A Not-So-Hawkish Fed Cut – We Maintain Our Call

Danske Bank

Stocks

Forex

Economic

Central Bank

Summary:

In focus today

In Norway, the Regional Survey is due for release. We expect it to confirm that growth continues to rise at a moderate pace, with capacity utilization largely unchanged and indicate that the level of activity is somewhat below normal. Specifically, we expect that respondents in the survey will expect 0.3-0.4% growth next quarter, that capacity utilization will be unchanged at 35% and that the number of companies experiencing labour shortages will fall from 25% to 24%.

In Sweden, the final figures for November inflation are being published. The preliminary figures surprised to the downside, with CPI at 0.3% y/y, CPIF 2.3% y/y, and CPIF ex. energy 2.4% y/y. As preliminary estimates are generally reliable, significant revisions are unlikely. It will be interesting to analyse the details to understand the factors behind the surprise. Specifically, whether the low outcome is linked to seasonal variations or other underlying causes.

In central bank space, attention turns to the Swiss National Bank, where we forecast the rate to remain unchanged at 0.00%. The Central Bank of Turkey is also set to release its rate decision.

Economic and market news

What happened yesterday

In the US, the Federal Reserve cut its policy rate target by 25bp to 3.50-3.75% last night, as widely anticipated. Miran voted for a larger 50bp cut, while Schmid and Goolsbee dissented in favour of a hold, also in line with our expectations. We (and the markets) had expected Powell to push back against market pricing further rate cuts for 2026. However, his avoidance of strong forward guidance led to a decline in UST yields and broad USD weakening during the press conference. We maintain our Fed call and expect two final rate cuts in March and June. The Fed also announced reserve management purchases of T-bills starting 12 December at USD 40bn per month, indicating more front-loaded easing to liquidity policies than we anticipated.

Ahead of the meeting, the US Q3 Employment Cost Index signalled slightly slower-than-expected wage growth at 0.8% q/q (prior: 1.0%). This pace is close to ideal for the Fed – supporting consumption without driving inflation – and is positive for overall risk sentiment.

In Sweden, October economic activity data showed a slight decline, with lower production in the business sector as well as declining household consumption. The GDP indicator fell by 0.3% m/m, though its volatility warrants cautious interpretation. Overall, the data aligned with our expectations of slower growth for Q4, reflecting lagged effects of the summer slowdown, and does not alter the positive outlook heading into 2026.

In Norway, November core inflation declined to 3.0% y/y (cons: 3.1%, prior: 3.0%), driven by domestic and imported goods ex. food. Annual growth in household appliances and electronics dropped close to September levels, indicating that volatility was likely influenced by Black week adjustments. The print is marginally lower than Norges Bank's estimate from the September MPR at 3.1%, reinforcing the disinflationary trend. While this is unlikely to affect Norges Bank's rate path next week, it provides scope for signalling a more aggressive cutting cycle, dependent on the Regional Network survey today.

In Canada, the Bank of Canada kept the rate unchanged at 2.25% as widely expected.

In Denmark, November inflation held steady at 2.1% y/y. Food prices declined 0.9% from October, which could potentially have a positive impact on consumer sentiment.

Equities: Equity investors cheered the not-so-hawkish Fed cut yesterday. S&P 500 jumped 1% at the press conference, eventually closing 0.7% higher and small cap Russell 2000 1.3% higher. The rate decision triggered a clear cyclical preference in markets: Value cyclicals like materials, industrials, and consumer discretionary were all ~2% higher. This is interesting. Previously this year we have seen cyclical growth stocks – mag 7, basically – rallying at dovish surprises. This time, it was more of a "run it hot" reaction in markets, where expectations of stronger macro fuelled the move higher rather than lower yields. This fits our narrative very well.

One sector worth highlighting is health care, performing very strong in the risk-on session yesterday. This is a bit odd in a historical context, but health care has been behaving like a cyclical sector in recent trading. This has certainly been a tremendous rally, but we take profits today and neutralize our health care sector call. Reason for this is that the positive health care call has been a valuation call, and this argument has rapidly changed. The relative discount has gone from 20% to 10% vs global markets the last three months, which we think is a fair discount at this part of the cycle. For instance, health care now trades close to the multiple of consumer staples, after a 20% discount at the bottom.

FI and FX: Yesterday's Fed rate cut was a rather balanced one, but given that markets expected a hawkish cut, market reactions were slightly to the soft side. Rates rallied somewhat and the USD weakened a tad with EUR/USD trading at 1.169. Only tiny and transitory, negative reactions in EUR/SEK and EUR/NOK following the FOMC decision. Ahead of the Fed rate decision European rates rose once again, resulting in the fifth consecutive day of higher rates. Potential rate cuts for the ECB have by now been eliminated for 2026. This morning, EUR/SEK is back at 10.84 and EUR/NOK trades at 11.83.

Source: Danske Bank

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Gerik

Economic

China’s Export Strategy Defies U.S. Tariffs

Following President Trump’s re-election and his campaign promise to impose harsh tariffs on Chinese imports, many expected a sharp decline in China's trade performance. Yet, the result was strikingly the opposite. By the end of November 2025, China had recorded a historic $1 trillion trade surplus a first for any country signaling its ability to pivot rapidly under pressure.

Rather than confront tariffs directly, Chinese exporters intensified a strategy honed during Trump's first term: reducing dependence on the U.S. and expanding into alternative markets. Customs data show that while exports to the U.S. plunged 18.3% year-on-year, shipments to Europe rose 8.9%, to Southeast Asia by 14.6%, and to Africa by a remarkable 27.2%. The overall export growth of 5.7% for the first 11 months of the year underscores the success of this diversification effort.

This redirection reveals a clear causal pattern: Trump’s tariffs accelerated China's strategic disengagement from U.S. markets and strengthened its ties with regions more receptive to low-cost goods. At the same time, it challenged assumptions that China’s economy was overly dependent on U.S. consumers.

Record Surplus Masks Underlying Domestic Fragility

Beneath the surface of trade success lies a more complex reality. China’s overreliance on exports stems from structural domestic weaknesses. Consumer spending remains subdued amid deflationary pressures, ongoing property market distress, and high youth unemployment.

Imports a key measure of domestic demand rose just 0.2% year-over-year, reflecting sluggish consumption. Despite Beijing’s public stance that it will meet its 5% growth target, confidence in the broader economy remains low. Much of China’s production strength is now directed abroad because weak internal demand leaves limited room for domestic absorption.

This dynamic demonstrates a correlated but troubling trend: export strength is increasingly a symptom of weak domestic fundamentals, not a sign of economic balance. The sharp overcapacity in sectors like electric vehicles and e-commerce has sparked brutal price wars, triggering deflationary spirals that the government has struggled to control.

Manufacturing Dominance Drives Export Pivot

China’s resilience in trade stems from decades of industrial investment. Under the “Made in China 2025” strategy, billions have been poured into high-tech sectors and traditional manufacturing. Over the past five years, exports have surged by nearly 45%, aided by pandemic-driven demand and the depth of China’s supply chains.

This advantage has left global rivals behind, especially developing economies that have become increasingly reliant on Chinese components and finished goods. As noted by Wang Jun of the General Administration of Customs, China’s export engine thrives on both advanced capabilities and market perseverance.

However, such advantages have come with side effects. Years of investment have created capacity far exceeding domestic needs, pushing firms to seek external demand as a survival strategy. The competitiveness of China’s manufacturing base, while unmatched in volume and price, also contributes to global friction.

Global Backlash and Transshipment Risks

China’s trade pivot, while effective, is not without consequences. Economists suspect a portion of export growth may be due to transshipments goods processed or rerouted through third countries before reaching their final U.S. destination. This practice, difficult to measure precisely, complicates tariff enforcement and has prompted the U.S. to impose levies on re-exported goods from intermediary nations like Vietnam.

As China floods new markets with competitively priced goods, accusations of dumping have intensified. The European Union has already imposed tariffs on Chinese electric vehicles and other industrial exports. French President Emmanuel Macron recently described the imbalance in trade with China as “unbearable,” signaling rising protectionist sentiment.

This global response reveals a feedback loop: China’s push to maintain export momentum increasingly fuels trade friction, which may, in turn, limit its access to critical growth markets in the near future.

Policy Outlook Remains Cautious Ahead of CEWC

With the Central Economic Work Conference (CEWC) approaching, all eyes are on Beijing’s next policy moves. President Xi Jinping’s latest remarks reaffirmed a focus on manufacturing strength, technological self-reliance, and economic security. However, economists note a lack of urgency in addressing immediate growth pressures such as consumption shortfalls and real estate malaise.

Goldman Sachs economist Lisheng Wang described the policy outlook as “somewhat disappointing,” noting the absence of broad stimulus plans or direct support for household consumption. The lack of emphasis on domestic rebalancing suggests that export reliance will continue to be China’s primary growth lever into 2026.

Export Growth Offers Breathing Room, Not a Cure

China’s ability to pivot its exports amid heightened U.S. trade pressure demonstrates remarkable industrial resilience and geopolitical adaptability. Yet this strength masks internal economic frailties that remain unresolved. The causal link between weak domestic conditions and aggressive export strategies is increasingly evident, creating a dual challenge: sustaining external trade while addressing internal stagnation.

If trade tensions escalate further or global demand weakens, China’s export gains may face headwinds. Without a shift toward stronger domestic consumption and structural reform, the current trade surplus may offer only temporary relief rather than long-term stability.

Source: Reuters

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Gerik

Economic

Cryptocurrency

Bitcoin Falls as Tech Woes Trigger Risk-Off Sentiment

Bitcoin declined 2.5% on Thursday to $90,056.24, slipping below a key psychological threshold and extending losses that began after the U.S. Federal Reserve’s latest interest rate cut. The broader cryptocurrency market followed suit, with ether down 4.3% to $3,196.62, wiping out gains from earlier in the week.

The retreat in digital assets unfolded amid rising doubts about profitability in the artificial intelligence sector. Oracle, a key player in the AI and cloud computing space, missed revenue expectations and warned of increased infrastructure spending without immediate returns. This news disrupted investor optimism around AI-driven tech gains and spilled into the broader risk asset universe, including crypto.

Disconnect Between Crypto and Traditional Risk Assets Emerges

Unlike previous risk-on episodes where crypto mirrored gains in equities, digital assets failed to capitalize on Wall Street’s positive momentum following the Fed’s rate cut. According to Tony Sycamore of IG in Sydney, this divergence underscores a market still grappling with the aftereffects of volatility, particularly since the October 10 selloff.

This decoupling suggests that crypto is now navigating a distinct path from other high-beta assets. While traditional stocks responded favorably to the Fed’s policy shift, the lack of follow-through in Bitcoin indicates either a deeper correction phase or fading speculative demand.

Standard Chartered Slashes Bitcoin Forecast, Questions Treasury Demand

Adding to bearish sentiment, Standard Chartered revised its end-2025 Bitcoin target from $200,000 to $100,000. The downgrade reflects a major shift in market assumptions, especially regarding corporate Bitcoin treasuries. According to Geoff Kendrick, head of digital assets research at the bank, “buying by Bitcoin digital asset treasury companies is likely over.”

This view marks a transition from the earlier narrative that corporates would continue accumulating Bitcoin as a balance sheet reserve. The implication is clear: future price appreciation will depend heavily on exchange-traded fund (ETF) inflows, which may lack the momentum or conviction of prior institutional waves.

With treasury interest fading, ETF demand becomes the sole engine for upward price movement.

Crypto Faces a Confidence Gap as 2025 Winds Down

Bitcoin’s drop below $90,000 represents more than a technical retracement; it reflects a market grappling with disappointment across key growth narratives, particularly AI and institutional crypto adoption. The combination of a hesitant Fed outlook, underwhelming tech earnings, and downgraded forecasts for digital assets highlights a deteriorating correlation between crypto and other risk assets.

As the year-end approaches, the crypto market’s reliance on a single growth pillar ETF inflows increases its vulnerability to sentiment shifts. Unless confidence is restored through stronger fundamentals or broader capital inflows, Bitcoin may struggle to regain its upward momentum in the near term.

Source: Bloomberg

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Winkelmann

Forex

Economic

The yen struck a record low against the offshore yuan this week, raising concerns about imported inflation in Japan where the central bank's policy normalization remains gradual.

The Japanese currency has also weakened against China's tightly managed onshore yuan, with the pair hovering near its lowest since 1992. The offshore yuan was introduced in 2010.

A cautious BOJ and lingering fiscal concerns are pressuring the yen, whose weakness has now broadened beyond the dollar and euro to include currencies of key trading partners such as China and Australia. The delay in normalizing monetary conditions keeps Japan's real effective exchange rate near multi-decade lows and may amplify imported inflation pressures, given China is Japan's largest source of imports, even amid simmering political tensions.

"A weak yen is problematic because it increases inflation risk, which in turn is politically unpopular," said Moh Siong Sim, FX strategist at Bank of Singapore. "The BOJ faces a delicate balancing act of curbing yen weakness while containing upward pressure on JGB yields."

The BOJ is widely expected to raise interest rates by 25 basis points at next week's policy meeting, with overnight index swaps pricing in a 92% chance of a move. And yet, investors are sticking with bearish yen bets, reflecting expectations Japan's yields will remain substantially below those of the US even after a potential BOJ move.

Meanwhile, there are doubts Beijing will tolerate sustained gains in the yuan. A firmer currency supports capital inflows and China's financial-opening goals, but excessive appreciation risks undermining exports that are a critical pillar of the economy.

Traders will be watching whether the People's Bank of China allows the recent offshore yuan's gains to flow through in upcoming fixings, or if it will curb further appreciation.

Source: Bloomberg Europe

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Justin

Political

Economic

The UK housing market showed signs of distress in November as the latest survey from the Royal Institution of Chartered Surveyors reflected what analysts characterized as an unenthusiastic response from estate agents to the government's Budget announcement.

The RICS UK Residential Market Survey revealed that all near-term metrics turned negative, with house prices continuing to face modest downward pressure at the national level.

The trade body indicated that the subdued backdrop is expected to persist over coming months, the report said.

New buyer enquiries fell by 32% in November, worsening from a 24% decline in October and marking the weakest reading since late 2023, according to the survey data.

This represented the fifth successive report in which the measure remained in negative territory, with most parts of the UK seeing a consistently negative trend in new buyer interest.

Sales agreed recorded a 24% decline in November, broadly unchanged from the 23% fall in October.

The near-term sales outlook weakened slightly, with expectations for the coming three months shifting from a 3% fall to a 6% decline, suggesting a more negative short-term view.

However, the 12-month outlook improved, with the November reading rising to 15% growth from a 7% decline in October.

New vendor instructions registered a 19% decline in November, virtually unchanged from the 20% decline in October. The brokerage suggested that fewer homeowners were willing to begin the sales process ahead of the Budget announcement.

House prices showed a net decline of 16% in November, compared with a 19% decline in October. These downward trends were most pronounced in what the report describes as "traditionally affordability-constrained regions," including the South East, East Anglia, and London.

Near-term house price expectations also remained negative, with a net 15% expecting prices to fall over the next three months, slightly more than the 12% expecting a fall in October.

However, the 12-month outlook strengthened, with a net 24% of survey participants expecting prices to rise, up from 16% expecting an increase in October, the strongest reading since June.

The rental market also showed signs of weakness. Tenant demand recorded a net decline of 22% in November, a sharp deterioration from the 4% decline in October.

Landlord instructions fell by 39% in November, compared with a 34% decline in October, marking the weakest reading since April 2020.

RBC Capital Markets linked the weakening rental market to a mix of Budget uncertainty and the recent passage of the Renters Reform Act.

It added that recent changes to property income tax and the so-called "mansion tax" could further reduce buy-to-let landlord appetite in the near term.

Estate agents now expect rents to increase by 2.5% over the next 12 months, slightly below the 3% average forecast over the previous six months.

RBC analysts suggested that UK households traditionally show strong interest in property listings on Boxing Day morning, with record viewing figures expected on Rightmove.

They predicted that RICS' December survey would prove more upbeat than the post-Budget November edition.

Source: Investing

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Olivia Brooks

Bond

Economic

Central Bank

The Bank of Japan sees limited need for emergency intervention to restrain rising bond yields, a move that runs counter to its effort to roll back stimulus, three sources familiar with its thinking said.

Growing market anticipation of an interest rate hike in December has pushed up the benchmark 10-year Japanese government bond (JGB) yield to an 18-year high this week, drawing attention to how the central bank could respond.

BOJ Governor Kazuo Ueda, speaking in parliament on Tuesday, said recent increases in bond yields were "somewhat rapid" and reiterated the central bank's readiness to respond nimbly in exceptional circumstances.

Policymakers are keeping a watchful eye on market moves but are reluctant to take action presently, such as ramping up bond purchases or conducting emergency market operations, the sources said, citing a high threshold for intervention.

They also see no imminent need to tweak the BOJ's plan to steadily reduce bond purchases, including for super-long tenors that have recently led to yields rising to record highs, they said.

"It would take a panicky sell-off that is out of sync with fundamentals, something Japan isn't seeing right now," said one of the sources on the high hurdle for the BOJ to ramp up bond buying, a view echoed by two other sources.

Rather, the recent yield rises are due to investors taking a wait-and-see approach on uncertainty over how far the BOJ could eventually raise rates, and how much of bonds the government will sell to fund next fiscal year's budget, they said.

Ueda has signalled the BOJ will offer some clarity on its future rate-hike path when the board decides to raise rates to 0.75% from 0.5% - a move markets expect at next week's policy meeting.

Last year, the BOJ exited a decade-long, massive stimulus including by ditching its bond yield curve control and slowing the pace of JGB purchases.

In laying out its taper plan, the BOJ said that while long-term rates should be determined by markets, it will respond "nimbly" if yields rise rapidly in a way out of sync with fundamentals.

Ueda has repeated the language, whenever asked about yield moves at press briefings or in parliament, including on Tuesday.

The 10-year JGB yield rose to an 18-year high of 1.97% on Monday, approaching the psychologically important 2% line that has not been breached for nearly two decades.

The BOJ will focus on what is driving the moves rather than specific yield levels, and stay cautious on intervening as doing so would give a wrong signal to markets that it could discontinue efforts to normalise policy, the sources said.

Intervening would also give markets the impression the BOJ has a line in the sand on where it would step in, running counter to its attempt to have market forces drive bond price moves, they said.

Yields around the globe have been climbing in recent weeks, as many central banks signalled they are either at or near the end of their own easing cycles, while the BOJ is widely anticipated to hike rates at its policy meeting next week.

JGB yields have also risen on expectations that Prime Minister Sanae Takaichi's expansionary fiscal policy would lead to a huge issuance of bonds, at a time the BOJ was reducing its presence in the market.

Source: Investing

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Samantha Luan

Stocks

Economic

Why Big Tech Is Doubling Down On India With Billions In Investment_1

A slogan related to Artificial Intelligence (AI) is displayed on a screen in Intel pavilion, during the 54th annual meeting of the World Economic Forum in Davos, Switzerland, January 16, 2024.

Big Tech is doubling down on investing billions in India, drawn by its abundance of resources for building data centers, a large talent and digital user pool, and market opportunity.

In under 24 hours, Microsoft and Amazon pledged more than $50 billion toward India's cloud and AI infrastructure, while Intel on Monday announced plans to make chips in the country to capitalize on its growing PC demand and speedy AI adoption.

While India trails the U.S. and China in the race to develop a native AI foundational model, and lacks a large domestic AI infrastructure company, it wants to leverage its expertise in the information technology sector to create and deploy AI applications at enterprise level, also offering Big Tech companies a huge opportunity.

Having a model or computing is not enough for any enterprise to use AI effectively, and it requires companies making application layer and a large talent pool to deploy them, S. Krishnan, secretary at India's Ministry of Electronics and Information Technology, told CNBC.

Stanford University ranks India among the top four countries along with the U.S., China and the UK in the global and national AI vibrancy ranking. GitHub, a community of developers, has ranked India at the top with the global share of 24% of all projects.

India's opportunity lies more in "developing applications" which will be used to drive revenues for AI companies, Krishnan said.

On Tuesday, Microsoft announced $17.5 billion in investment in the country, spread over 4 years, aimed at expanding hyperscale infrastructure, embedding AI into national platforms, and advancing workforce readiness.

"This scale of capex gives Microsoft first‑mover advantage in GPU‑rich data centers while making Azure the preferred platform for India's AI workloads, as well as deepening alignment with the government's AI public infrastructure push," said Tarun Pathak, research Director at Counterpoint Research.

Amazon on Wednesday announced plans to invest over $35 billion, on top of the $40 billion it has already invested in the country.

Over the past few months, AI and tech majors such as OpenAI, Google, and Perplexity have offered their tools for free to millions in India, with Google also firming up its plans to invest $15 billion toward building data center capacity for a new AI hub in southern India.

"India combines a huge digital user base, rapidly growing cloud and AI demand, and a high-talent IT ecosystem that can build and consume AI at scale, making it more than just a market for users and instead a core engineering and deployment hub," Pathak said.

Data center opportunity

India has several advantages when it comes to building data centers. Markets such as Japan, Australia, China and Singapore in the Asia Pacific region have matured. Singapore, one of the oldest data center hubs in the region, has limited room to deploy large-scale data centers due to land availability issues.

India has abundant space for large-scale data center developments. When compared with data center hubs in Europe, power costs in India are relatively low. Coupled with India's growing renewable energy capacity — critical for power-hungry data centers — and the economics begin to look compelling.

Local demand, fueled by the rise of e-commerce — a major driver of data center growth in recent years — and potential new rules for storing social media data, strengthens the case.

Put simply: India is entering a sweet spot where global cloud providers, AI players, and domestic digitalization all converge to create one of the world's hottest data center markets.

"India is a pivotal market and one of the fastest‑growing regions for AI spending in Asia Pacific," said Deepika Giri, associate vice president and head of research, big data & AI, at International Data Corporation.

"A major gap, and therefore a significant opportunity, lies in the shortage of suitable compute infrastructure for running AI models," she added. Big Tech is looking to capitalize on the infrastructure opportunity in India by investing heavily in the cloud and data center space.

Global companies are expanding capacities closer to service bases in IT cities such as Bangalore, Hyderabad and Pune from traditional centers like Mumbai and Chennai which are closer to landing cables, as they build data centers in India for the world, Krishnan said.