Eurozone Remains On Track For Solid Growth In 4Q

Forex

Economic

Summary:

The eurozone remains on a decent growth path right now. While manufacturing output growth waned somewhat in November, service sector activity maintained a strong growth pace, according to the survey as the services PMI came in at 53.1, slightly higher than in October.

Core Europe saw differing patterns in November as France experienced a boost to the PMI thanks to a jump in the services activity index, which brings the overall index back up to 50.8. That indicates a slight expansion. Germany, which had seen a strong October, saw a slight slowdown as the PMI fell from 53.9 to 52.1.

Business sentiment has undoubtedly turned more optimistic over the course of the year, which has translated into sluggish economic growth so far. At the same time, global headwinds have not pushed the bloc into recession. While we expect activity to strengthen further in 2026, we remain cautious about translating improved sentiment into immediate, faster growth.

With consumer intentions to save at an all-time high, a strong euro, and many trade war effects still working their way through the economy, overly optimistic growth expectations should be tempered in the months ahead.

Source: ING

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Gerik

Economic

Largest Stimulus Since Pandemic Targets Inflation and Economic Softness

Japan’s cabinet on Friday approved a ¥21.3 trillion ($135.5 billion) stimulus package, its most aggressive since the COVID-19 pandemic, signaling a bold fiscal intervention to address rising inflation, faltering growth, and strategic vulnerabilities. The package, structured around three core objectives containing cost-of-living increases, reinvigorating economic activity, and reinforcing national defense and diplomacy marks the first major economic policy under Prime Minister Sanae Takaichi’s new administration.

The stimulus comes as Japan grapples with a complex mix of inflationary pressure and economic contraction. GDP fell by 0.4% quarter-on-quarter in the July–September period, translating to a 1.8% annualized decline the country’s first negative growth in six quarters. While October trade data showed some relief, with exports rising 3.6% year-on-year, broader structural concerns remain, particularly as export shipments to the U.S. continue to shrink due to tariffs.

Causal Relationship Between Stimulus Design and Domestic Economic Conditions

The stimulus reflects a direct policy response to twin domestic challenges: surging living costs and weak consumer sentiment. Inflation rose to 3.0% in October, up from 2.9% in September, remaining above the Bank of Japan’s 2% target for the 43rd straight month. Key components of the stimulus include expanded local government grants and targeted utility subsidies. The latter is expected to deliver approximately ¥7,000 in savings for an average household over three months starting January 2026, directly counteracting inflation’s erosion of disposable income.

Additionally, the removal of gasoline taxes is aimed at alleviating energy-driven cost pressures, while the introduction of a 10-year fund to enhance Japan’s shipbuilding capacity, along with plans to lift defense spending to 2% of GDP by FY2027, highlights the government’s broader strategic ambitions.

Funding Strategy and Political Implications

The government plans to “swiftly compile” a supplementary budget to finance the stimulus, seeking to pass it by year-end with assistance from opposition parties. Although the ruling Liberal Democratic Party (LDP) governs as a minority, its alliance with the Japan Innovation Party brings their combined Lower House seat count to 231 just two shy of a majority. This political coordination will be crucial in pushing the stimulus through the Diet.

Debt-financed stimulus, however, raises familiar concerns over fiscal sustainability. Japan’s debt-to-GDP ratio remains among the highest in the developed world. Yet the government appears willing to prioritize short-term economic stabilization over long-term fiscal discipline in the face of rising external and domestic pressures.

Yen Weakness Adds Complexity to BOJ’s Policy Calibration

The aggressive fiscal stance has coincided with renewed downward pressure on the yen. The Japanese currency has fallen to 10-month lows against the U.S. dollar, sparking concerns over imported inflation. BOJ Governor Kazuo Ueda acknowledged this risk during a parliamentary session Friday, noting that a weak yen could raise overall price levels by lifting import costs.

Finance Minister Satsuki Katayama echoed these concerns and hinted at possible currency market intervention, citing “sharp, one-sided” moves in exchange rates. The causal link between expansive fiscal policy and yen depreciation is becoming clearer: government stimulus increases liquidity and deficit expectations, which in turn reduce confidence in the yen, amplifying inflationary pressures that the Bank of Japan is attempting to manage cautiously.

Balancing Growth Support and Inflation Control: A Policy Crossroad

With inflation above target and GDP contracting, Japan’s macroeconomic outlook presents a policy dilemma. While the Bank of Japan has thus far resisted rate hikes to preserve economic momentum, market watchers are increasingly expecting a shift in tone. Any monetary tightening, however, could clash with fiscal policy, undermining the effectiveness of the stimulus by raising borrowing costs and curbing consumer activity.

The stimulus package, therefore, represents both a necessary intervention and a risky gamble: it aims to restore economic momentum and ease household burdens, but could fuel further yen weakness and imported inflation unless carefully counterbalanced by central bank policy.

Prime Minister Takaichi’s administration has swiftly moved to assert its economic priorities, delivering an ambitious stimulus package that blends consumer relief with industrial policy and national security spending. The package directly addresses Japan’s immediate economic pain points, but also introduces new policy frictions. With inflation elevated, growth fragile, and the yen volatile, the success of this fiscal strategy will depend on precise coordination between fiscal expansion and monetary caution. How the BOJ responds in its December meeting may ultimately determine whether this stimulus steadies Japan’s recovery or destabilizes its macroeconomic footing further.

Source: CNBC

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Glendon

Forex

Economic

Euro zone business activity grew steadily this month as services expanded at the quickest pace in 1-1/2 years, while weak demand sent manufacturing back into contraction territory, a private survey showed.

The 20-nation bloc has shown economic resilience despite high global uncertainty since the start of the year, and improving business confidence suggests the momentum is likely to remain intact.

The HCOB Flash Eurozone Composite PMI, compiled by S&P Global, declined slightly to 52.4 in November from a more-than two-year high of 52.5 in October, just shy of a Reuters poll forecast for 52.5 but marking its 11th consecutive month above the 50.0 mark that separates growth from contraction.

"The service sector in the euro zone is a ray of hope. Although business activity growth in Germany has slowed significantly, French service providers have returned to growth. All in all, the euro zone is more or less maintaining its relatively robust expansion rate," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"Although the manufacturing sector is dampening growth performance, the high weight of the service sector in the overall economy means that the euro zone as a whole should grow faster in the final quarter than in the third quarter."

The services PMI rose to 53.1 from 53.0 in October, its highest since May 2024 and better than 52.8 predicted in the Reuters poll.

But manufacturing activity contracted after remaining at the break-even point the previous month. The sector's headline PMI declined to 49.7 this month from 50.0 in October, its lowest since June and below the Reuters poll prediction of 50.2. Weak demand led factories to cut jobs at their fastest rate in seven months.

Meanwhile, overall input costs rose at their quickest rate since March, but firms largely absorbed them. Output prices increased at their weakest pace in over a year.

Overall inflation in the shared-currency bloc has remained persistently around the European Central Bank's 2% target. That, along with a steady economic outlook, is widely expected to keep key interest rates on hold for a long period.

Source: Reuters

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Glendon

Forex

Economic

Germany's private sector growth has lost momentum in November as the manufacturing sector has unexpectedly contracted and the service sector has not expanded as fast as hoped, a survey showed on Friday.

The HCOB preliminary German flash composite Purchasing Managers' Index, compiled by S&P Global, slipped to 52.1 in November from October's 53.9, marking a two-month low.

November marks the sixth month in a row that the composite index, which tracks the services and manufacturing sectors that together account for more than two-thirds of the euro zone's largest economy, was above the 50 mark indicating growth.

The manufacturing PMI dipped further into contraction territory, falling to 48.4 in November from 49.6 in October, in contrast to analysts' forecasts for a slight rise to 49.8.

New orders in the manufacturing sector fell sharply, particularly in export sales, which saw their quickest decline since January. This downturn in demand has contributed to a renewed decline in backlogs of work and a modest acceleration in job losses across the sector.

Meanwhile, the services PMI dropped to 52.7 from 54.6, also a two-month low, and also below the forecast for a fall to 54.0.

"These figures are a major setback for Germany," said Cyrus de la Rubia, Hamburg Commercial Bank's chief economist.

The manufacturing PMI signals a slowdown in this part of the economy, while hopes that the rate of expansion in services would speed up have vanished into thin air, added de la Rubia.

"Overall, the German economy is limping towards marginal growth at best in the fourth quarter," said the economist.

The finance ministry said on Thursday that at best a moderate recovery can be expected by the end of the year.

Despite these challenges, manufacturers were optimistic about future production, buoyed by growth expectations in defence and civil engineering due to government investment.

Source: Investing

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Winkelmann

Forex

Stocks

After rallying above 1.16 earlier in November, the Euro to US Dollar exchange rate (EUR/USD) slipped back towards the mid‑1.15s as investors rethought the outlook for US monetary policy.

Latest — Exchange Rates:Pound to Dollar (GBP/USD): 1.30862 (+0.02%)Euro to Dollar (EUR/USD): 1.15457 (+0.1%)Dollar to Japanese Yen (USD/JPY): 156.7795 (-0.38%)

The Federal Reserve's latest meeting minutes revealed a committee increasingly wary of cutting rates again, and several officials warned that easing too aggressively could damage inflation‑fighting credibility.

Those hawkish signals pushed US yields higher and drew capital into the dollar, leaving the euro struggling to regain traction.

Even a late‑week bounce in equities did little to lift the single currency as risk appetite remained fragile.

Equity whipsaw after Nvidia's surge and slump

The mood darkened further when the spectacular rally in a major US semiconductor stock, fuelled by optimism over artificial‑intelligence demand, abruptly reversed.

Shares initially spiked on bumper earnings and bullish guidance, driving indices to record highs.

Within hours, however, profit‑taking and concerns about stretched valuations triggered a sharp sell‑off that dragged the Nasdaq and S&P 500 into negative territory.

This whipsaw in equities reinforced the dollar's safe‑haven appeal and kept EUR/USD under pressure even as bond markets gyrated.

Non‑farm payrolls rose by 119,000 in October, comfortably beating expectations for a 53,000 increase, yet the previous month's figure was revised down and the unemployment rate ticked up to 4.4 % from 4.3 %.

Average hourly earnings growth eased to 0.2 % month on month, undershooting the consensus and suggesting wage pressures are moderating.

Weekly unemployment claims edged lower to 220,000 after two elevated readings, but the overall picture remains mixed.

In the absence of a clear trend, investors are balancing a better‑than‑expected jobs headline against signs of cooling wages and a higher jobless rate, leaving the path of US yields and broader sentiment as key drivers.

Meanwhile, recent euro‑zone figures have been underwhelming.

Construction output contracted for a second month and annual growth turned negative, while consumer confidence remains deeply depressed.

European Central Bank vice‑president Luis de Guindos acknowledged that inflation is converging towards the 2 % target but warned that high debt and trade tensions could amplify any downturn.

Divided views on where next

The combination of a fragile economy and hawkish U.S. policy has left analysts divided.

Some technical strategists warn that the euro's failure to hold above its 50‑day moving average signals further downside, with a head‑and‑shoulders pattern hinting at a slide towards the low‑1.14s.

Others see the decline as a temporary correction within a broader reversal pattern, suggesting that support around 1.15 could hold and that the pair might recover towards 1.17 if U.S. data weaken.

A few houses continue to argue that yield spreads justify a stronger euro over the longer term and retain a year‑end 2025 forecast of around 1.18.

The divergence underscores how little conviction there is in either direction.

Markets now turn to a busy data calendar.

In the euro area, investors will parse the final October inflation numbers, November's consumer confidence survey and Friday's flash Purchasing Managers' Indices.

De Guindos speaks twice, on Monday and Friday, and his remarks may help shape expectations ahead of the December ECB meeting.

EUR/USD Technical Outlook: Neutral to Bearish Range

Scotiabank's latest technical analysis describes EUR/USD as neutral to bearish.

A sharp mid‑week pullback dragged the pair back towards its early‑November lows and sent short‑term momentum indicators into negative territory.

Support is seen near the 5 November low in the mid‑1.14s; a break would shift focus towards the early‑August low around 1.14.

On the topside, rallies have failed to hold above the 50‑day moving average near 1.1660.

The bank expects the euro to trade in a narrow 1.1480–1.1580 band in the near term unless data releases provide a catalyst.

Yield differentials still lean slightly in favour of the euro, so dips towards the low‑1.14s may attract buyers, but any meaningful recovery will likely require evidence of a softer U.S. economy.

Source: EXCHANGERATES

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Gerik

Economic

Stronger Third-Quarter Growth Leads to Upgraded 2025 Outlook

Singapore’s Ministry of Trade and Industry (MTI) has revised its 2025 GDP forecast upward to approximately 4%, an upgrade from its earlier range of 1.5% to 2.5%. This shift reflects a resilient third-quarter performance, where the economy expanded by 4.2% year-on-year well above both the government's advance estimate of 2.9% and market expectations of 4.0%.

Quarter-on-quarter growth, seasonally adjusted, rose to 2.4% in the July-to-September period, from 1.7% in Q2, signaling accelerating momentum. This growth trajectory has been driven largely by the manufacturing sector, particularly in electronics and AI-related semiconductors. Electronics manufacturing grew 6.1% during the quarter, as global demand for AI servers and chips remained strong.

Causal Link Between AI Demand and Export-Led Growth

The AI boom has had a direct causal impact on Singapore’s manufacturing revival. The surge in electronics exports has boosted both production output and wholesale trade volumes, forming the backbone of Q3’s strong performance. The MTI emphasized that the demand for AI-related products is expected to continue supporting the manufacturing sector through the rest of the year.

This sectoral growth comes amid a broader backdrop of stabilized global demand. The MTI cited “more resilient-than-expected” global conditions and easing U.S.-China trade tensions as key factors enabling export strength in a difficult environment.

2026 Outlook Clouded by Tariff Risks and Slowing Global Demand

Despite this strong showing in 2025, Singapore’s economic outlook for 2026 is more cautious. The MTI forecasts GDP growth between 1% and 3% for next year, citing more pronounced impacts from U.S. tariffs and a potential slowdown in key trading partners’ economies. These projections reflect a shift from the current AI-fueled expansion to one constrained by geopolitical and trade policy risks.

The U.S. has imposed a 10% baseline tariff on Singaporean exports, which remains relatively mild. However, sector-specific tariffs most notably a proposed 100% duty on branded pharmaceutical products remain a source of concern. While the implementation of these levies has been delayed, the lack of clarity on their scope has created a cloud of uncertainty. Prime Minister Lawrence Wong acknowledged that trade discussions with Washington remain in preliminary stages, particularly around pharmaceutical exemptions.

Export Volatility and Sectoral Imbalances Persist

Singapore’s non-oil domestic exports (NODX) declined 3.3% in Q3, following a 7% gain in Q2, primarily due to weaker performance in pharmaceuticals and petrochemicals. Exports to the U.S. fell sharply by 30.7% in the third quarter, though October brought a significant rebound: NODX surged 22.2% year-on-year, lifted by gold and electronic shipments, despite U.S. exports still being down 12.5%.

This export volatility suggests a complex relationship between global demand shifts and Singapore’s trade structure. While AI-related electronics continue to grow, reliance on high-value sectors like pharmaceuticals exposes Singapore to abrupt demand shocks when trade policy shifts.

Stable Monetary Policy and Low Inflation Reinforce Short-Term Stability

Singapore’s central bank, the Monetary Authority of Singapore (MAS), is expected to maintain its current monetary policy stance in January 2026, supported by solid growth and muted inflation. Core inflation stood at 0.7% in September, within the MAS’s forecasted range of 0.5% to 1%. With inflation pressures contained and GDP performance exceeding forecasts, the MAS is likely to avoid tightening, preserving policy support as external risks mount.

Singapore’s strong Q3 performance and upward revision to 2025 GDP forecasts affirm the short-term resilience of its economy, powered by high-tech manufacturing and global AI demand. However, the outlook for 2026 is marked by significant uncertainty. Trade headwinds particularly from evolving U.S. tariffs and geopolitical tensions may undercut the export-led growth model. While Singapore is well-positioned in the short term, its medium-term outlook depends on policy clarity from the U.S., diversification of trade partners, and continued adaptability in high-value manufacturing sectors.

Source: CNBC

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Justin

Forex

Economic

British retail sales tumbled in October and a closely watched gauge of household sentiment fell this month, adding to signs of waning consumer spending ahead of finance minister Rachel Reeves' budget next week.

Retail sales volumes fell by 1.1% in October compared with a month before, their first month-on-month fall since May, the Office for National Statistics said on Friday.

Economists polled by Reuters had expected sales to be flat compared with the previous month. Compared with October a year ago, retail sales were just 0.2% higher, against forecasts for a 1.5% annual increase.

Sterling fell briefly against the dollar but soon recovered.

Earlier on Friday, Britain's longest-running consumer survey, from GfK, showed a broad-based drop in consumer morale this month which suggested the public was "bracing for bad news" in Reeves' budget on Nov 26.

"The increasingly chaotic run-up to the budget has begun to weigh on consumer spending, judging by confidence nudging down in November and weakening retail sales growth lately," said Rob Wood, chief UK economist at Pantheon Macroeconomics, a consultancy.

Separate ONS data showed higher-than-expected government borrowing last month, underscoring the scale of the challenge facing Reeves.

She is expected to need to raise £20-30 billion (US$26 billion-US$39 billion or RM107.7 billion-RM161.6 billion) through higher taxes due to an expected growth downgrade from the government's budget watchdog as well as higher borrowing costs and an inability to pass planned welfare cuts through parliament.

Overall consumer spending has been subdued due to a continued high savings rate, which economists say may reflect a surge in inflation in 2022, a more recent weakening in the jobs market and concerns about tax rises in the budget.

Recent updates from major retailers have expressed nervousness about the impact of the upcoming budget on consumer sentiment, particularly for more discretionary purchases. However, supermarket Sainsbury's and food and clothing retailer Marks & Spencer were both upbeat on Christmas trading prospects.

The ONS said supermarket, clothing and mail order sales fell in October, with some retailers citing consumers delaying spending ahead of November's Black Friday discounts.

British retail sales volumes remain 3.3% lower than their pre-pandemic level of February 2020.