General Market Analysis – 10/12/25

IC Markets

Forex

Stocks

Commodity

Summary:

US stock markets eased back on Tuesday as traders moved to the sidelines ahead of today's all-important Federal Reserve interest rate decision.

US Stocks Drift Ahead of Fed Rate Decision – Dow Dips 0.4%

US stock markets eased back on Tuesday as traders moved to the sidelines ahead of today's all-important Federal Reserve interest rate decision. The Dow fell 0.38% to close at 47,560, the S&P 500 dipped 0.09% to 6,840, while the Nasdaq managed a modest 0.13% rise, finishing at 23,576. A stronger-than-expected set of US employment numbers pushed Treasury yields higher across the curve, with the 2-year yield climbing 4 basis points to 3.615% and the 10-year rising 2.4 basis points to 4.188%.

The firmer yield environment helped lift the dollar; the DXY gained 0.14% on the day to settle at 99.23. In commodities, oil markets remained under pressure as renewed optimism over potential progress in Ukraine peace discussions—following meetings between Kyiv and its allies in London—saw Brent crude slip 0.70% to $62.05, while WTI dropped 0.95% to $58.32 a barrel. Gold, meanwhile, pushed back into recent ranges, rising 0.43% to $4,208.21 an ounce as traders sought a safer footing ahead of a packed macro calendar.

Fed Day at Last

Today's Federal Reserve update has probably been the most highly anticipated central bank meeting of the year, with the volatility in rate moves expectations exceeding all others in the preceding 11 months. With less than a day to go, market expectation sits just under 90% that we will see a further 25-basis-point cut later today. That is up from 70% a month ago, but more crucially up from near 30% around six weeks ago.

Most market participants are expecting to see a relatively "cautious cut" today, with a split in the committee well documented. So, a swing either side—i.e., a dovish cut or a hawkish cut—should see some big moves across all financial products. Stock markets have been trading optimistically over the last couple of weeks, indicating that they anticipate more stimulus into 2026, while the bond market has been more cautious. Either way, the possibility of strong corrections is high, and it should be a very lively market into the end of the trading day.

Huge Day Ahead for Investors

Today looks to be shaping up as one of the biggest days of the month for global markets. The Asian session sees the release of key Chinese data with CPI (exp +0.7% m/m) and PPI (exp +2.0% y/y), which should see some good moves in local markets, while the London session has a scheduled update from ECB President Christine Lagarde. However, the New York session looks set to be extremely lively.

The Federal Reserve's rate call towards the end of the day is without doubt the headline event, where a 25-basis-point rate cut is well priced in; Chairman Jerome Powell's press conference shortly after is likely to drive volatility even further. Earlier in the Northern Hemisphere session, the Bank of Canada will deliver its own interest rate decision, with the market firmly expecting them to hold rates at 2.25%. As with the Fed, traders are expecting forward guidance from the statement and subsequent press conference to add further volatility to local markets. US Crude Oil Inventory data is also due out in the session; however, expect the major central bank updates to dominate.

Source: IC Markets

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Economic

Strategic Shift Gains Urgency Amid Rising Trade Risks

European companies are accelerating efforts to diversify their supply chains away from China, moving beyond pandemic-era introspection into concrete operational changes. Jens Eskelund, President of the European Union Chamber of Commerce in China, emphasized this transition in a press briefing ahead of the chamber’s latest report on supply chain vulnerabilities. He noted that “dependencies are being discussed in much more detail,” reflecting deeper awareness of how critical and embedded Chinese production has become to global industries, including in basic goods like toothpaste.

The context for this shift is markedly different from the pandemic. Previously, the primary concern was logistical whether a supply chain could physically deliver products amid lockdowns. Now, the focus has broadened to include political risk, such as how vulnerable businesses are to trade restrictions, export controls, or shifting geopolitical alignments.

Record Trade Surplus and Global Backlash

Ironically, China’s global trade dominance continues to grow even as concerns mount. Official data shows China’s trade surplus reached a record $1 trillion through November 2025, underscoring strong global demand despite persistent US tariffs. China’s share of global container traffic also climbed to 37% in the first three quarters of 2025, up from 36% in 2024 and significantly higher than pre-pandemic levels of 31.7% in 2019.

This rise has been attributed not only to China’s cost advantages such as a weaker yuan and industrial overcapacity but also to lingering dependencies across global supply networks. However, this growing dominance is triggering pushback. The EU Chamber highlighted that China faced a record 198 World Trade Organization trade investigations last year, over half initiated by developing nations, indicating that the backlash is no longer limited to the West.

Export Controls Expose Fragility of Overdependence

Tensions between China and the US have escalated throughout 2025, particularly over trade policy and tariffs. In response, Beijing imposed several rounds of export controls, especially targeting rare earth elements and other strategic materials. These moves have reinforced awareness of the risks associated with depending on a single supplier country, particularly one with increasingly assertive policy tools.

A survey conducted by the EU Chamber in November revealed that around one-third of member firms were now exploring supply options outside China or investing in capacity abroad. This represents a substantial increase from the Chamber’s earlier 2025 survey, where only 10% were focused on supply chain relocation. These latest findings indicate a growing trend of operational diversification and forward planning.

Friendshoring Over Reshoring: A Geographic Recalibration

While political discourse in Europe and the US often centers around “reshoring” as a response to China risk, the actual movement of supply chains reflects a different trend. Cameron Johnson of Tidalwave Solutions observed that “nobody is reshoring it’s all friendshoring.” Companies are primarily redirecting supply networks to politically aligned and lower-cost regions such as Mexico and Southeast Asia, rather than returning manufacturing to Europe or North America.

What makes this shift particularly complex is that Chinese companies are adapting alongside foreign firms. Many are proactively establishing or partnering with factories in these same alternate markets, enabling them to retain influence over production chains even as final assembly leaves China. This illustrates that diversification away from Chinese territory does not necessarily mean a full decoupling from Chinese entities.

Localization and Policy Compliance Still Anchor Some Activity in China

Despite diversification trends, many companies are simultaneously deepening their footprint within China. Around 25% of EU firms surveyed earlier this year said they were expanding their China operations primarily to meet Beijing’s localization requirements. These policies, which incentivize domestic sourcing and production, force foreign businesses to localize in order to maintain market access, even as they hedge globally.

This dual strategy onshoring within China while expanding elsewhere highlights the complexity of supply chain restructuring. Eskelund emphasized that some Chinese companies, especially in the automotive sector, are now more globally adaptive than their own government. This agility allows them to stay competitive across multiple markets, regardless of trade friction.

The European business community is entering a new phase in its relationship with Chinese supply chains. While the rhetoric of diversification has been present since the pandemic, 2025 has seen a measurable turn toward action, spurred by escalating geopolitical risks, export controls, and calls for resilience. Though reshoring remains rare, the pivot toward friendshoring is real and unfolding at scale. The coming year may determine whether these shifts represent a structural rebalancing or merely a tactical adjustment to temporary pressures. Either way, Europe’s dependence on China is being reevaluated in boardrooms with greater urgency than ever before.

Source: CNBC

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Economic

Stocks

Markets Await Clarity on Fed’s Policy Path

European equities are set to open lower on Wednesday, with futures pointing to modest declines across the major indices. The UK’s FTSE is projected to fall 0.34%, Germany’s DAX by 0.24%, France’s CAC 40 by 0.25%, and Italy’s FTSE MIB by 0.3%, according to IG market data. These early moves reflect investor caution ahead of the US Federal Reserve’s final monetary policy decision for 2025, expected later in the day.

With Fed Funds futures pricing in an 87.6% probability of a 25 basis point rate cut, most market participants anticipate the central bank’s third consecutive reduction. Yet the decision remains contentious among members of the Federal Open Market Committee (FOMC). While some policymakers advocate for more easing to shield the labor market from further weakening, others warn that additional cuts could reignite inflationary pressures. The diverging views introduce uncertainty around the pace and duration of the Fed’s easing cycle in 2026.

Investors will closely examine Chair Jerome Powell’s post-meeting press conference and the FOMC’s forward guidance for clues on the policy outlook. Market sentiment is expected to remain fragile until there is greater clarity on whether the Fed intends to continue trimming rates into the first half of 2026 or pause to assess macroeconomic stability.

Trump’s Comments Reignite Transatlantic Tensions

Further weighing on European sentiment are renewed diplomatic tensions between the US and its allies across the Atlantic. In an interview published Tuesday by Politico, President Donald Trump lashed out at European leaders, calling them “weak” and accusing the continent of failing to effectively address migration and the Ukraine conflict. He also referred to Europe as “decaying,” a characterization likely to deepen anxiety within European political circles, particularly as peace negotiations regarding Ukraine intensify.

Trump’s remarks may have a chilling effect on diplomatic cooperation just as European nations seek a cohesive strategy for Ukraine and try to assert their role in broader global security negotiations. The comments follow the release of the administration’s latest national security strategy, which openly questioned the reliability of European allies. Markets often respond to geopolitical uncertainty with increased caution, particularly when it clouds investor expectations around economic cooperation and defense spending.

Regional Data and Earnings in Focus

On the data front, investors will review Italy’s latest industrial production figures for additional insight into the health of the eurozone’s third-largest economy. While not typically a major market mover, a downside surprise could reinforce recessionary concerns in Southern Europe, especially as Germany continues to struggle with stagnation.

Earnings from TUI, the German travel and tourism conglomerate, are also on the docket. Investor focus will be on forward bookings and guidance, particularly given persistent inflation in the eurozone and consumer spending headwinds in key holiday markets. Results from TUI may offer signals about discretionary demand and cross-border mobility trends heading into the winter season.

European markets enter Wednesday under pressure from both macroeconomic and political uncertainty. While a Fed rate cut appears likely, the direction of future US monetary policy and its global implications remain unclear. At the same time, geopolitical concerns stemming from President Trump’s renewed criticism of European leadership have introduced fresh doubts over the durability of transatlantic alliances. Until markets receive firmer signals on policy and diplomacy, risk appetite in European equities is likely to remain muted.

Source: CNBC

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Olivia Brooks

Economic

South Korea is considering building a 4.5 trillion won (US$3.06 billion or RM12.6 billion) foundry to manufacture chips, funded by state and private investment, the industry ministry said, amid efforts to ensure the country remains a powerhouse in semiconductors.

President Lee Jae Myung presided over a meeting on Wednesday attended by executives from chipmakers, including Samsung Electronics and SK Hynix, as well as policymakers and experts to lay out plans to maintain the country's lead in memory chips, strengthen the foundry business and expand fabless chip design in the AI era.

"South Korea needs to take a new leap forward, and... the semiconductor sector is an area where we are very competitive," Lee said.

South Korea will consider setting up a 12-inch, 40-nanometre foundry jointly backed by the public and private sectors to help fabless firms develop and test chips, the industry ministry said in a statement.

South Korea will also seek to locally produce defence-related semiconductors, given that the sector relies on imports for 99% of its supplies, the ministry said.

The government will consider putting in a provision for the priority purchase of domestic semiconductors in national security infrastructure in a related law, it said.

A special committee on semiconductors will be established under President Lee to act as the control centre for national policies on chips, the statement said.

Source: Theedgemarkets

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Commodity

Historic Milestone Fueled by Policy Expectations

Silver prices continued their historic ascent this week, breaching the psychologically significant $60 level for the first time and peaking at $61.4797 per ounce in Wednesday's session. This rally is largely tied to investor speculation that the Federal Reserve will begin easing monetary policy by cutting interest rates by 25 basis points at the close of its December 9–10 meeting. The anticipated policy shift, if confirmed, would reduce the opportunity cost of holding non-yielding assets such as silver, a relationship that often triggers upward pressure on precious metal prices.

Fed policy outlook has become a major catalyst for speculative flows, especially as President Trump’s frontrunner for Fed chair, Kevin Hassett, publicly supported substantial rate reductions, signaling dovish leadership ahead. The link between lower rates and increased silver demand suggests a causal relationship between monetary policy expectations and short-term asset allocation shifts, especially within speculative retail segments.

Speculative Momentum Amplifies Price Surge

According to David Wilson of BNP Paribas, silver’s retail-driven investor base has played a crucial role in amplifying the current rally. Once price momentum took hold particularly following October’s short squeeze and persistent supply issues new inflows began compounding the gains. This behavior aligns with a positive feedback loop typical in speculative markets, where rising prices attract further investment, reinforcing the trend.

Evidence of this is visible in the spike in call options activity tied to the largest silver-backed exchange-traded funds (ETFs), echoing volumes last seen during the October squeeze. Last week alone, ETF inflows were the highest since July, suggesting that investors are not only reacting to price action but also positioning themselves for continued upside.

Supply Constraints Remain Despite Easing Crunch

While the acute supply crisis that emerged in October has subsided somewhat, structural tightness in the silver market persists. Borrowing rates for silver remain elevated, indicating that metal availability is still constrained. Chinese silver inventories, in particular, are at decade lows, highlighting regional supply-demand imbalances. These shortages are not merely correlative to the rally but represent a fundamental constraint that directly influences price dynamics by limiting physical delivery capacity, particularly for industrial users and bullion banks.

In London, where vault inventories have recovered slightly, the tightness is still evident in lease rates, suggesting that underlying supply issues continue to exert upward pressure on the market. Meanwhile, in the US, Comex inventories remain historically high but have stopped growing, as some domestic silver remains withheld from export due to regulatory uncertainty.

Tariff Concerns Add a New Layer of Uncertainty

Investor anxiety over a possible tariff on silver imports is adding a new dimension to the rally. The metal’s inclusion last month in the US government’s list of “critical minerals” has raised speculation that new trade restrictions may follow. While no tariffs have been announced, the anticipation has caused some US-based inventories to remain onshore, tightening global supply and potentially influencing Comex positioning.

This anticipatory behavior reveals a forward-looking risk premium being priced into the market, as traders factor in regulatory developments that could disrupt transnational supply chains.

Silver Versus Gold and Other Precious Metals

Silver’s year-to-date gain of over 100% now vastly outpaces gold’s 60% increase, further emphasizing the white metal’s outperformance. While gold remains a traditional safe-haven asset, silver’s dual role as an industrial metal and speculative instrument gives it higher sensitivity to macro shifts, such as interest rates, manufacturing demand, and ETF flows. In contrast, platinum and palladium have trended lower, likely due to softer demand in the automotive sector and limited investor enthusiasm compared to the silver narrative.

As of 11:19 a.m. Singapore time, silver was trading at $61.0108 an ounce, up 0.6%. Gold rose slightly to $4,209.62 per ounce, while the Bloomberg Dollar Spot Index was unchanged, indicating that dollar strength was not a significant driver in Wednesday’s session.

Silver’s break past $60 signals more than just speculative froth; it reflects a convergence of macroeconomic policy expectations, persistent physical tightness, and regulatory uncertainty. While a correction may seem overdue given the metal’s 20% surge in just three weeks, the strength of investor sentiment and structural factors could sustain elevated levels. As attention shifts to the Fed’s policy decision and potential trade announcements, silver’s path forward will likely remain volatile but highly active, with $100 no longer dismissed as an extreme projection by market participants.

Source: Reuters

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Stocks

Economic

European stocks are expected to open in negative territory on Wednesday as global investors gear up for the U.S. Federal Reserve's interest rate decision.

The U.K.'s FTSE index is seen opening 0.34% lower, Germany's DAX down 0.24%, France's CAC 40 down 0.25% and Italy's FTSE MIB down 0.3%, according to data from IG.

Global markets are awaiting the outcome of the Fed's final meeting of the year on Wednesday.

The central bank is widely expected to deliver its third straight interest rate cut of a quarter percentage point, with Fed Funds futures suggesting an 87.6% chance of a decrease, according to CME's FedWatch tool.

Sentiment among members of the rate-setting Federal Open Market Committee remains divided, however, as some favor cuts to stave off further labor market weakness and others believe another cut could worsen inflation.

Investors are looking to gauge members' sentiment from the post-meeting statement and Chair Jerome Powell's highly anticipated news conference on Wednesday afternoon.

European market sentiment is likely to have taken a hit this week after U.S. President Donald Trump criticized regional leaders this week, describing them as "weak" in an interview with Politico that was published Tuesday.

Trump, who has a checkered relationship with European leaders, appearing to get on well with some — such as the U.K.'s Keir Starmer and Italian PM Giorgia Meloni — and not so much with others. In the interview, the president criticized "decaying" Europe for failing to control migration or take action on the Ukraine war.

"I think they don't know what to do," he said in the interview, adding: "Europe doesn't know what to do."

The comments will hit hard at a time when European allies are trying to make sure the continent's voice is heard in negotiations over Ukraine peace proposals. They come after Trump's new national security strategy last week questioned whether European countries can "remain reliable allies."

Earnings come from TUI on Wednesday, and data releases include Italian industrial production figures.

Source: CNBC

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Political

Strategic Patrol Increases Pressure on Japan’s Air Defense Posture

Japan’s Ministry of Defense reported that its fighter jets were scrambled to monitor a coordinated Russian-Chinese air patrol on Tuesday, marking a significant escalation in military activity near its borders. The operation involved two Russian Tu-95 nuclear-capable bombers flying from the Sea of Japan toward the East China Sea, where they joined two Chinese H-6 bombers for a long-range joint flight through the Pacific.

This joint mission, which lasted approximately eight hours according to Russian sources, extended across international airspace between Okinawa and Miyako islands a strategically critical zone that connects the East China Sea and Western Pacific. The patrol included a total of eight aircraft: four Chinese J-16 fighter escorts, two Tu-95s, and two H-6s, complemented by additional Russian aircraft operating simultaneously in the Sea of Japan, including an A-50 early warning plane and Su-30 fighters.

Japan and South Korea Respond as Security Concerns RiseJapanese Defense Minister Shinjiro Koizumi responded sharply on X (formerly Twitter), stating the operation was "clearly intended as a show of force against our nation" and emphasizing it poses "a serious concern for our national security." Japan's air defense forces reportedly executed all necessary airspace identification and tracking protocols to maintain territorial awareness.

Simultaneously, South Korea’s military also detected nine Russian and Chinese aircraft entering its air defense identification zone (ADIZ), though no airspace violations were reported. This multi-theater patrol signifies a rising level of coordination between Moscow and Beijing, which appears calibrated to project power and disrupt regional deterrence frameworks maintained by Tokyo and Seoul.

Tensions with China Worsen Following Taiwan RemarksThe timing of the patrol coincides with a noticeable uptick in hostile air encounters. Just days before, Japan accused Chinese carrier-based fighter jets of locking radar on Japanese military aircraft, an allegation China denied. This incident occurred shortly after Japanese Prime Minister Sanae Takaichi publicly stated that Japan might respond if a Chinese attack on Taiwan endangered Japanese security interests.

Beijing’s rapid military activities near Japanese airspace following those remarks suggest not only a correlation but a possible reactionary maneuver. However, it remains unclear whether this joint patrol was pre-planned or adjusted in response to diplomatic events. The current pattern of military signaling points toward increased pressure on Japan's strategic position in East Asia.

Expanding Sino-Russian Military Cooperation Beyond Symbolism

While joint air patrols between China and Russia have occurred intermittently since 2019, the scale and coordination of this recent exercise suggest a deeper, more operational partnership. The presence of nuclear-capable bombers in a patrol format, combined with electronic warfare and air superiority support, signals that both powers are seeking to refine joint force projection capabilities. In addition to this flight, the two countries have conducted naval exercises in the South China Sea and joint missile defense drills in Russia marking a trend toward broader interoperability across military domains.

This level of cooperation increasingly resembles a counterweight to the security frameworks of US allies in the region, including Japan, South Korea, and Taiwan. The nature of these joint operations long-range, multi-platform, and conducted in contested areas suggests preparation for potential future scenarios involving deterrence or coercive diplomacy.

Implications for Japan’s National Security and Diplomatic Strategy

For Japan, this development adds urgency to its evolving defense strategy, which already includes military modernization, increased defense spending, and closer alignment with the United States. The coordinated Chinese-Russian patrol further amplifies regional security concerns, particularly as Japan adjusts its Indo-Pacific security partnerships and takes a more vocal stance on cross-strait tensions.

The incident is also likely to reinforce Tokyo’s commitment to integrated air and missile defense systems and justify expanded investment in counter-strike capabilities. Meanwhile, the visual demonstration of Russia and China operating in lockstep near Japanese airspace is likely designed to test Japan’s strategic threshold and political resolve in the context of rising US-China competition.

The joint Russian-Chinese bomber patrol near Japan signals a calculated show of military unity aimed at challenging the status quo in East Asia. As Japan reacts to what it sees as coercive gestures targeting its sovereignty and its Taiwan policy, the regional security balance appears increasingly fragile. This aerial operation not only underscores the growing strategic intimacy between Beijing and Moscow but also sets the stage for more frequent and sophisticated military coordination in contested skies around Japan.