Economists Agree With ECB’s Schnabel That Next Move Will Be Hike

Justin

Political

Economic

Central Bank

Summary:

Economists predict the next shift in European Central Bank interest rates will be up, aligning with the views of investors and influential Executive Board member Isabel Schnabel as inflation settles around 2%.

More than 60% of respondents in a Bloomberg survey say officials are more likely to raise borrowing costs than lower them — a meaningful change from October, when only a third shared that outlook.

It's not something they expect to happen anytime soon, however: The deposit rate is seen remaining at 2% on Dec. 18 and throughout the next two years.

Analysts are revising their forecasts after inflation stabilized and the euro zone's economy weathered global trade stress and geopolitical upheaval surprisingly well.

In an interview, Schnabel cited such resilience — and rosier prospects, helped by a glut of government spending — among reasons why she's "rather comfortable" with wagers for rates to rise next. One gauge points to a first increase in the latter half of 2027.

Most Governing Council members say simply that rates are in a "good place" for the time being. For President Christine Lagarde, the task will be to reflect their confidence that dangers to the economy are waning without encouraging the idea that hikes are getting close, according to Jan von Gerich, chief strategist at Nordea. That's an opinion shared by others.

"The biggest challenge is one of communication, particularly against a backdrop of rapidly-evolving market expectations," said Paul Hollingsworth, chief European economist at BNP Paribas.

Hollingsworth and von Gerich both forecast quarter-point hikes in September and December 2027. Were traders to bet on more rapid action, tighter financing conditions would pose a headwind for the economy — just as it's expected to pick up.

Indeed, survey respondents reckon next week's new quarterly projections from the ECB will paint a brighter picture for growth — something Lagarde herself has also suggested.

On inflation, concerns linger about 2027, when a holdup in the European Union's new carbon-pricing system could weigh. Most economists, though, expect a September forecast for prices to rise 1.9% that year to be maintained.

Eyes will then shift to 2028 — the first time it will feature in the outlook. The poll indicates a figure just above the ECB's 2% goal, leaving almost two-thirds of analysts more worried about an overshoot of the medium-term target than an undershoot.

Even those who think price pressures will be materially weaker in three years don't consider them soft enough alone to trigger another decrease in borrowing costs.

"The ECB should feel rates are properly set at present as inflation risks are comparatively balanced," Scope economist Dennis Shen said. "We don't expect any rate reductions in 2026, but the ECB will keep its options open."

One reason to remain flexible, according to Shen, is the potential for more US cuts next year. The Federal Reserve eased for a third straight meeting this week and may lower once more in 2026. Kevin Hassett, the frontrunner to replace Chair Jerome Powell, sees "plenty of room" for more substantial moves, however.

US policy — monetary as well as trade — is still deemed the most acute threat to the euro area, with the war in Ukraine remaining a big concern.

Against that backdrop, Swedbank's Chief Economist Nerijus Maciulis foresees one more cut by the ECB in March, arguing that bullishness on the region's growth prospects "rests on flimsy foundations."

"Unless we are talking about hiking down the well-trodden scenic Alpine paths, Governing Council members are unlikely to hike any time soon," he said.

About 45% of respondents, though, say economic growth is predominantly restrained by structural forces beyond the ECB's control. These include sluggish manufacturing amid stiffer competition from China, costly energy and excessive bureaucracy.

Nearly half say those hurdles are just as strong as cyclical drags, illustrating why policymakers are expected to show patience before considering more rate cuts — even if growth and inflation disappoint.

"Monetary policy can't solve structural growth problems," said ING's Carsten Brzeski, who sees officials standing pat at least through 2027. "A 25 basis-point rate cut by the ECB won't make the German automotive industry more competitive vis-a-vis China."

Source: Bloomberg Europe

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Gerik

Economic

Heightened Oversight of Proxy Advisory Industry

On December 11, 2025, President Donald Trump signed an executive order targeting the U.S. proxy advisory industry, specifically directing the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), Department of Labor, and Department of Justice to investigate whether two dominant firms Institutional Shareholder Services (ISS) and Glass Lewis violated existing regulations or antitrust laws. The focus is on how these firms have allegedly prioritized environmental and social issues that critics argue are driven by political motivations.

The executive order reflects a broader conservative agenda to rein in the perceived power of these firms, which advise institutional investors such as pension funds and asset managers on how to vote in corporate elections. Trump’s directive does not merely suggest tighter oversight; it also opens the door for the formulation of new regulations that could reshape the way proxy voting advice is delivered in the U.S. market.

A Political Campaign Against ESG Influence

The action builds on a series of prior efforts by Republican lawmakers and business leaders, including figures such as JPMorgan CEO Jamie Dimon and Elon Musk, who claim these firms exert excessive influence over corporate decision-making processes particularly with respect to board nominations, executive pay, and ESG disclosures.

Trump’s framing of ISS and Glass Lewis as instruments of “radical politically motivated agendas” reflects mounting pushback against ESG investing, particularly proposals urging firms to disclose carbon emissions, diversity metrics, or implement sustainability targets. By highlighting the firms’ foreign ownership ISS is largely owned by Germany's Deutsche Boerse, while Glass Lewis is backed by Canadian private equity Trump is appealing to nationalist economic sentiment, further amplifying criticism.

Institutional Resistance and Legal Complications

While conservative attacks on proxy advisers have intensified, attempts to curtail their role have faced legal and institutional resistance. Federal courts have already blocked previous efforts to enforce restrictions. In August, a Texas law that aimed to prevent ISS and Glass Lewis from advising on diversity and environmental matters was struck down by a federal judge. Similarly, in July, a U.S. federal appeals court upheld a ruling protecting ISS from regulations that would have forced it to publicly disclose its recommendations a requirement that could have undermined its commercial model.

In response to the executive order, ISS reiterated its status as an SEC-registered investment adviser and emphasized its commitment to acting ethically and independently in its clients’ best interests. Glass Lewis declined to comment immediately.

Despite recent legal victories, state-level probes are gaining traction. Florida's Attorney General has launched a lawsuit alleging consumer protection and antitrust violations, while Texas is conducting a parallel investigation. Trump’s executive order directs the FTC chairman and Attorney General Pam Bondi to assess whether these state-level investigations indicate broader federal violations, signaling that further litigation and regulatory action may follow.

Strategic Shifts Within Proxy Firms

In response to the changing political climate and mounting pressure, both ISS and Glass Lewis have begun dialing back their engagement with ESG proposals. ISS announced it would no longer factor boardroom diversity into its director recommendations, while Glass Lewis stated it may pursue SEC registration as an investment adviser a possible step to comply with evolving regulatory expectations.

These actions suggest that while the firms maintain their central role in helping shareholders navigate complex corporate votes, they are also strategically repositioning themselves to minimize exposure to political and legal risks. Whether these moves will be enough to satisfy critics remains uncertain, particularly given the current administration’s intensified scrutiny.

A Turning Point for Proxy Governance in the U.S.

President Trump’s executive order marks a significant escalation in the politicization of corporate governance in the U.S. While framed as an effort to protect shareholders and reduce foreign influence, the action aligns with a broader campaign against ESG-driven financial practices. Although ISS and Glass Lewis have withstood legal and institutional challenges so far, the latest directive signals continued confrontation.

The causal relationship between the firms’ ESG stances and the regulatory pushback is clear: as these advisory companies amplified support for environmental and social proposals, they invited not just market scrutiny but political retaliation. Whether the outcome will be tighter regulation or merely prolonged litigation depends on the interplay between federal agencies, courts, and future administrations. What remains certain is that the role of proxy advisers in U.S. financial markets will remain a focal point of regulatory and ideological battles well into 2026.

Source: Reuters

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Winkelmann

Political

Economic

Former Prime Minister Theresa May suggested the threat to her Conservative Party posed by the poll-leading Reform UK is over-egged, saying that while Nigel Farage's outfit "makes a lot of noise," plenty can change before the next election.

Speaking on Bloomberg's Leaders with Francine Lacqua show, May pointed to Reform only having five of the 650 Members of Parliament, and said the party's economic policies are "all over the place."

"The only poll that ever counts is the general election," said May, who served as prime minister from 2016 to 2019. "It's all very well doing well in opinion polls this far out from a general election, but when it comes to it, people want to ask who should be in government? Critical to that will be the economy."

May's remarks will be seen as a call for the Conservatives to avoid the pull of Reform's populism and instead stake out the center ground of UK politics at a time when Labour Prime Minister Keir Starmer is tacking to the left with higher taxes and public spending.

"They are forgetting some of the fundamentals of growth," May said in the wider interview, pointing to the current government's move last year to hike payroll taxes for employers. "I think they don't understand business."

The Tories may take May's views on electoral strategy with a pinch of salt, given her decision to call a snap election in 2017 backfired spectacularly. She had hoped to increase her slim majority to strengthen her hand as she negotiated a Brexit deal, but ended up losing her Parliamentary advantage altogether and being forced to rely on the support of Northern Ireland's Democratic Unionist Party in order to govern.

Still, the former premier — who's now a member of the House of Lords — said "there's always a role for a center, center-right party" such as the Conservatives, and gave words of encouragement for the current Tory leader, Kemi Badenoch, who after a rocky start delivered a well-received speech at the party's annual conference in October.

"She's doing well in what is the most difficult job in politics," May said, referring to the role of leader of the opposition.

Asked about the Tory prime ministers that followed her, May appeared to take a swipe at her immediate successor, Boris Johnson, and the premier who replaced him, Liz Truss. Johnson was eventually forced out of his office by his own party following the Partygate scandal involving lockdown-breaking gatherings during the pandemic, while Truss lasted just 7 weeks in power after the financial markets rejected her disastrous so-called mini-budget.

"Unfortunately as a Conservative Party we seem to have lost our value of integrity and our economic competence," May said.

May's own premiership was defined by her struggle to find a path to Brexit which pleased the Eurosceptic and remain elements of her party. She said that her biggest regret was not getting a deal passed — before reflecting that the need to devote time to other foreign affairs issues may have hampered her efforts.

"You do have to spend quite a bit of time on foreign policy" as prime minister, May said. "It perhaps doesn't leave as much time for being with your colleagues in Parliament," she said, adding that "I wonder whether if I'd been able to spend more time with them, we would've had a different result."

While she didn't mention Starmer, those words could be applied to the current premier, who's been dubbed "Never Here Keir" by British media for the amount of time he spends abroad, having racked up dozens of overseas visits since coming to power in July 2024.

Starmer on Wednesday batted away implicit criticism of his travels from a Tory lawmaker as a "load of nonsense," pointing out that his engagement with foreign leaders had yielded progress on trade with the US, India and EU and was necessary at a "critical stage" of talks to end the conflict in Ukraine.

May said that ultimately, the issue that's likely to determine the next general election, due in mid-2029, is the economy. Reform has led the national polls since April, with Labour and the Tories — the two parties that have dominated British politics for a century — around 10 points adrift and struggling to close the gap.

May said she worries that in this increasingly "polarized world" politicians are losing the ability to compromise which she sees as central to government. She attributed the rise of populist parties such as Farage's in part to social media, which she said made politicians "feel they've got to be talking about what they're doing the whole time, putting it out there."

"The trouble with that is it means it focuses it much more on them rather than on what the overall good is, what they're trying to achieve," she said. "In government, you don't just deliver by snapping your fingers."

Source: Bloomberg Europe

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Olivia Brooks

Economic

Japan's core inflation rate likely held well above the central bank's 2% target in November, a Reuters poll showed on Friday, although moderating food price hikes have taken some pressure off consumers ahead of an expected rate hike next week.

The nationwide core consumer price index (CPI), which includes energy items but excludes fresh food prices, was expected to have risen 3.0% in November from a year earlier, according to the median forecast of the 18 economists polled.

The rate would be the same as in October, after a 2.9% rise in September and a 2.7% increase in August.

Analysts pointed to easing food price inflation offsetting an uptick in energy bills because of the end of the government's summer-time utility subsidies.

Core inflation has exceeded the Bank of Japan's 2% target for more than 3.5 years. The central bank is likely to raise interest rates at its December 18-19 meeting, sources have told Reuters.

Most economists expect the BOJ to hike the short-term interest rate to 0.75% from current 0.5% next week, polls have found.

The government will announce the November CPI data at 8:30 a.m. on December 19 (2330 GMT on December 18), just hours before the BOJ's decision.

Source: Investing

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Samantha Luan

Forex

Stocks

Key Points:

· Falling JGB and Treasury yields ease yen carry trade fears, boosting sentiment for Dow Jones, Nasdaq 100, and S&P 500 futures.

· Rising bets on a December BoJ rate hike collide with speculation of a 1.5% neutral rate, influencing yen carry trade dynamics.

· Nikkei 225 gains and USD/JPY stability signal fading unwind risks, supporting a bullish short- to medium-term outlook.

Japanese Government Bond (JGB) yields dropped for three consecutive sessions on Thursday, December 11, easing fears of a yen carry trade unwind. However, rising bets on a December Bank of Japan rate hike continue to cushion the downside on 10-year JGB yields.

Meanwhile, overnight US jobs data showed a spike in jobless claims, supporting a more dovish Fed policy stance. 10-year US Treasury yields dropped to a four-day low before stabilizing.

Falling 10-year Treasury and JGB yields bolstered demand for risk assets such as US stock futures. Furthermore, easing concerns over a yen carry trade unwind supports a bullish short- to medium-term outlook for US index futures.

JGB 10-Year – Daily Chart – 121225

Below, I'll outline the key market drivers, the medium-term outlook, and the key technical levels traders should watch.

Former Bank of Japan Official Signals 1.5% Neutral Rate

Rising bets on a December BoJ rate hike collided with increasing speculation about the Bank's neutral rate. The neutral rate is where monetary policy is neither restrictive nor accommodative.

For markets and yen carry trades, a neutral rate would influence expectations of the number of rate hikes in the BoJ's policy tightening cycle.

A higher neutral rate would narrow US-Japan rate differentials more, making yen carry trades into assets less attractive. Conversely, a lower neutral rate would keep carry trades profitable, supporting the bullish short- to medium-term price outlook for US stock futures.

This week, former BoJ policymaker Hideo Hayakawa warned of multiple BoJ rate hikes and a 1.5% neutral rate. Bank of Japan Governor Kazuo Ueda previously stated that there was no consensus on the neutral rate, which remained in a wide range, between 1% and 2.5%. A 1.5% neutral rate would dampen interest in yen carry trades into US assets, but keep them profitable.

10-year JGB yield, USD/JPY, and Nikkei 225 trends suggest fading concerns about a yen carry trade unwind. The Nikkei 225 gained 0.89% in morning trading on Friday, December 12, while 10-year JGBs remained well below the December 9 high of 1.981% and USD/JPY edged 0.07% higher.

USDJPY – Daily Chart – 121225

FOMC Members in Focus

Futures had a mixed Asian morning session. The Dow Jones E-mini rose 115 points, and the S&P 500 E-mini gained 4 points. Meanwhile, the Nasdaq 100 E-mini dropped 16 points, weighed down by Oracle and Broadcom. Oracle tumbled 10.83% overnight as investors reacted to the company's significant spending and weak forecasts, raising concerns about the timing of returns on investments.

Later on Friday, traders should monitor FOMC members' speeches after Wednesday's dot plot signaled a single 2026 Fed rate cut. Dovish Fed rhetoric would lift sentiment, supporting a bullish short- to medium-term outlook for US stock futures.

According to the CME FedWatch Tool, the chances of a March Fed rate cut increased from 42.2% on Wednesday, December 10, to 49.6% on December 11. Higher-than-expected US jobless claims raised bets on a March Fed rate cut, sending the Dow Jones E-mini futures to an all-time high.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite the mixed morning, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs, indicating a bullish bias.

Near-term trends will hinge on BoJ rhetoric, 10-year US Treasury and JGB yields, USD/JPY trends, and Fed commentary. Key levels to monitor include:

Dow Jones

· Resistance: December 12 record high of 48,883, and then 49,000.

· Support: 48,750, 48,000, 47,500, and then the 50-day EMA (47,176).

Dow Jones – Daily Chart – 121225

Nasdaq 100

· Resistance: 25,750, 26,000, and then the October 30 record high of 26,399.

· Support: 25,500, the 50-day EMA (25,190), 24,500, and then 24,000.

Nasdaq 100 – Daily Chart – 121225

S&P 500

· Resistance: the October 30 record high of 6,954, and then 7,000.

· Support: the 50-day EMA (6,769), 6,500, and then 6,250.

S&P 500 – Daily Chart – 121225

Short-Term and Medium-Term Outlook Hinges on the Fed and BoJ

In my opinion, the short- to medium-term outlook remains bullish despite the Fed's single 2026 rate cut and hawkish BoJ policy stance. Given easing concerns about a yen carry trade unwind, rate differentials will continue to influence the near-term trends.

Several scenarios could derail the bullish short- and medium-term outlooks, including:

· Bank of Japan signals a 2% neutral rate and multiple rate hikes.

· Hawkish Fed chatter, supporting one 2026 rate cut.

· Fed QE and BoJ QT collide, narrowing rate differentials sharply, potentially triggering a yen carry trade unwind.

Conclusion: Outlook Bullish

In summary, a more dovish Fed policy stance would boost demand for US equity futures. However, traders should continue monitoring BoJ signals, JGB yields, the USD/JPY, and the Nikkei 225 for potential yen carry trade unwind warning signals.

Key levels would include a USD/JPY drop to 150 and 10-year JGBs at 2%, an important level to watch. These sharp moves would likely trigger a Nikkei 225 sell-off, weighing on broader risk sentiment.

The latest pullback in 10-year JGB yields provided some market relief. Nevertheless, yields remain elevated, exposing US stock futures to unwind risk.

Source: FX Empire

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Gerik

Economic

Stocks

Main Indexes Rise as Tech Shows Cracks

The U.S. stock market closed with historic highs for the S&P 500 and the Dow Jones Industrial Average on Thursday, reflecting investor confidence in a more accommodative interest rate environment after the Federal Reserve implemented a 0.25% rate cut the day before. The Russell 2000 index also posted a strong performance, buoyed by expectations of broader economic recovery and capital inflows into small- and mid-cap stocks.

Despite these milestones, the tech-heavy Nasdaq Composite slipped 0.26%, revealing a growing divergence between mega-cap tech and the broader market. This decoupling appears to be driven primarily by underperformance in several AI and chip-related names that had been market darlings in previous quarters.

Oracle’s Earnings Disappointment Triggers AI Selloff

Oracle emerged as a significant drag on tech sentiment after posting weaker-than-expected quarterly revenue, which sent its stock plummeting nearly 11%. This result not only unsettled investors about Oracle’s near-term growth trajectory but also sparked a broader re-evaluation of AI-linked valuations. Stocks like Nvidia and Micron, both key players in the AI hardware space, also experienced downward pressure.

The Oracle shockwave came just as investors were still absorbing the implications of Broadcom’s earnings report. Although the chipmaker beat Wall Street estimates and reported net income that nearly doubled year-over-year, its shares fell 4.5% in after-hours trading. Concerns centered around long-term supply risks, including speculation that Google Broadcom’s largest client might begin producing more of its chips in-house. Analysts also flagged rising memory prices and ambiguity around the company’s AI-related partnership with OpenAI as potential margin risks.

These developments suggest more than just a short-term pullback they indicate that investors are beginning to question whether AI-sector growth expectations remain sustainable amid competitive, operational, and pricing challenges.

Market Rotation Reflects Shift Toward Economic Resilience

Despite the weakness in tech, the S&P 500’s financials sector reached a fresh high, driven by solid gains from Visa and Mastercard. This suggests a rotation out of overvalued tech names into sectors that may benefit more directly from the Fed’s dovish shift and the ongoing strength in U.S. consumer spending.

The move is not purely speculative. Fed officials signaled continued confidence in the economic outlook, suggesting a soft landing remains the base case. As long as inflation pressures remain manageable, sectors tied to domestic demand, payment infrastructure, and financial services are well-positioned for outperformance.

Strategic Moves by Disney and SpaceX Signal Broader Transformation

Outside of earnings, significant corporate developments continued to reshape market narratives. Disney announced a bold $1 billion investment in OpenAI and granted licensing rights for its characters to be used by Sora, OpenAI’s video generator. This represents a major bet on the convergence of generative AI and entertainment, highlighting how legacy media is seeking innovation-led rejuvenation.

Simultaneously, Elon Musk confirmed that SpaceX will pursue an IPO in 2026. Although recent media reports had suggested a valuation near $800 billion, Musk countered that figure as inaccurate. Still, the prospect of a SpaceX listing introduces one of the most anticipated IPOs in the space and defense sector, potentially drawing massive institutional interest.

India Emerges as a Global Asset Management Magnet

In parallel with U.S. market activity, global fund managers are zeroing in on India. BlackRock has returned to the country through a joint venture with Jio, launching multiple mutual fund products. State Street is also reportedly exploring a stake in a local firm. These moves reflect confidence in the ongoing financialization of Indian household savings.

India's $3.3 trillion economy is increasingly being integrated into global capital markets as more retail investors funnel money into equities and mutual funds. For asset managers seeking growth, India represents a long-term structural opportunity, further supporting capital market deepening in Asia’s third-largest economy.

A Tale of Two Markets AI Reassessed, Broader Confidence Prevails

The current market dynamics reflect a duality. On one hand, general optimism about economic resilience and lower rates is pushing indexes like the S&P 500 and Dow to new highs. On the other hand, cracks are appearing in the once-unshakable AI narrative, with tech stocks facing heightened scrutiny amid operational headwinds and lofty valuations.

This rotation suggests that investor sentiment is evolving: while AI remains a long-term growth theme, near-term capital is flowing into more stable and immediately rewarding sectors. As the holiday season approaches, barring unexpected shocks, markets appear poised for a resilient close to the year albeit with a more diversified leadership than the narrow AI-led rallies seen earlier in 2025.

Source: CNBC

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Samantha Luan

Stocks

Economic

At least three executives from Chinese bargain e-commerce platform Pinduoduo were detained by police last Friday after allegedly physically fighting with market regulators who were conducting an on-site inspection of the company's Shanghai headquarters, Nikkei Asia has learned.

One official was injured in the clash, people familiar with the matter told Nikkei. The cause of the alleged altercation and the latest status of the executives is not yet clear. Such incidents at a major company are rare in China, where authorities often have much more power.

Last week, staff from the State Administration for Market Regulation (SAMR) carried out a routine inspection at the company, part of the market watchdog's regular checks across various companies, including other Chinese tech giants. The length of such inspections can vary by project and sometimes last several days.

The inspection of records at Pinduoduo was part of a nationwide campaign targeting food-safety issues on platforms, according to people familiar with the matter. Pinduoduo sells a wide range of food products. SAMR said in late November that it had conducted 5.7 million food-safety inspections this year and found a substandard rate of 2.74%, with most issues involving excessive pesticide residue, improper use of food additives and microbial contamination.

"This account is false and bears no relation to reality," a Pinduoduo spokesperson told Nikkei Asia.

SAMR did not respond to an request for comment.

Pinduoduo, which means "together, more savings," was established in 2015 by Colin Huang, a former Google employee and the founder of multiple startups, including a gaming company. The online retailer started out selling cheap fresh groceries and swiftly diversified into other inexpensive product categories.

As China's consumer demand weakened and a culture of "consumption downgrade" took hold, Pinduoduo quickly gained traction by selling low-priced goods. In its early years, however, the platform faced numerous complaints from users about poor-quality products. In 2018, SAMR summoned Pinduoduo over the sale of counterfeit and property rights-infringing goods, instructing the company to strengthen product oversight on the platform.

Over the past three years, cases released by SAMR and the National Medical Products Administration have repeatedly cited merchants on Pinduoduo, sometimes along with those on other platforms, for selling fake or substandard items.

However, Pinduoduo has been working to shed its reputation for inferior goods by rolling out a series of measures in recent years to promote high-quality merchants and crack down on problematic sellers.

In late 2022, PDD Holdings launched cross-boarder e-commerce platform Temu to sell inexpensive products to the world. In 2023, the company's market capitalization once surpassed that of Alibaba to make it the most valuable U.S.-listed Chinese company. Now, PDD Holdings' market cap is less than half that of Alibaba's, which has been working hard on its large language model for artificial intelligence and has seen its share price surge amid China's DeepSeek-driven tech stock rally this year.

Even before the U.S. in late August effectively suspended its de minimis exemption, which allowed goods under $800 to enter the country duty-free, Temu and rival Shein had started to shift resources to other countries. However, both platforms are facing similar challenges in Europe.