. Rowe Price. ‘Although up until now an increase in supply has been met with relatively healthy demand, this is the area to watch especially taking into account large financing needs estimates,’ Dombrovskiy added. The Bank of England warned last week that the growing role of debt in the AI infrastructure boom could heighten potential financial stability risks if valuations correct.”
December 7 – Financial Times (Rafe Rosner-Uddin, Nassos Stylianou, Dan Clark, Caroline Nevitt and Jamie Smyth): “In cutting-edge Microsoft data centres, racks of chips used to train AI models sit idle. ‘The biggest issue we are now having is not a compute glut, but it’s power,’ said Microsoft’s chief executive Satya Nadella… The topic has been top of mind in a year when big tech ‘hyperscalers’ — Amazon, Google, Meta and Microsoft — have set out plans to spend more than $400bn in capital expenditure. That outlay, mainly on data centres, has triggered market fears of an AI-fuelled bubble. Big tech groups have been undeterred, arguing that demand outstrips supply.”
December 11 – Bloomberg (Claudia Cohen): “French insurer Axa SA said it’s exercising greater caution on the artificial intelligence build-out when backing financing for the sector, amid growing awareness of emerging risks in private markets. ‘We are convinced of the medium-term trend, but we want to avoid financing technological gambles,’ AXA Group Chief Investment Officer Jean-Baptiste Tricot said… AI infrastructure has seen ‘astronomical volumes allocated in recent months.’ Data centers… are emerging as a new worry spot given the hundreds of billions of dollars being invested in as-yet unproven technology. Norway’s $2.1 trillion wealth fund said this week that they won’t form a major part of its investment approach over the next three years.”
Bubble and Mania Watch:
December 11 – Axios (Madison Mills): “Some of the world’s biggest startups — including two AI darlings — have signaled possible IPOs next year, blockbuster offerings that would mint some $3 trillion worth of new public companies. These companies generate little or no profit yet carry towering valuations. An AI-obsessed market that’s happy to overlook all that risks repeating the mistakes of the dot-com era. Elon Musk's SpaceX has told its investors that it’s planning to go public next year. The company is seeking a $1.5 trillion valuation — the richest listing in history… Combined with other possible listings, Bloomberg estimates that as much as $2.9 trillion worth of private companies could go public next year. Other AI-linked ‘centicorns’ — companies valued at $100-billion plus — are reportedly weighing listings, including Databricks and Anthropic. OpenAI has an implied valuation of over $500 billion, fueling speculation about a future stock listing, though it has attempted to tamp that down.”
December 9 – Wall Street Journal (Matt Wirz and Ben Glickman): “The megadeal is back and so is Wall Street’s immense appetite for debt. Paramount’s hostile bid for Warner Bros. Discovery this week, the leveraged buyout of gaming company Electronic Arts earlier this year and other recent debt-laden transactions have all been possible thanks to a spike in lending by banks and even some private-credit funds. Big-ticket mergers and acquisitions, or those valued at $10 billion or more, hit a record dollar amount this year… Much of the price tag on those deals gets paid for with debt... And would-be acquirers have more choices than ever: The corporate-bond, syndicated-loan and private-credit markets are all whirring at the same time. ‘These big, bolder bets are becoming more interesting, and people are willing to try them because of the financing that’s available,’ said Matthew Toole, director of deals intelligence at the London Stock Exchange Group. Expectations that the Trump administration will be more accommodating to large tie-ups are also pumping the size of deals up to record levels.”
December 7 – Axios (Madison Mills): “Everything is becoming more concentrated: from merging streaming giants, to a stock market powered by a handful of AI winners, to an economy increasingly driven by the spending of the wealthy… Netflix said… it will acquire Warner Bros. Discovery’s studio and streaming assets, potentially combining two of the world’s largest streaming platforms. It’s part of a larger trend of dealmaking soaring under the Trump administration due in part to its friendlier regulatory practices… The same forces driving consolidation in media are playing out across the economy.”
December 8 – Bloomberg (Natalie Harrison and Janine Panzer): “Paramount Skydance Corp. has lined up as much as $54 billion of financing from Wall Street’s biggest firms to help support its planned acquisition of Warner Bros. Discovery Inc., just days after the company agreed to a deal with Netflix Inc. Bank of America Corp., Citigroup Inc. and Apollo Global Management Inc. are providing the debt commitment — which is one of the largest of its kind…”
December 8 – Wall Street Journal (Gunjan Banerji): “The 401(k) millionaire club is growing. Steady saving by many Americans and a third consecutive year of big gains for U.S. stocks have swollen account balances. As 2025 comes to a close, many individual investors are finding holiday cheer in statements showing they have crossed the $1 million milestone. As of the third quarter, there were 654,000 401(k) millionaires at the brokerage Fidelity… Around 3.2% of more than three million accounts tracked by benefits provider Alight had balances above $1 million as of the third quarter, double the figure at the end of 2022. At T. Rowe Price, roughly 2.6% of participants had balances above $1 million, up from 1.3% at the end of 2022.”
December 8 – Bloomberg (Alexandre Rajbhandari): “Insurance companies have been net buyers of stocks tied to artificial intelligence in the second half of the year as prices for the shares surge. Insurers bought more stock in Nvidia Corp., Microsoft Corp., Alphabet Inc. and Meta Platforms Inc. than they sold during the second half of 2025, according to a report by Clearwater Analytics (CWAN).”
Inflation Watch:
December 8 – Yahoo Finance (Emma Ockerman): “Americans see their medical costs skyrocketing next year by the most in more than a decade, according to… the Federal Reserve Bank of New York. Consumers’ median expectations for annual growth in medical costs hit 10.1% in November… Expectations for healthcare costs in the year ahead last approached this level at the beginning of 2014, when consumers saw costs rising by 11.15%.”
December 12 – Associated Press (Josh Boak and Amelia Thomson-Deveaux): “This holiday season isn’t quite so merry for American shoppers as large shares are dipping into savings, scouring for bargains and feeling like the overall economy is stuck in a rut under President Donald Trump, a new AP-NORC poll finds. The vast majority of U.S. adults say they’ve noticed higher than usual prices for groceries, electricity and holiday gifts in recent months, according to the survey… Roughly half of Americans say it’s harder than usual to afford the things they want to give as holiday gifts, and similar numbers are delaying big purchases or cutting back on nonessential purchases more than they would normally.”
December 10 – Axios (Emily Peck): “Small-business owners were excited for Trump 2.0. Now, tariffs and inflation are causing headaches and eroding optimism… The waning confidence of small-business owners, typically a conservative group, is also another political headwind for the president… Small-business owners’ confidence fell this fourth quarter from an all-time high in the third quarter, according to an index from MetLife and the Chamber of Commerce… 45% of small-business owners said inflation is their biggest challenge in the… survey, conducted in October during the government shutdown. They’re raising prices just to keep up: 58% said they expect to raise prices this holiday season, but 52% also expect lower revenue.”
December 8 – Bloomberg (Maria Eloisa Capurro): “US consumer inflation expectations were stable in November while perceptions about job prospects improved, according to a survey from the Federal Reserve Bank of New York. Expected inflation a year ahead was little changed at 3.2% last month, while expected inflation three and five years ahead remained at 3%...”
December 10 – Bloomberg (Paulina Cachero): “Rents for Manhattan apartments surged to a record high in November, as Zohran Mamdani won the mayoral election in large part due to affordability concerns. New leases were signed at a median of $4,750 in the month, up 13% from a year earlier and 3.3% from October, according to… Miller Samuel Inc. and brokerage Douglas Elliman. In fact, all price metrics — the median, average and price per square foot — hit records in November, according to data going back to 2008.”
Federal Reserve Watch:
December 10 – Associated Press (Christopher Rugaber): “The Federal Reserve reduced its key interest rate by a quarter-point for the third time in a row… but signaled that it may leave rates unchanged in the coming months. The cut decreased the Fed’s rate to about 3.6%, the lowest it has been in nearly three years… Chair Jerome Powell suggested at a news conference that after six rate cuts in the past two years, the central bank can step back and see how hiring and inflation develop. In a set of quarterly economic projections, Fed officials signaled they expect to lower rates just once next year.”
December 10 – Bloomberg (Catarina Saraiva): “Federal Reserve Chair Jerome Powell downplayed dissenting votes against Wednesday’s decision to lower interest rates again, but a slew of finer details from the meeting revealed just how divided the central bank has become. Powell pushed through the quarter percentage point cut not only over the objection of a few voters. A much larger group of regional Fed bank presidents who participated in the debate but weren’t among this year’s voting roster also signaled they opposed the cut. The fractures could foreshadow what’s to come in 2026… ‘It’s very unusual. In my 10-plus years of being involved with the Fed, I haven’t seen this,’ said Patrick Harker, who served as president of the Philadelphia Fed until… June.”
December 9 – Financial Times (Claire Jones and James Politi): “Donald Trump will soon launch a final round of interviews for Federal Reserve chair, pitting White House economic adviser Kevin Hassett against a trio of other candidates to replace Jay Powell. The US president and Treasury secretary Scott Bessent are scheduled to meet former Fed governor Kevin Warsh… ‘We’re going to be looking at a couple different people, but I have a pretty good idea of who I want,’ the president said. Bessent presented a list of four names to the White House…, with Hassett and Warsh among them. The other two would be selected from the list of other finalists, which includes Fed governors Christopher Waller and Michelle Bowman and BlackRock’s Rick Rieder.”
December 11 – Reuters (Andrea Shalal): “President Donald Trump was happy to see the Federal Reserve cut interest rates by 25 bps this week, but he wants to see the central bank lower interest rates even further, White House spokeswoman Karoline Leavitt told reporters… ‘I know there was a quarter point reduction this past week, and the president was pleased to see that, but he thinks more should be done,’ Leavitt said.”
December 9 – Wall Street Journal (Brian Schwartz and Nick Timiraos): “National Economic Council director Kevin Hassett says he would rely on his own judgment and not bow to political pressure to decide whether to cut interest rates if he becomes the next chairman of the Federal Reserve. Hassett said, however, that there is ‘plenty of room’ to cut rates in the months ahead, aligning himself with President Trump’s repeated calls for lower borrowing costs. ‘If the data suggests that we could do it, then—like right now—I think there’s plenty of room to do it,’ he said... Pressed over whether that meant the Fed could cut rates by more than the quarter-point that is currently expected on Wednesday, Hassett said, ‘Correct’.”
December 9 – CNBC (Steve Liesman): “While markets expect Kevin Hassett to be named the next Federal Reserve chair, he is pointedly not the choice of respondents to the CNBC Fed Survey. The December survey shows 84% believe President Donald Trump will tap Hassett… But only 11% think that’s what the president should do. Fed Governor Christopher Waller is the favored pick of 47% of respondents, followed by Kevin Warsh at 23%. But only 5% of respondents think Trump will pick either of the two.”
December 9 – CNBC (Kevin Breuninger): “President Donald Trump… claimed to have ‘just heard’ that all four of former President Joe Biden’s appointments to the Federal Reserve were approved by ‘autopen,’ suggesting they are not authorized to serve in those roles. Trump provided no evidence for the claim… But he said he thinks it is ‘something we have to look into.’ And the president suggested that the list of autopen-signed appointees could include Fed Chair Jerome Powell…”
December 8 – Bloomberg (Ruth Carson): “The Federal Reserve may have to turn to quantitative easing to lower long-term borrowing costs if bond markets start to question the independence of the next chairman, according to Man Group. Investors only have to look at what happened in the UK…, said Kristina Hooper, chief market strategist at the world’s largest publicly traded hedge fund group… UK borrowing costs have been higher than many other Group-of-Seven economies since then, which is a reminder that ‘credibility of public officials matters,’ Hooper wrote… ‘If anyone perceived to be less than independent is chosen as Fed chair and is focused on lowering rates at the long end, I suspect that person will have to resort to quantitative easing to offer the best chance to achieve that objective,’ she said.”
U.S. Economic Bubble Watch:
December 9 – Reuters (Lucia Mutikani): “U.S. job openings increased marginally in October after surging in September… Job openings, a measure of labor demand, were up 12,000 to 7.670 million by the last day of October… Economists polled by Reuters had forecast 7.150 million unfilled jobs… Vacancies soared 431,000, the most in nearly a year, to 7.658 million in September… The hires rate slipped to 3.2% from 3.4% in September. There were 5.367 million hires in September. Layoffs crept up 73,000 to a still-low 1.854 million…”
December 11 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits increased by the most in nearly 4-1/2 years last week, but the surge likely does not suggest a material weakening in labor market conditions, as the claims data are volatile around this time of year… Initial claims for state unemployment benefits jumped 44,000… to a seasonally adjusted 236,000… Economists… had forecast 220,000 claims for the latest week. Claims had dropped to a three-year low in the prior week, which was partly attributed to difficulties adjusting the data around the Thanksgiving holiday… The number… receiving unemployment benefits… dropped 99,000 to a seasonally adjusted 1.838 million…”
December 9 – Wall Street Journal (Matt Grossman): “Private companies grew their payrolls slightly on net through much of November… ADP said… Over the four weeks through Nov. 22, private employment rose at an average pace of 4,750 jobs per week, according to ADP’s latest weekly data. The estimate, part of a volatile weekly data series, follows a month-end November report from ADP last week that estimated the private sector lost 32,000 jobs in total last month.”
December 11 – Reuters (Lucia Mutikani): “The U.S. trade deficit unexpectedly narrowed in September, touching the lowest level in more than five years, as exports accelerated and imports rose marginally, suggesting that trade likely provided a boost to economic growth in the third quarter. The trade gap contracted 10.9% to $52.8 billion, the lowest level since June 2020…”
December 9 – Bloomberg (Julia Fanzeres): “Sentiment among US small businesses increased in November, largely due to a surge in optimism about the sales outlook. The National Federation of Independent Business optimism index rose 0.8 point to a three-month high of 99… Six of the 10 components that make up the gauge increased, while three decreased. One was unchanged. A 9-point improvement in sales expectations was the biggest contributor to the overall increase in the optimism index, NFIB said. A net 15% of owners anticipate higher sales volumes in the next three months, the largest share since the start of the year. Greater sales expectations helped bolster hiring intentions. A net 19% of small companies said they plan to create new jobs in the next three months. That was up 4 points from October and the largest share this year.”
December 8 – Reuters (Michael S. Derby): “U.S. households grew more downbeat on their current and future financial situations in November, even as their expectations for the future trajectory of inflation held steady, a New York Federal Reserve report… showed. The regional Fed bank said in its Survey of Consumer Expectations for November that respondents' views on their current financial situations ‘deteriorated notably’ while their outlook a year from now ‘deteriorated slightly.’ Survey respondents' views on the job market, however, got better in November.”
December 10 – CNBC (Diana Olick): “Current homeowners are looking for any savings they can get, and with mortgage rates on conventional loans not moving much, that isn’t easy. Loans from the Federal Housing Administration, or FHA, which require mortgage insurance, however, are providing an outlet… Applications for a mortgage to purchase a home dropped 2% for the week and were 19% higher than the same week one year ago. Potential buyers are also turning to the FHA for additional savings.”
December 8 – Axios (Sami Sparber): “Over half (53%) of U.S. homes lost value in the past year, according to Zillow. Thats the most since 2012 — but the vast majority of homeowners still ‘have plenty to feel good about,’ the real estate site reports… As of October, the median home value had jumped roughly 67% since the property was last sold. Just 4% lost value in that time, around 8.5 years for the typical homeowner… Nationwide, home sellers outnumber buyers by a record 37%, Redfin estimates. The West and South… saw the most widespread losses over the past year. Most major metros in those regions saw at least half of homes lose value, led by Denver (91%), Austin… (89%) Sacramento… (88%), Phoenix (87%) and Dallas (87%)… Meanwhile, only three major metros in the Northeast and Midwest saw most homes lose value: Minneapolis (55%), Des Moines… (54%) and Scranton… (52%).”
December 11 – CNBC (Diana Olick): “Home prices have finally come down compared with last year, though just fractionally, according… Parcl Labs, which looks at high-frequency listing data on single-family homes, condos and townhomes, both new and existing. They may stay softer, though, as home prices are down 1.4% in just the last three months. On a national level, home prices have not gone negative since mid-2023, a year after the Federal Reserve first brought rates up from zero, and mortgage rates moved sharply higher.”
China Watch:
December 11 – Bloomberg: “Chinese policymakers pledged to intensify their efforts to stabilize the housing market at a key economic meeting, reaffirming policies issued last year but stopping short of the measures some economists think are needed to revive the sector. The government will encourage the acquisition of existing housing stock, primarily for use in affordable housing, according to an official readout…”
December 9 – CNBC (Anniek Bao): “China’s consumer inflation climbed in November to hit its highest level in nearly two years… Consumer prices edged up 0.7% from a year earlier, its highest level since February last year… The increase followed a 0.2% rise in October and matched the 0.7% gain expected…”
December 8 – Associated Press (Chan Ho-Him): “China’s exports rebounded in November after an unexpected contraction the previous month, pushing its trade surplus past $1 trillion for the first time… Exports climbed 5.9% from a year earlier in November while imports rose just under 2%.... Shipments to the U.S. dropped nearly 29% year-on-year. But as trade with the U.S. weakens, China is diversifying its export markets throughout Southeast Asia, Africa, Europe and Latin America…”
December 8 – Bloomberg: “Two Chinese chipmakers are attracting strong retail investor demand, buoyed by industry peer Moore Threads Technology Co.’s stellar debut. The retail portion of MetaX Integrated Circuits Shanghai Co.’s upcoming initial public offering was 2,986 times oversubscribed… Meanwhile, Beijing Onmicro Electronics… was 2,899 times oversubscribed on Friday... The bids coincided with Moore Threads’ trading debut, which surged 425% Friday on bets that the company may emerge as a viable local competitor to Nvidia…”
December 12 – Bloomberg: “China’s loan growth disappointed in November with muted overall credit expansion, underlining anemic borrowing by households and businesses is still a concern weighing on the economy. Financial institutions extended 392 billion yuan ($55.6bn) of new yuan loans in the month, falling short of economists’ median forecast of 450 billion yuan… The stock of outstanding credit to the real economy rose 8.5% from a year ago, matching the pace in October. Household loans contracted for a second straight month in November, the first time in data going back to 2005, indicating a prolonged period of net repayment of debt from residents.”
December 7 – Bloomberg (Janice Huang): “Dalian Wanda Group’s commercial real estate unit is seeking a two-year extension on a $400 million bond, the latest developer to seek a debt payment delay as China’s property crisis weighs on liquidity.”
Central Banker Watch:
December 9 – Bloomberg (James Hirai): “From Australia to Europe and the US, traders are betting that monetary easing from central banks will slow or stop altogether. Money markets are now pricing in almost no prospect of further interest-rate cuts from the European Central Bank, and around a 30% chance of a hike by the end of 2026. In Australia, central bank Governor Michele Bullock… ruled out further easing to leave swaps implying almost two quarter-point increases by the end of next year. And traders are all but certain the Bank of Japan will raise its benchmark rate 25 bps next week to 0.75%, with at least one more increase expected next year.”
December 10 – Financial Times (Olaf Storbeck and Martin Wolf): “European Central Bank president Christine Lagarde has said that rate-setters will probably lift their growth forecasts for the Eurozone when they meet next week, in the latest sign of the economy’s resilience.”
December 9 – Bloomberg (James Regan): “French President Emmanuel Macron called for a change in approach to monetary policy at the European Central Bank to boost the single market and protect it from the risks of financial crisis. In an unusual move by a euro-zone leader to comment on the region’s central bank, Macron said… the ECB needs to think differently if the European Union wants to capitalize on its strengths such as its domestic market and high savings rate… In Macron’s view, the ECB reducing its balance sheet by not reinvesting the money when government bonds mature risks pushing up long-term interest rates, slowing activity and strengthening the euro…”
Europe Watch:
December 8 – Reuters (Maria Martinez): “German corporate insolvencies are projected to hit their highest level in more than a decade this year…, as the nation grapples with a stubborn economic downturn. Approximately 23,900 companies are expected to file for bankruptcy in 2025, an 8.3% increase from 2024 and the highest figure since 2014, according to… Creditreform.”
Japan Watch:
December 8 – Bloomberg (Erica Yokoyama): “Japanese Finance Minister Satsuki Katayama said she is closely watching market trends, as the yield on 10-year government debt hovers near 2%, a level not seen since 2006. ‘We are monitoring market trends very closely,’ Katayama told reporters… ‘We will manage government bonds appropriately through close communication with the market’ she said, while refraining from commenting on any specific level. Katayama’s remarks come as Japan’s benchmark yield hit its highest since 2007 on Monday…”
December 8 – Wall Street Journal (Megumi Fujikawa): “Japanese Prime Minister Sanae Takaichi says her $135 billion stimulus package will prop up the world’s fourth-largest economy. Some see a danger in swelling a debt pile that is already one of the largest globally… Takaichi… has unveiled a range of new relief measures, such as energy subsidies and a cash handout of 20,000 yen per child, equivalent to $128.73… Takaichi’s idea is to rely on bond markets to cover 60% of the bill. To spend or not to spend is a conundrum facing governments worldwide.”
December 7 – Bloomberg (Erica Yokoyama): “Japan’s economy shrank in the three months through September, the government confirmed…, giving some justification for Prime Minister Sanae Takaichi’s stimulus package announced last month. Gross domestic product fell at an annualized pace of 2.3% in the third quarter… The contraction was deeper than the initial reading of a 1.8% fall, and was the first in six quarters.”
December 9 – Wall Street Journal (Megumi Fujikawa): “Inflation in Japan is unlikely to speed up at a dangerous pace, the central bank’s governor said… ‘At the moment, we don’t see a very high risk of inflation, especially underlying inflation, accelerating,’ Bank of Japan Gov. Kazuo Ueda said… However, that may change if food inflation or yen weakness last longer than anticipated, driving up inflation expectations, Ueda said. ‘We are watching this possibility carefully, and if this happens, we’ll have to adjust policy accordingly,’ he said.”
Emerging Market Watch:
December 9 – Bloomberg (Gonzalo Soto): “Mexico’s annual inflation accelerated more than expected last month, a week before policymakers are expected to deliver their last rate cut of the year. Consumer prices rose 3.80% in November compared to the same month last year… The reading came in above the 3.70% median estimate…”
Social, Political, Environmental, Cybersecurity Instability Watch:
December 11 – Wall Street Journal (Robert McMillan): “After years of misfires, artificial-intelligence hacking tools have become dangerously good. So good that they are even surpassing some human hackers, according to a novel experiment conducted recently at Stanford University. A Stanford team spent a good chunk of the past year tinkering with an AI bot called Artemis. It takes a similar approach to Chinese hackers who had been using Anthropic’s generative AI software to break into major corporations and foreign governments. Artemis scans the network, finds potential bugs—software vulnerabilities—and then finds ways to exploit them.”
December 10 – Axios (Ina Fried): “OpenAI says the cyber capabilities of its frontier AI models are accelerating and warns Wednesday that upcoming models are likely to pose a ‘high’ risk… The models’ growing capabilities could significantly expand the number of people able to carry out cyberattacks. OpenAI said it has already seen a significant increase in capabilities in recent releases… The company notes that GPT-5 scored a 27% on a capture-the-flag exercise in August, GPT-5.1-Codex-Max was able to score 76% last month. ‘We expect that upcoming AI models will continue on this trajectory,’ the company says... ‘In preparation, we are planning and evaluating as though each new model could reach ‘high’ levels of cybersecurity capability as measured by our Preparedness Framework’.”
December 11 – Bloomberg (Anna Edgerton and Lauren Rosenthal): “Record rainfall prompted evacuation orders for about 100,000 people as the Skagit River north of Seattle is forecast to crest almost two feet above its historic record Thursday evening. This week’s deluge will be the first real test of the dikes and drainage system that was updated after the last major flood in 2021…Washington Governor Bob Ferguson urged people to follow evacuation orders. ‘We understand that many folks have experienced significant floods in the past and that they may feel they can ride it out,’ Ferguson said. ‘The flooding levels we’re looking at are potentially historic in nature’.”
Geopolitical Watch:
December 8 – Reuters (Panarat Thepgumpanat and Orathai Sriring): “Thailand said its fighter jets struck Cambodia on Monday in an attempt to cripple its military capability, as a re-eruption of border hostilities derailed a fragile ceasefire brokered by U.S. President Donald Trump. Each side blamed the other for starting clashes that broke out during the night and intensified before dawn and spread to several locations…”
December 8 – Wall Street Journal (Anastasiia Malenko, Max Colchester and Noemie Bisserbe): “European powers are pushing to have a bigger say in the U.S.-led peace process to ensure that Ukraine isn’t forced to accept a deal that leaves it, and the rest of Europe, vulnerable to future Russian aggression. The leaders of the U.K., France and Germany met in British Prime Minister Keir Starmer’s Downing Street residence with Ukrainian President Volodymyr Zelensky on Monday… Territory and security guarantees for Ukraine remain the major sticking points. After the meeting, the Ukrainian leader said, ‘Russia is insisting we give up land, we don’t want to give anything away.’ Zelensky added that he couldn’t cede land legally or morally. ‘This is what we are fighting for,’ Zelensky told reporters. ‘Americans are looking for compromise as of now, I’ll be honest’.”
December 7 – Politico (Nahal Toosi): “Donald Trump Jr. criticized corruption in Ukraine and suggested… his father may walk away from the country if it doesn’t make peace with Russia… Trump Jr. stressed that Ukraine has long been hamstrung by corruption in its official ranks and argued that such graft is fueling the war in both Moscow and Kyiv. He also took shots at Ukrainian President Volodymyr Zelenskyy… ‘Because of the war, and because he’s one of the great marketers of all times, Zelenskyy became a borderline deity, especially to the left, where he could do no wrong, he was beyond reproach,’ Trump Jr. said. When asked if the U.S. president could walk away from Ukraine, the younger Trump said, ‘I think he may’.”
December 6 – Financial Times (Lee Harris and Jamie John): “Insurance prices for vessels trading in the Black Sea have tripled over the past month and are set to keep climbing following recent Ukrainian attacks on ships and ports in the region, insurance brokers say… War risk insurance prices have risen from about 0.25 to 0.3% of a ship’s value in early November to between 0.5 and 0.75% this week…, bringing price rises to as much as 250%.”
Taiwan Watch:
December 7 – Reuters (Tim Kelly, Chang-Ran Kim, and Ben Blanchard): “A Chinese carrier strike group launched intense air operations near Japan over the weekend as the East Asian neighbours traded diplomatic barbs in an escalating dispute, further straining ties. The encounters in waters close to Japan’s southwest island chain come after Prime Minister Sanae Takaichi warned last month that Tokyo could respond to any Chinese military action against Taiwan that also threatened Japan's security.”
December 10 – Bloomberg (Josh Xiao): “China conducted the maiden flight of what is considered to be the world’s largest drone mothership, underscoring its advances in unmanned aerial vehicles capable of unleashing weaponized swarms. The unmanned ‘Jiutian’ completed its first mission in the northwestern province of Shaanxi… The aerial vehicle has been likened to an aircraft carrier for its ability to host multiple drones and missiles.”
AI Bubble/Arms Race Watch:
December 11 – CNBC (Jordan Novet): “On Wednesday, Oracle told investors that it would ramp up capital expenditures in the current fiscal year to $50 billion from an earlier forecast of $35 billion because of new contracts from the likes of Meta and Nvidia. That’s not the only way the software giant plans to supply robust computing power to meet soaring demand. It’s also ratcheting up leases. As of Nov. 30, Oracle had $248 billion in lease commitments for data centers and cloud capacity commitments that will run for 15 to 19 years, the company disclosed… That’s up 148% from the end of August.”
December 8 – Financial Times (Peter Barber): “The world is witnessing a building frenzy on a scale not seen since the 19th century, but this time it is data centres rather than railways. Google, Amazon, Microsoft and Meta will spend more than $400bn on data centres in 2026, on top of more than $350bn this year, as they battle for supremacy in artificial intelligence. Law firms hired by the ‘hyperscalers’, such as Amazon Web Services, Microsoft Azure and Google Cloud, are among the beneficiaries of the rush to build out the companies’ booming cloud services businesses. ‘I don’t have a deal on my desk that’s less than $4bn to $5bn’ says Melissa Kalka, a partner at Kirkland & Ellis, which has more than 100 lawyers working on data centres full time.”
December 12 – Bloomberg (Neil Callanan and Paula Seligson): “Two data center billionaires minted before anything is even built. A borrower seeking a loan for 150% of the construction cost. And companies that are using financial engineering to keep liabilities off their balance sheets. For the skeptics, those are some of the examples of why the artificial intelligence data center boom is getting out of hand. There’s a frenzy of development going on to support the AI revolution, and with it an insatiable demand for debt to fund it. Some estimate the overall infrastructure roll-out cost could reach $10 trillion, and with so many lenders lining up to throw cash at the assets, the fear is a bubble is building that could eventually leave equity and credit players facing substantial pain.”
December 7 – Bloomberg (Ryan Vlastelica): “Wall Street’s sentiment toward companies associated with artificial intelligence is shifting, and it’s all about two companies: OpenAI is down, and Alphabet Inc. is up. The maker of ChatGPT is no longer seen as being on the cutting edge of AI technology and is facing questions about its lack of profitability and the need to grow rapidly to pay for its massive spending commitments. Meanwhile, Google’s parent is emerging as a deep-pocketed competitor with tentacles in every part of the AI trade. ‘OpenAI was the golden child earlier this year, and Alphabet was looked at in a very different light,’ said Brett Ewing, chief market strategist at First Franklin Financial Services. ‘Now sentiment is much more tempered toward OpenAI’.”
December 8 – Financial Times (Kai-Fu Lee): “When Chinese artificial intelligence company DeepSeek released its R1 large language model in January, America’s Nasdaq index fell 3% in one day. The model rivalled market-leading US AI models in performance while using a fraction of their computing power… What’s more, it was made available open-source. Anyone could download it free and adapt it for their own commercial use. Today, there is more reason than ever to believe Chinese AI companies can rival their US peers. DeepSeek’s latest two new models match the reasoning performance of OpenAI’s GPT-5 and Google’s Gemini-3 Pro. The runaway success of R1 and Alibaba’s Qwen have made open-source models the norm in China. Companies like Baidu, Zhipu, Moonshot AI and Meituan all allow users to download their cutting-edge models, interrogate how they work and adapt them. Contrasted with the secretive development of LLMs in the US, they offer a distinct Chinese pathway for progress in AI.”
December 8 – Bloomberg (Bailey Lipschultz): “CoreWeave Inc. shares fell after the company unveiled plans to raise $2 billion by issuing debt that can be exchanged for shares. The… artificial intelligence infrastructure company is offering the notes due in 2031 with a 1.5% to 2% coupon… Shares fell as much as 7% to $82.10 in premarket trading. The… firm will issue the convertible notes in a private offering…”
December 11 – Reuters (Lucy Raitano): “As AI fever has propelled global stocks to record highs, the data centres needed to power the technology are increasingly being financed with debt, adding to concerns about the risks. A UBS report last month said AI data centre and project financing deals surged to $125 billion so far this year, from $15 billion in the same period in 2024, with more supply from the sector expected to be pivotal for credit markets in 2026. ‘Public and private credit seems to have become a major source of funding for AI investments, and its rapid growth raised some concerns,’ said Anton Dombrovskiy, fixed income portfolio specialist at T. Rowe Price. ‘Although up until now an increase in supply has been met with relatively healthy demand, this is the area to watch especially taking into account large financing needs estimates,’ Dombrovskiy added. The Bank of England warned last week that the growing role of debt in the AI infrastructure boom could heighten potential financial stability risks if valuations correct.”
December 7 – Financial Times (Rafe Rosner-Uddin, Nassos Stylianou, Dan Clark, Caroline Nevitt and Jamie Smyth): “In cutting-edge Microsoft data centres, racks of chips used to train AI models sit idle. ‘The biggest issue we are now having is not a compute glut, but it’s power,’ said Microsoft’s chief executive Satya Nadella… The topic has been top of mind in a year when big tech ‘hyperscalers’ — Amazon, Google, Meta and Microsoft — have set out plans to spend more than $400bn in capital expenditure. That outlay, mainly on data centres, has triggered market fears of an AI-fuelled bubble. Big tech groups have been undeterred, arguing that demand outstrips supply.”
December 11 – Bloomberg (Claudia Cohen): “French insurer Axa SA said it’s exercising greater caution on the artificial intelligence build-out when backing financing for the sector, amid growing awareness of emerging risks in private markets. ‘We are convinced of the medium-term trend, but we want to avoid financing technological gambles,’ AXA Group Chief Investment Officer Jean-Baptiste Tricot said… AI infrastructure has seen ‘astronomical volumes allocated in recent months.’ Data centers… are emerging as a new worry spot given the hundreds of billions of dollars being invested in as-yet unproven technology. Norway’s $2.1 trillion wealth fund said this week that they won’t form a major part of its investment approach over the next three years.”
Bubble and Mania Watch:
December 11 – Axios (Madison Mills): “Some of the world’s biggest startups — including two AI darlings — have signaled possible IPOs next year, blockbuster offerings that would mint some $3 trillion worth of new public companies. These companies generate little or no profit yet carry towering valuations. An AI-obsessed market that’s happy to overlook all that risks repeating the mistakes of the dot-com era. Elon Musk's SpaceX has told its investors that it’s planning to go public next year. The company is seeking a $1.5 trillion valuation — the richest listing in history… Combined with other possible listings, Bloomberg estimates that as much as $2.9 trillion worth of private companies could go public next year. Other AI-linked ‘centicorns’ — companies valued at $100-billion plus — are reportedly weighing listings, including Databricks and Anthropic. OpenAI has an implied valuation of over $500 billion, fueling speculation about a future stock listing, though it has attempted to tamp that down.”
December 9 – Wall Street Journal (Matt Wirz and Ben Glickman): “The megadeal is back and so is Wall Street’s immense appetite for debt. Paramount’s hostile bid for Warner Bros. Discovery this week, the leveraged buyout of gaming company Electronic Arts earlier this year and other recent debt-laden transactions have all been possible thanks to a spike in lending by banks and even some private-credit funds. Big-ticket mergers and acquisitions, or those valued at $10 billion or more, hit a record dollar amount this year… Much of the price tag on those deals gets paid for with debt... And would-be acquirers have more choices than ever: The corporate-bond, syndicated-loan and private-credit markets are all whirring at the same time. ‘These big, bolder bets are becoming more interesting, and people are willing to try them because of the financing that’s available,’ said Matthew Toole, director of deals intelligence at the London Stock Exchange Group. Expectations that the Trump administration will be more accommodating to large tie-ups are also pumping the size of deals up to record levels.”
December 7 – Axios (Madison Mills): “Everything is becoming more concentrated: from merging streaming giants, to a stock market powered by a handful of AI winners, to an economy increasingly driven by the spending of the wealthy… Netflix said… it will acquire Warner Bros. Discovery’s studio and streaming assets, potentially combining two of the world’s largest streaming platforms. It’s part of a larger trend of dealmaking soaring under the Trump administration due in part to its friendlier regulatory practices… The same forces driving consolidation in media are playing out across the economy.”
December 8 – Bloomberg (Natalie Harrison and Janine Panzer): “Paramount Skydance Corp. has lined up as much as $54 billion of financing from Wall Street’s biggest firms to help support its planned acquisition of Warner Bros. Discovery Inc., just days after the company agreed to a deal with Netflix Inc. Bank of America Corp., Citigroup Inc. and Apollo Global Management Inc. are providing the debt commitment — which is one of the largest of its kind…”
December 8 – Wall Street Journal (Gunjan Banerji): “The 401(k) millionaire club is growing. Steady saving by many Americans and a third consecutive year of big gains for U.S. stocks have swollen account balances. As 2025 comes to a close, many individual investors are finding holiday cheer in statements showing they have crossed the $1 million milestone. As of the third quarter, there were 654,000 401(k) millionaires at the brokerage Fidelity… Around 3.2% of more than three million accounts tracked by benefits provider Alight had balances above $1 million as of the third quarter, double the figure at the end of 2022. At T. Rowe Price, roughly 2.6% of participants had balances above $1 million, up from 1.3% at the end of 2022.”
December 8 – Bloomberg (Alexandre Rajbhandari): “Insurance companies have been net buyers of stocks tied to artificial intelligence in the second half of the year as prices for the shares surge. Insurers bought more stock in Nvidia Corp., Microsoft Corp., Alphabet Inc. and Meta Platforms Inc. than they sold during the second half of 2025, according to a report by Clearwater Analytics (CWAN).”
Inflation Watch:
December 8 – Yahoo Finance (Emma Ockerman): “Americans see their medical costs skyrocketing next year by the most in more than a decade, according to… the Federal Reserve Bank of New York. Consumers’ median expectations for annual growth in medical costs hit 10.1% in November… Expectations for healthcare costs in the year ahead last approached this level at the beginning of 2014, when consumers saw costs rising by 11.15%.”
December 12 – Associated Press (Josh Boak and Amelia Thomson-Deveaux): “This holiday season isn’t quite so merry for American shoppers as large shares are dipping into savings, scouring for bargains and feeling like the overall economy is stuck in a rut under President Donald Trump, a new AP-NORC poll finds. The vast majority of U.S. adults say they’ve noticed higher than usual prices for groceries, electricity and holiday gifts in recent months, according to the survey… Roughly half of Americans say it’s harder than usual to afford the things they want to give as holiday gifts, and similar numbers are delaying big purchases or cutting back on nonessential purchases more than they would normally.”
December 10 – Axios (Emily Peck): “Small-business owners were excited for Trump 2.0. Now, tariffs and inflation are causing headaches and eroding optimism… The waning confidence of small-business owners, typically a conservative group, is also another political headwind for the president… Small-business owners’ confidence fell this fourth quarter from an all-time high in the third quarter, according to an index from MetLife and the Chamber of Commerce… 45% of small-business owners said inflation is their biggest challenge in the… survey, conducted in October during the government shutdown. They’re raising prices just to keep up: 58% said they expect to raise prices this holiday season, but 52% also expect lower revenue.”
December 8 – Bloomberg (Maria Eloisa Capurro): “US consumer inflation expectations were stable in November while perceptions about job prospects improved, according to a survey from the Federal Reserve Bank of New York. Expected inflation a year ahead was little changed at 3.2% last month, while expected inflation three and five years ahead remained at 3%...”
December 10 – Bloomberg (Paulina Cachero): “Rents for Manhattan apartments surged to a record high in November, as Zohran Mamdani won the mayoral election in large part due to affordability concerns. New leases were signed at a median of $4,750 in the month, up 13% from a year earlier and 3.3% from October, according to… Miller Samuel Inc. and brokerage Douglas Elliman. In fact, all price metrics — the median, average and price per square foot — hit records in November, according to data going back to 2008.”
Federal Reserve Watch:
December 10 – Associated Press (Christopher Rugaber): “The Federal Reserve reduced its key interest rate by a quarter-point for the third time in a row… but signaled that it may leave rates unchanged in the coming months. The cut decreased the Fed’s rate to about 3.6%, the lowest it has been in nearly three years… Chair Jerome Powell suggested at a news conference that after six rate cuts in the past two years, the central bank can step back and see how hiring and inflation develop. In a set of quarterly economic projections, Fed officials signaled they expect to lower rates just once next year.”
December 10 – Bloomberg (Catarina Saraiva): “Federal Reserve Chair Jerome Powell downplayed dissenting votes against Wednesday’s decision to lower interest rates again, but a slew of finer details from the meeting revealed just how divided the central bank has become. Powell pushed through the quarter percentage point cut not only over the objection of a few voters. A much larger group of regional Fed bank presidents who participated in the debate but weren’t among this year’s voting roster also signaled they opposed the cut. The fractures could foreshadow what’s to come in 2026… ‘It’s very unusual. In my 10-plus years of being involved with the Fed, I haven’t seen this,’ said Patrick Harker, who served as president of the Philadelphia Fed until… June.”
December 9 – Financial Times (Claire Jones and James Politi): “Donald Trump will soon launch a final round of interviews for Federal Reserve chair, pitting White House economic adviser Kevin Hassett against a trio of other candidates to replace Jay Powell. The US president and Treasury secretary Scott Bessent are scheduled to meet former Fed governor Kevin Warsh… ‘We’re going to be looking at a couple different people, but I have a pretty good idea of who I want,’ the president said. Bessent presented a list of four names to the White House…, with Hassett and Warsh among them. The other two would be selected from the list of other finalists, which includes Fed governors Christopher Waller and Michelle Bowman and BlackRock’s Rick Rieder.”
December 11 – Reuters (Andrea Shalal): “President Donald Trump was happy to see the Federal Reserve cut interest rates by 25 bps this week, but he wants to see the central bank lower interest rates even further, White House spokeswoman Karoline Leavitt told reporters… ‘I know there was a quarter point reduction this past week, and the president was pleased to see that, but he thinks more should be done,’ Leavitt said.”
December 9 – Wall Street Journal (Brian Schwartz and Nick Timiraos): “National Economic Council director Kevin Hassett says he would rely on his own judgment and not bow to political pressure to decide whether to cut interest rates if he becomes the next chairman of the Federal Reserve. Hassett said, however, that there is ‘plenty of room’ to cut rates in the months ahead, aligning himself with President Trump’s repeated calls for lower borrowing costs. ‘If the data suggests that we could do it, then—like right now—I think there’s plenty of room to do it,’ he said... Pressed over whether that meant the Fed could cut rates by more than the quarter-point that is currently expected on Wednesday, Hassett said, ‘Correct’.”
December 9 – CNBC (Steve Liesman): “While markets expect Kevin Hassett to be named the next Federal Reserve chair, he is pointedly not the choice of respondents to the CNBC Fed Survey. The December survey shows 84% believe President Donald Trump will tap Hassett… But only 11% think that’s what the president should do. Fed Governor Christopher Waller is the favored pick of 47% of respondents, followed by Kevin Warsh at 23%. But only 5% of respondents think Trump will pick either of the two.”
December 9 – CNBC (Kevin Breuninger): “President Donald Trump… claimed to have ‘just heard’ that all four of former President Joe Biden’s appointments to the Federal Reserve were approved by ‘autopen,’ suggesting they are not authorized to serve in those roles. Trump provided no evidence for the claim… But he said he thinks it is ‘something we have to look into.’ And the president suggested that the list of autopen-signed appointees could include Fed Chair Jerome Powell…”
December 8 – Bloomberg (Ruth Carson): “The Federal Reserve may have to turn to quantitative easing to lower long-term borrowing costs if bond markets start to question the independence of the next chairman, according to Man Group. Investors only have to look at what happened in the UK…, said Kristina Hooper, chief market strategist at the world’s largest publicly traded hedge fund group… UK borrowing costs have been higher than many other Group-of-Seven economies since then, which is a reminder that ‘credibility of public officials matters,’ Hooper wrote… ‘If anyone perceived to be less than independent is chosen as Fed chair and is focused on lowering rates at the long end, I suspect that person will have to resort to quantitative easing to offer the best chance to achieve that objective,’ she said.”
U.S. Economic Bubble Watch:
December 9 – Reuters (Lucia Mutikani): “U.S. job openings increased marginally in October after surging in September… Job openings, a measure of labor demand, were up 12,000 to 7.670 million by the last day of October… Economists polled by Reuters had forecast 7.150 million unfilled jobs… Vacancies soared 431,000, the most in nearly a year, to 7.658 million in September… The hires rate slipped to 3.2% from 3.4% in September. There were 5.367 million hires in September. Layoffs crept up 73,000 to a still-low 1.854 million…”
December 11 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits increased by the most in nearly 4-1/2 years last week, but the surge likely does not suggest a material weakening in labor market conditions, as the claims data are volatile around this time of year… Initial claims for state unemployment benefits jumped 44,000… to a seasonally adjusted 236,000… Economists… had forecast 220,000 claims for the latest week. Claims had dropped to a three-year low in the prior week, which was partly attributed to difficulties adjusting the data around the Thanksgiving holiday… The number… receiving unemployment benefits… dropped 99,000 to a seasonally adjusted 1.838 million…”
December 9 – Wall Street Journal (Matt Grossman): “Private companies grew their payrolls slightly on net through much of November… ADP said… Over the four weeks through Nov. 22, private employment rose at an average pace of 4,750 jobs per week, according to ADP’s latest weekly data. The estimate, part of a volatile weekly data series, follows a month-end November report from ADP last week that estimated the private sector lost 32,000 jobs in total last month.”
December 11 – Reuters (Lucia Mutikani): “The U.S. trade deficit unexpectedly narrowed in September, touching the lowest level in more than five years, as exports accelerated and imports rose marginally, suggesting that trade likely provided a boost to economic growth in the third quarter. The trade gap contracted 10.9% to $52.8 billion, the lowest level since June 2020…”
December 9 – Bloomberg (Julia Fanzeres): “Sentiment among US small businesses increased in November, largely due to a surge in optimism about the sales outlook. The National Federation of Independent Business optimism index rose 0.8 point to a three-month high of 99… Six of the 10 components that make up the gauge increased, while three decreased. One was unchanged. A 9-point improvement in sales expectations was the biggest contributor to the overall increase in the optimism index, NFIB said. A net 15% of owners anticipate higher sales volumes in the next three months, the largest share since the start of the year. Greater sales expectations helped bolster hiring intentions. A net 19% of small companies said they plan to create new jobs in the next three months. That was up 4 points from October and the largest share this year.”
December 8 – Reuters (Michael S. Derby): “U.S. households grew more downbeat on their current and future financial situations in November, even as their expectations for the future trajectory of inflation held steady, a New York Federal Reserve report… showed. The regional Fed bank said in its Survey of Consumer Expectations for November that respondents' views on their current financial situations ‘deteriorated notably’ while their outlook a year from now ‘deteriorated slightly.’ Survey respondents' views on the job market, however, got better in November.”
December 10 – CNBC (Diana Olick): “Current homeowners are looking for any savings they can get, and with mortgage rates on conventional loans not moving much, that isn’t easy. Loans from the Federal Housing Administration, or FHA, which require mortgage insurance, however, are providing an outlet… Applications for a mortgage to purchase a home dropped 2% for the week and were 19% higher than the same week one year ago. Potential buyers are also turning to the FHA for additional savings.”
December 8 – Axios (Sami Sparber): “Over half (53%) of U.S. homes lost value in the past year, according to Zillow. Thats the most since 2012 — but the vast majority of homeowners still ‘have plenty to feel good about,’ the real estate site reports… As of October, the median home value had jumped roughly 67% since the property was last sold. Just 4% lost value in that time, around 8.5 years for the typical homeowner… Nationwide, home sellers outnumber buyers by a record 37%, Redfin estimates. The West and South… saw the most widespread losses over the past year. Most major metros in those regions saw at least half of homes lose value, led by Denver (91%), Austin… (89%) Sacramento… (88%), Phoenix (87%) and Dallas (87%)… Meanwhile, only three major metros in the Northeast and Midwest saw most homes lose value: Minneapolis (55%), Des Moines… (54%) and Scranton… (52%).”
December 11 – CNBC (Diana Olick): “Home prices have finally come down compared with last year, though just fractionally, according… Parcl Labs, which looks at high-frequency listing data on single-family homes, condos and townhomes, both new and existing. They may stay softer, though, as home prices are down 1.4% in just the last three months. On a national level, home prices have not gone negative since mid-2023, a year after the Federal Reserve first brought rates up from zero, and mortgage rates moved sharply higher.”
China Watch:
December 11 – Bloomberg: “Chinese policymakers pledged to intensify their efforts to stabilize the housing market at a key economic meeting, reaffirming policies issued last year but stopping short of the measures some economists think are needed to revive the sector. The government will encourage the acquisition of existing housing stock, primarily for use in affordable housing, according to an official readout…”
December 9 – CNBC (Anniek Bao): “China’s consumer inflation climbed in November to hit its highest level in nearly two years… Consumer prices edged up 0.7% from a year earlier, its highest level since February last year… The increase followed a 0.2% rise in October and matched the 0.7% gain expected…”
December 8 – Associated Press (Chan Ho-Him): “China’s exports rebounded in November after an unexpected contraction the previous month, pushing its trade surplus past $1 trillion for the first time… Exports climbed 5.9% from a year earlier in November while imports rose just under 2%.... Shipments to the U.S. dropped nearly 29% year-on-year. But as trade with the U.S. weakens, China is diversifying its export markets throughout Southeast Asia, Africa, Europe and Latin America…”
December 8 – Bloomberg: “Two Chinese chipmakers are attracting strong retail investor demand, buoyed by industry peer Moore Threads Technology Co.’s stellar debut. The retail portion of MetaX Integrated Circuits Shanghai Co.’s upcoming initial public offering was 2,986 times oversubscribed… Meanwhile, Beijing Onmicro Electronics… was 2,899 times oversubscribed on Friday... The bids coincided with Moore Threads’ trading debut, which surged 425% Friday on bets that the company may emerge as a viable local competitor to Nvidia…”
December 12 – Bloomberg: “China’s loan growth disappointed in November with muted overall credit expansion, underlining anemic borrowing by households and businesses is still a concern weighing on the economy. Financial institutions extended 392 billion yuan ($55.6bn) of new yuan loans in the month, falling short of economists’ median forecast of 450 billion yuan… The stock of outstanding credit to the real economy rose 8.5% from a year ago, matching the pace in October. Household loans contracted for a second straight month in November, the first time in data going back to 2005, indicating a prolonged period of net repayment of debt from residents.”
December 7 – Bloomberg (Janice Huang): “Dalian Wanda Group’s commercial real estate unit is seeking a two-year extension on a $400 million bond, the latest developer to seek a debt payment delay as China’s property crisis weighs on liquidity.”
Central Banker Watch:
December 9 – Bloomberg (James Hirai): “From Australia to Europe and the US, traders are betting that monetary easing from central banks will slow or stop altogether. Money markets are now pricing in almost no prospect of further interest-rate cuts from the European Central Bank, and around a 30% chance of a hike by the end of 2026. In Australia, central bank Governor Michele Bullock… ruled out further easing to leave swaps implying almost two quarter-point increases by the end of next year. And traders are all but certain the Bank of Japan will raise its benchmark rate 25 bps next week to 0.75%, with at least one more increase expected next year.”
December 10 – Financial Times (Olaf Storbeck and Martin Wolf): “European Central Bank president Christine Lagarde has said that rate-setters will probably lift their growth forecasts for the Eurozone when they meet next week, in the latest sign of the economy’s resilience.”
December 9 – Bloomberg (James Regan): “French President Emmanuel Macron called for a change in approach to monetary policy at the European Central Bank to boost the single market and protect it from the risks of financial crisis. In an unusual move by a euro-zone leader to comment on the region’s central bank, Macron said… the ECB needs to think differently if the European Union wants to capitalize on its strengths such as its domestic market and high savings rate… In Macron’s view, the ECB reducing its balance sheet by not reinvesting the money when government bonds mature risks pushing up long-term interest rates, slowing activity and strengthening the euro…”
Europe Watch:
December 8 – Reuters (Maria Martinez): “German corporate insolvencies are projected to hit their highest level in more than a decade this year…, as the nation grapples with a stubborn economic downturn. Approximately 23,900 companies are expected to file for bankruptcy in 2025, an 8.3% increase from 2024 and the highest figure since 2014, according to… Creditreform.”
Japan Watch:
December 8 – Bloomberg (Erica Yokoyama): “Japanese Finance Minister Satsuki Katayama said she is closely watching market trends, as the yield on 10-year government debt hovers near 2%, a level not seen since 2006. ‘We are monitoring market trends very closely,’ Katayama told reporters… ‘We will manage government bonds appropriately through close communication with the market’ she said, while refraining from commenting on any specific level. Katayama’s remarks come as Japan’s benchmark yield hit its highest since 2007 on Monday…”
December 8 – Wall Street Journal (Megumi Fujikawa): “Japanese Prime Minister Sanae Takaichi says her $135 billion stimulus package will prop up the world’s fourth-largest economy. Some see a danger in swelling a debt pile that is already one of the largest globally… Takaichi… has unveiled a range of new relief measures, such as energy subsidies and a cash handout of 20,000 yen per child, equivalent to $128.73… Takaichi’s idea is to rely on bond markets to cover 60% of the bill. To spend or not to spend is a conundrum facing governments worldwide.”
December 7 – Bloomberg (Erica Yokoyama): “Japan’s economy shrank in the three months through September, the government confirmed…, giving some justification for Prime Minister Sanae Takaichi’s stimulus package announced last month. Gross domestic product fell at an annualized pace of 2.3% in the third quarter… The contraction was deeper than the initial reading of a 1.8% fall, and was the first in six quarters.”
December 9 – Wall Street Journal (Megumi Fujikawa): “Inflation in Japan is unlikely to speed up at a dangerous pace, the central bank’s governor said… ‘At the moment, we don’t see a very high risk of inflation, especially underlying inflation, accelerating,’ Bank of Japan Gov. Kazuo Ueda said… However, that may change if food inflation or yen weakness last longer than anticipated, driving up inflation expectations, Ueda said. ‘We are watching this possibility carefully, and if this happens, we’ll have to adjust policy accordingly,’ he said.”
Emerging Market Watch:
December 9 – Bloomberg (Gonzalo Soto): “Mexico’s annual inflation accelerated more than expected last month, a week before policymakers are expected to deliver their last rate cut of the year. Consumer prices rose 3.80% in November compared to the same month last year… The reading came in above the 3.70% median estimate…”
Social, Political, Environmental, Cybersecurity Instability Watch:
December 11 – Wall Street Journal (Robert McMillan): “After years of misfires, artificial-intelligence hacking tools have become dangerously good. So good that they are even surpassing some human hackers, according to a novel experiment conducted recently at Stanford University. A Stanford team spent a good chunk of the past year tinkering with an AI bot called Artemis. It takes a similar approach to Chinese hackers who had been using Anthropic’s generative AI software to break into major corporations and foreign governments. Artemis scans the network, finds potential bugs—software vulnerabilities—and then finds ways to exploit them.”
December 10 – Axios (Ina Fried): “OpenAI says the cyber capabilities of its frontier AI models are accelerating and warns Wednesday that upcoming models are likely to pose a ‘high’ risk… The models’ growing capabilities could significantly expand the number of people able to carry out cyberattacks. OpenAI said it has already seen a significant increase in capabilities in recent releases… The company notes that GPT-5 scored a 27% on a capture-the-flag exercise in August, GPT-5.1-Codex-Max was able to score 76% last month. ‘We expect that upcoming AI models will continue on this trajectory,’ the company says... ‘In preparation, we are planning and evaluating as though each new model could reach ‘high’ levels of cybersecurity capability as measured by our Preparedness Framework’.”
December 11 – Bloomberg (Anna Edgerton and Lauren Rosenthal): “Record rainfall prompted evacuation orders for about 100,000 people as the Skagit River north of Seattle is forecast to crest almost two feet above its historic record Thursday evening. This week’s deluge will be the first real test of the dikes and drainage system that was updated after the last major flood in 2021…Washington Governor Bob Ferguson urged people to follow evacuation orders. ‘We understand that many folks have experienced significant floods in the past and that they may feel they can ride it out,’ Ferguson said. ‘The flooding levels we’re looking at are potentially historic in nature’.”
Geopolitical Watch:
December 8 – Reuters (Panarat Thepgumpanat and Orathai Sriring): “Thailand said its fighter jets struck Cambodia on Monday in an attempt to cripple its military capability, as a re-eruption of border hostilities derailed a fragile ceasefire brokered by U.S. President Donald Trump. Each side blamed the other for starting clashes that broke out during the night and intensified before dawn and spread to several locations…”
