French Business Activity Rises For First Time In Over A Year

Economic

Summary:

France's private sector grew for the first time in more than a year thanks to strength in the services industry, defying an initial assessment that it stagnated.

S&P Global's Composite Purchasing Managers' Index rose to 50.4 in November from 47.7 the previous month -- surpassing the 50 mark separating expansion from contraction for the first time since Paris hosted the Olympics in the summer of 2024. A preliminary reading had put that gauge at 49.9.

"The improvement in services is encouraging, yet it remains to be seen whether this is just a one-off uptick or the start of a sustained recovery," Jonas Feldhusen, an economist at Hamburg Commercial Bank, said in a statement. "However, manufacturing remains a drag on overall performance, posting its steepest fall in nine months and widening the gap between the two sectors."

France's economy is showing signs of weathering a political storm that's brought repeated government collapse over the last year and doubts about how any administration can rein in a runaway budget deficit.

Despite the private sector's struggles, gross domestic product rose 0.5% in the third quarter, beating economist expectations and coming in more than double the pace notched by the 20-nation euro area. Trade and investment were key drivers, despite signs of rising uncertainty among businesses leaders.

"Our economy is resisting rather well, or at least better than we might have feared," Bank of France Governor Francois Villeroy de Galhau said last week.

Still, the central bank estimates political volatility is costing the country 0.2 percentage point of growth. Consumer spending rose only slightly in the third quarter after a contraction in the previous period, while surveys show households' inclination to save is at record highs.

PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

Source: Bloomberg Europe

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Economic

Commodity

Quota Allocation Revives Iranian Oil Flow

Independent oil refiners in China commonly referred to as “teapots” have accelerated their intake of Iranian crude in early December following a fresh round of import quotas issued by Beijing. The refiners, concentrated in Shandong province, began tapping into crude stocks stored in bonded tanks and aboard anchored ships, much of which was purchased in advance of the quota expansion.

These refiners operate under a strict quota regime that limits how much oil they can import. Having exhausted previous allocations earlier in the fourth quarter, many teapots had temporarily curtailed purchases, particularly of sanctioned crudes from Iran and Russia. The new quota release, reportedly ranging between seven to eight million tons for about 20 refiners, has revitalized activity at key ports such as Rizhao.

Discounted Iranian Crude Gains Traction

Iranian oil is regaining traction due to its steep price discounts. Cargoes of Iran Light crude were reportedly offered at $8–$9 per barrel below ICE Brent benchmarks this week a sharp drop from the $4 discounts seen in August. This aggressive pricing reflects both a need for Tehran to maintain market share under sanctions and reduced competition from Russian barrels as Western restrictions tighten.

The wide discount is a direct causal factor enabling China’s teapots to buy Iranian oil despite weak processing margins. These refiners have limited access to more expensive global supply, and with domestic demand remaining soft, only deeply discounted imports offer viable economic returns.

Storage Overflow at Sea Raises Global Risk Signals

Recent data from Kpler reveals that Iranian crude held in floating storage surged past 54 million barrels the highest since mid-2023. Much of this oil awaits Chinese buyers, with China now acting as Iran’s primary outlet amid restricted global access.

Two supertankers that had been idling off China including the Panama-flagged Ill Gap carrying around 2 million barrels discharged at separate Chinese ports this week, illustrating how quotas directly affect the release of offshore inventories.

Vortexa analyst Emma Li noted that demand from teapots may still remain subdued through year-end, constrained by weak refining margins. This mismatch means that while import quotas now exist, much of the sanctioned oil may continue accumulating at sea unless downstream economics improve.

Structural Policy Gaps Create Volatility

China’s approach to managing import quotas reflects a structural vulnerability in its energy procurement system. Although refiners now receive full-year quotas upfront to improve planning, stricter tax regimes on alternate feedstocks like fuel oil caused many to burn through allocations early in the year. Consequently, refiners entered Q4 with limited capacity to import, creating periodic bottlenecks and disrupting market flows.

This inconsistency between quota timing and market dynamics creates irregular surges in oil procurement a boom-bust pattern that influences global oil prices and tanker availability. While the newly issued quotas relieve short-term pressure, the underlying volatility in China’s quota management remains a source of market friction.

Geopolitical Implications and Strategic Outlook

China’s growing reliance on discounted Iranian crude sanctioned and avoided by most Western buyers underscores its willingness to sidestep geopolitical pressures to secure cost-effective energy. As new U.S. sanctions target Russian oil majors, Iranian barrels become more attractive to China’s private refiners, further deepening Beijing’s energy ties with geopolitically isolated suppliers.

This strategy enhances China’s energy security but risks reputational exposure and entanglement in sanction regimes, especially if future restrictions widen to include intermediaries or shipping partners.

In the longer term, China’s appetite for Iranian oil, facilitated by quota flexibility and opportunistic pricing, is likely to remain robust especially as global energy markets face tighter supplies and elevated prices.

The recent surge in Iranian crude deliveries to China illustrates how supply chain bottlenecks, quota policy, and geopolitical opportunism intersect in global energy markets. By taking advantage of quota adjustments and favorable pricing, Chinese teapots are reshaping sanctioned oil flows sustaining Tehran’s export revenues and reinforcing Beijing’s influence in the shadow energy economy. As the year closes, the interaction between regulatory control, market fundamentals, and foreign policy will continue to define the trajectory of China’s oil strategy.

Source: Reuters

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Economic

Quota Allocation Revives Iranian Oil Flow

Discounted Iranian Crude Gains Traction

Storage Overflow at Sea Raises Global Risk Signals

Structural Policy Gaps Create Volatility

Geopolitical Implications and Strategic Outlook

Source: Reuters

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Samantha Luan

Forex

Political

Economic

Markets

The Japanese-inspired core bond selloff eased yesterday. An unconvincing attempt to eke out a few more bps during European dealings was more or less killed off in the US session. Net daily changes for US Treasury yields eventually varied between -2.1 bps to +0.9 bps in technical trading. The German curve shifted similarly by shedding 1.4 bps at the front.

Even UK yields swapped earlier gains for minor declines across the curve. We wouldn't call it a day on the underlying forces though. Japanese yields this morning are again headed north with new highs for the (ultra) long maturities including the 30-year ahead of a closely watched auction tomorrow. News in any case was scarce yesterday and that seemed to suffice for riskier assets to recover some ground.

European and US equities inched 0.3-0.6% higher and crypto markets rebounded in a daily perspective after the violent selloff in recent weeks. The likes of Bitcoin extend gains to almost 94k, the strongest level since mid-November. The meeting between US envoy Witkoff and Russian president Putin and his entourage was called constructive by the Kremlin but no compromise was reached yet.

Sticking to event risks, French politics reared its head again with local newspaper Le Figaro reporting that Horizons won't back premier Lecornu's social security budget bill in the upcoming vote December 9. Being part of the coalition government, Horizons' lack of support is a reminder of how fragile and perhaps deceiving the current French calm is. OATs underperformed compared to European peers.

The euro ignores the matter for now. After an uninspiring session yesterday, EUR/USD is gently trending north this morning towards first resistance around 1.165-1.167 (short term highs). The trade-weighted dollar index depreciates back to the 99 area. The economic agenda has things in store that could spice up the session today. ECB president Lagarde appears before parliament. The ADP job report and services ISM are to further shape Fed expectations for December.

A rate cut is priced for 95% now. At this stage it would take blow-out numbers to flip the balance again by December 10. The next Fed chair meanwhile is becoming ever more certain. Hassett emerges as the frontrunner and favours a growth-supporting policy – perhaps the most compared to the other contestants. President Trump will officially announce Powell's successor early 2026.

Barring renewed risk aversion for whatever reason (France, public finances, equity valuation … ) we'd expect the dollar to remain on the backfoot. Were EUR/USD to take out the recent highs, the 1.1728 October top – 1.1747 61.2% recovery on the Sep-Nov decline emerges as the next reference. EUR/GBP's three-day win streak ran into resistance around 0.88. We hold our negative bias for sterling though and assume EUR/GBP's fundamental level to be 0.90+.

News & Views

Australian GDP growth slowed from an upwardly revised 0.7% Q/Q in in Q2 to 0.4% in Q3 (vs +0.7% consensus), the average quarterly growth pace since the end of the COVID-19 pandemic. Annual growth ticked up from 2% to 2.1%. Details showed final consumption rising by 0.6% Q/Q with both household (+0.5%) and government (+0.8%) spending contributing to growth. The household saving ratio rose from 6% in Q2 to 6.4% in Q3 with gross disposable income (+1.7%) rising faster than nominal household spending (+1.4%).

Total gross fixed capital formation rose a strong 3% Q/Q mainly due to a rebound in public investments (+3% Q/Q after -3.5% Q/Q in Q2). Net trade detracted 0.1 ppt from GDP growth, with imports up 1.5%, and exports up 1%. Today's numbers strengthen market belief that the next move by the Reserve Bank of Australia will a rate hike next year. AUD/USD builds on its recent comeback, eyeing first resistance around 0.66. The Aussie yield curve bear flattens this morning with yields rising by 5.8 bps (2-yr) to 3.2 bps (30-yr).

The EU agreed to gradually prohibit Russian LNG gas import by the end of 2026, one year faster than originally planned. Russia is still the second-largest LNG-provider (15% of total) to Europe after the US. The deadline now matches with the ban of seaborne deliveries which is already part of EU sanctions against Russia.

The EU's RePowerEU plan also targets halting to pipeline gas imports under long-term deals by the end of Q3 2027. The commission also plans to put forward a legislative proposal on phasing out Russian oil imports no later than the end of 2027.

Source: KBC Bank

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Summit of Strategic Realignment in a Multipolar World

President Vladimir Putin’s upcoming summit with Prime Minister Narendra Modi marks a pivotal moment for India-Russia ties. As the Ukraine war drags on, New Delhi is once again tasked with navigating a delicate diplomatic tightrope maintaining its historically strong relationship with Moscow while under growing pressure from Washington to distance itself from the Kremlin.

Putin's visit, scheduled for early December, follows a series of high-level exchanges between the two nations and comes amid intensified global scrutiny of India's ongoing oil imports from Russia, which Washington argues are helping finance the war. India, however, continues to defend its position by citing energy security for its 1.4 billion citizens.

Energy Cooperation Remains the Strategic Centerpiece

Russia has emerged as one of India's largest oil suppliers in the post-Ukraine war period, as Moscow offers steep discounts to maintain export revenues. Despite U.S. sanctions and tariff hikes including President Donald Trump’s imposition of a 50% tariff on Indian goods India has sustained its oil imports, emphasizing that it avoids sanctioned Russian entities like Rosneft and Lukoil.

Energy will feature prominently in the summit, especially in areas such as nuclear collaboration. India’s Kudankulam Nuclear Power Plant, built with Russian assistance, remains the core of bilateral energy cooperation. The two sides are also expected to discuss localization of nuclear equipment manufacturing and expansion into third-country projects.

India is further exploring long-term fertilizer supply deals and mechanisms for trade settlement that bypass Western-dominated financial channels. Moscow’s role in helping secure India’s energy independence remains a cornerstone of bilateral engagement, and both sides are determined to expand this axis despite external pressures.

Defense Ties Stay Strong Despite Delays and Diversification

Defense remains a pillar of the India-Russia strategic partnership. India has received three of five S-400 air defense systems under a $5.4 billion deal signed in 2018 and is now pushing for timely delivery of the remaining two squadrons. Talks may also explore acquiring additional S-400 units or a next-generation variant.

Discussions are also expected to address upgrades to India's Su-30MKI fighter fleet and other Russian-origin platforms. Although India has diversified its military procurement in recent years, Russia remains its largest defense supplier. Moscow is eager to promote its Su-57 stealth fighter, but New Delhi continues to explore competitive alternatives.

While no major defense contracts are expected during this visit, both sides are seeking to maintain momentum in joint exercises, logistics cooperation, and technological transfer agreements all areas that could help insulate defense ties from external geopolitical turbulence.

Trade and Migration in Focus for Economic Expansion

Beyond defense and energy, the summit aims to rejuvenate broader economic cooperation. Indian officials are preparing agreements on trade facilitation, healthcare, maritime logistics, and media exchange. India wants to increase exports of pharmaceuticals, textiles, and agricultural goods to Russia, and is pressing Moscow to ease non-tariff barriers.

Another emerging area is labor mobility. Discussions are underway to formalize regulated migration of Indian skilled workers to Russia, a move that would address labor shortages in Russia and generate remittances for India.

A comprehensive trade settlement framework possibly leveraging local currencies or alternative payment systems may also be on the agenda, as both nations seek to reduce dependency on the U.S. dollar amidst tightening financial sanctions.

Behind-the-Scenes Diplomacy on Ukraine and Global Optics

While India has avoided taking an overt mediating role in the Ukraine conflict, Modi may use the summit to quietly urge Putin toward accommodating Ukrainian and European concerns. With Trump’s revised peace plan being circulated and geopolitical alliances shifting, India is under pressure to clarify its stance.

Yet Modi’s approach remains cautious and pragmatic. Experts suggest that New Delhi’s “strategic hedging” enables it to pursue national interests without overtly alienating any major power. Behind-the-scenes diplomacy is likely, but India is unlikely to publicly adopt a mediator role that could compromise its carefully balanced positioning.

A Test of Strategic Autonomy

Putin’s visit to India is more than a bilateral engagement; it is a stress test for India’s foreign policy doctrine of strategic autonomy. Amid escalating U.S.-Russia tensions, expanding sanctions, and a volatile energy landscape, New Delhi must assert its sovereignty in shaping partnerships based on national interest, not external coercion.

If successful, the summit will reaffirm India’s role as a pivotal balancing power in the evolving multipolar order one that can engage Washington, Moscow, and Beijing on its own terms while advancing its domestic priorities across defense, energy, and trade.

Source: Bloomberg

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Daniel Carter

Economic

Central Bank

The rate-setting Monetary Policy Council will cut the key rate by 25 basis points to 4%, the lowest level since March 2022, according to 27 of 32 economists surveyed by Bloomberg. The remaining six analysts expect borrowing costs to remain unchanged.

Governor Adam Glapinski hasn't ruled out further easing, though has given no time frame for potential cuts. Often setting the tone for the 10-member MPC, the central bank chief has indicated that a rate at 4% isn't excessive if inflation stabilizes.

A cut on Wednesday would be a fifth consecutive reduction as policymakers respond to inflation that's eased to 2.4% in November, down from 4.9% at the start of the year. The move would be in line with MPC members, including Wieslaw Janczyk and Ireneusz Dabrowski, who have signaled that further easing in December is possible if data continue to register slowing inflation.

"Taking our inflation forecast as face value, we struggle to see the terminal rate at 4% — as suggested by Glapinski's latest remarks — with the MPC likely facing increasing pressures to ease rates as the inflation outlook proves to be consistently favorable during 2026," said Juan Orts, Societe Generale SA's economist for central and eastern Europe, the Middle East and Africa.

Orts expects inflation to remain bellow the MPC's 2.5% target next year, while the central bank will reduce its benchmark to 3.5% in the second quarter — and possibly even lower later in 2026. A greater appetite for reductions — including a surprise cut in October — has belied recent "hawkish rhetoric," Orts said, prompting analysts to shift expectations.

"Actions count more than words, and after the surprise cut in October, it become clear to us that the MPC had a lot more appetite for rate cuts than what we had initially believed," the economist said.

Glapinski, who backed elevated rates throughout 2024 as he blamed the government for loose fiscal policy and uncertainty over a cap on energy prices, has eased off his rhetoric targeting the government in recent months.

He'll hold a news conference at 3 p.m. on Thursday.

Source: Bloomberg Europe

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Economic

Local Government Debt Hits Record Amid Land Sale Collapse

China's local government debt burden has escalated sharply in 2025, reaching an estimated 134 trillion yuan (approximately $18.9 trillion USD). This includes both official local government bonds and off-balance-sheet borrowing through Local Government Financing Vehicles (LGFVs), institutions that fund infrastructure development.

This rapid debt accumulation is directly linked to the ongoing real estate downturn. Land sales, once a cornerstone of local government revenue, have fallen dramatically. From January to October, total land sales amounted to less than 2.5 trillion yuan down from 8.7 trillion yuan in 2021. Over 10% of land auctions now receive no bids, and 2025 sales are projected to decline to around 3 trillion yuan.

As land income dries up, local authorities have aggressively issued bonds. The volume of new local government bonds surpassed 10 trillion yuan by November, exceeding last year's total and marking the highest level on record. Total local bond debt now stands at 54 trillion yuan, while hidden debts through LGFV-issued corporate bonds are estimated at 87 trillion yuan.

Off-Balance-Sheet Debt and Weak LGFV Performance Raise Red Flags

While LGFVs remain operational, their profitability is increasingly in question. Nearly 10% are currently loss-making, and only 3% have a return on equity above 4%. Their 2024 net profit was around 550 billion yuan, but this figure was heavily propped up by over 1 trillion yuan in government subsidies. Without those supports, nearly half of LGFVs would be in the red.

This raises a structural concern: LGFVs are heavily reliant on state support but contribute little in sustainable income. Their role in low-margin infrastructure projects with long payback periods makes their debt servicing capacity inherently weak. Despite this, many continue to operate under the assumption of implicit government guarantees and benefit from ultra-low interest rates caused by ongoing deflationary pressure.

Monetary Easing Buys Time, But Does Not Eliminate Risk

The People’s Bank of China has implemented aggressive monetary easing to support the economy, pushing average LGFV bond yields down to 2.1% in 2025 a 1.4 percentage point decline from 2021. This matches the fall in sovereign bond yields, signaling that markets are treating LGFVs almost like government debt.

These lower yields are the result of extended deflation and weak domestic demand, which have pressured authorities to continue monetary stimulus. However, this support merely delays rather than resolves the risk of a financial crisis.

Applying the Domar sustainability condition (which states that debt stabilizes only if nominal GDP growth exceeds nominal interest rates), China’s trajectory appears increasingly fragile. Nominal GDP growth has slowed to just 3%, while interest rates remain below 2%. The narrowing gap suggests that debt is becoming less sustainable, especially in a prolonged deflationary environment.

Structural Vulnerabilities Exposed Amid Fiscal Strain

The fiscal stress has prompted Beijing to act. In autumn 2024, President Xi Jinping’s administration approved the issuance of 10 trillion yuan in additional bonds, intended to transfer some LGFV liabilities back to local governments to avoid a full-scale default crisis. This move confirmed the government’s awareness of the systemic threat posed by overleveraged LGFVs.

Yet such measures only shift liabilities, not reduce them. The implicit risk remains, and LGFVs continue to operate under distorted incentives. The current fiscal model, heavily reliant on debt-fueled growth through land sales and infrastructure, is under significant strain and Beijing is beginning to curtail discretionary spending, an indication that even central authorities are concerned about future debt sustainability.

A Dangerous Fiscal Spiral Amid Deflation

China’s local debt situation has entered a precarious phase. While monetary easing and implicit state guarantees have thus far prevented a crisis, structural imbalances falling land revenues, opaque LGFV finances, and sluggish nominal GDP growth are deepening.

Deflation, once a short-term relief for interest payments, is now becoming a threat in itself. Without meaningful reforms to fiscal policy and a rethinking of the infrastructure-led growth model, China risks entering a long-term debt spiral that could constrain national development goals and shake global investor confidence.

The country stands at a crossroads: delay decisive action and face growing risks, or embrace painful restructuring before markets force its hand.