Pound-to-New Zealand Dollar Week Ahead Forecast: Upside Slant Intact

The era of employee leverage in Europe, defined by the "Great Resignation" and "Quiet Quitting" that followed the pandemic, is decisively over. A combination of industrial pressure, slowing wage growth, and the looming impact of artificial intelligence is rapidly shifting the balance of power back to employers, ushering in a new period of caution and uncertainty for the continent's workforce.

During and immediately after the COVID-19 pandemic, European workers held a rare advantage. Government support programs helped companies retain staff, while a global labor shortage increased demand for talent. In 2022, research from McKinsey revealed that a third of European workers were considering leaving their jobs within months. Angelika Reich, a leadership advisor at Spencer Stuart, described this as a "striking figure for a region with a traditionally low [staff] turnover."

That moment has passed. The European labor market has "cooled down," Reich noted, and a tougher economic climate is making employees more hesitant to switch jobs.

Eurozone Job Growth Is Slowing Down

While Europe's labor market has shown resilience, its momentum is fading. The European Central Bank (ECB) projects that employment growth in the 21-member eurozone will slow to 0.6% this year and 0.7% in 2025.

Though the annual change seems minor, each 0.1 percentage point represents approximately 163,000 fewer new jobs. This stands in stark contrast to just three years ago, when the eurozone was creating 2.76 million new jobs annually with a robust growth rate of 1.7%.

Migration, which previously helped ease worker shortages and fuel job growth, is now stabilizing or declining, adding another layer of complexity to the labor supply. The new mood has given rise to fresh terminology, such as the "Great Hesitation," where firms delay hiring and workers avoid quitting, and "Career Cushioning," where employees quietly prepare for potential layoffs.

A person stands before a directory at a German job center, illustrating the growing pressure on the country's labor market.

Germany's Industrial Woes Signal Broader Trend

Germany's economic struggles are setting the tone for much of the continent. According to the IW economic think tank in Cologne, more than one in three German companies plans to cut jobs this year.

This trend is reflected across other major European economies:

• France: The Bank of France expects unemployment to rise to 7.8%.

• United Kingdom: Two-thirds of economists surveyed by The Times believe unemployment could climb as high as 5.5% from its current 5.1%.

• Poland: Unemployment reached 5.6% in November, up from 5% a year earlier.

• Romania and the Czech Republic: Both nations are experiencing similar increases in joblessness.

Workers assemble a vehicle at a Volkswagen facility, a sector central to Germany's industrial base that has announced significant layoffs.

Manufacturing Sector Under Pressure

Germany's industrial base has been hit particularly hard, losing over 120,000 positions in sectors like automotive, machinery, metals, and textiles. The key drivers are high energy costs, weak export demand, and intense competition from China.

These pressures are not unique to Germany; manufacturers in France, Italy, and Poland face similar challenges. The eurozone's Manufacturing Purchasing Managers' Index (PMI) fell to 48.8 in December, its lowest point in nine months. A reading below 50.0 indicates a contraction in industrial activity. Julian Stahl, a labor market expert at XING, observed that "most firms are aiming to hold the line or shrink slightly rather than grow," though he added that hiring has not "stopped completely."

The negative headlines are also creating a reputational problem. Bettina Schaller Bossert, president of the World Employment Confederation, noted that many young graduates now believe there is "no future in the automotive sector," despite new opportunities emerging within it.

Some Economies Continue to Outperform

The picture is not uniformly bleak. Several European countries are bucking the trend, with Spain leading the way thanks to a post-COVID tourism boom. According to the European Centre for the Development of Vocational Training, an EU agency, strong job growth is also expected in:

• Luxembourg

• Ireland

• Croatia

• Portugal

• Greece

Even in weaker economies, demand remains high in specific fields. "What felt like a widespread scarcity of workers during the Great Resignation has become more sector-specific," Stahl explained. "There are still serious shortages in retail, health care, logistics, engineering and other highly specialized roles."

The Shadow of AI: Reshaping the Workforce

While Europe has adopted AI more slowly than the United States and China, anxiety about automation replacing human jobs is widespread. A July study by consulting firm EY found that a quarter of European workers fear AI could put their jobs at risk, and 74% believe companies will need a smaller headcount as a result of the technology.

Projections for an AI-Driven Future

In November, Germany’s Institute for Employment Research (IAB) projected that 1.6 million jobs in the country could be reshaped or eliminated by AI by 2040. While high-skilled positions are expected to be disproportionately affected, the tech sector could generate around 110,000 new roles.

Enzo Webe, head of the IAB's forecasting department, anticipates a "transformation" of the labor market but "not less work." Other forecasts vary widely, from the rise of an "AI precariat"—a class of people left jobless and without purpose—to more optimistic scenarios where AI redistributes tedious tasks rather than eliminating professions.

"A lot of drudge tasks can be pushed to AI to free up human labor," said John Springford of the Centre for European Reform. "But there's a good reason to believe that professional, knowledge work won't shrink."

For many workers, the rapid advance of AI may become the kind of "jolt" described by University College London professor Anthony Klotz, who coined the term "Great Resignation." He argues that such jolts—sudden moments of clarity—are what prompt people to quit. AI could be the catalyst that encourages European workers to make their next career move before automation makes it for them.

An effort by Europe to stand up to China and retain local technology is approaching a breaking point.

In a fight over a critical link in the global supply chain, chipmaker Nexperia BV was wrested away from its Chinese owner by a Dutch court and now one of the leaders in so-called legacy chips is racing to defend its independence. If the Nijmegen-based company is successful, Europe would hold on to valuable semiconductor manufacturing expertise and hand the region a rare victory over China.

By pushing back over Nexperia, Europe aims to "set a precedent for what 'de-risking' means," said Benedetta Girardi, program coordinator at the Hague Centre for Strategic Studies, referring to Europe's objective of reducing dependencies on China. The intention is to show that Europe "wants sovereignty and autonomy as part of the conversation" over tech, even as it seeks to maintain trade relations with a key partner.

Since a Dutch court intervened in Nexperia's ownership in October, the standoff has threatened to disrupt auto production in Europe and around the world. On one side, there's the core of the company, which is in the hands of court-appointed trustees in the Netherlands; the other side is a key production site that's aligned with dispossessed owner Wingtech Technology Co. — an electronics firm that's 30%-owned by entities close to the Chinese state.

As Nexperia seeks to expand non-Chinese production capacity, Wingtech has stepped up efforts to regain control over the chipmaker it's owned since 2019. It has initiated talks with the court-appointed trustees to try to settle the dispute, while also appealing to the Dutch supreme court over the suspension of its ownership rights.

A court hearing on Wednesday will determine whether there's a quick resolution or a drawn-out legal tussle. The Amsterdam court could order an investigation into the chipmaker if it sees reasons to doubt how Nexperia was managed. On the flipside, the measures taken against Wingtech's ownership of Nexperia and its founder could be dropped if the court opts against a probe.

The hearing is expected to have wide-ranging implications not just for Nexperia's future, but the sustainability of the automotive supply chain and geopolitical ties.

Behind the scenes, meanwhile, the two Nexperias are preparing for a potential future without the other. For Nexperia China, that means finding alternative sources of wafers — the thin, flat slices of semiconductor material that's usually made of silicon. For the Dutch parent, it means expanding other production sites to have enough capacity to meet customer demand. Both efforts are complex.

"Facing the predicament arising from the improper interference by the Dutch government, Nexperia China has actively carried out 'production self-rescue'," including procuring wafers elsewhere, Wingtech Chairwoman Ruby Yang told Bloomberg in an interview.

"Our wafer procurement cooperation in the Chinese market is a natural extension of this strategy," she said, adding that the initiative is aimed at improving operations "rather than serving as a wholesale replacement for the existing supply chain."

According to Yang, the Dutch side is investing about $300 million to expand other facilities with the goal of having 90% of its production capacity outside China by mid-2026. The projects demonstrate "a clear intent to de-couple from China," she said.

The expansion plans at Nexperia's sites in Malaysia and the Philippines aim to add tens of billions of units to annual capacity, according to people close to the situation. The company confirmed efforts to "accelerate existing capacity-expansion plan​s" but declined to comment on specific figures or targets.

With some Nexperia rivals such as US-based OnSemi signaling that they could scale up to take over Nexperia's orders, there's pressure to act fast and there's little margin for error.

The messy dispute has prompted banks to withdraw hundred of millions of dollars of financing to Nexperia, including an untapped $800 million revolving credit line, said the people, who asked not to be identified since the discussions are private. The chipmaker said it is "debt-free and has a strong liquidity position, which is unaffected by events in recent months," a spokesperson said in response to Bloomberg questions.

The acrimony publicly emerged in October when a court in Amsterdam ordered Wingtech's ownership rights placed in a trust over allegations the firm was improperly transferring technology from Europe to China. It also suspended Wingtech founder Zhang Xuezheng as Nexperia's chief executive officer on claims he was diverting resources to affiliated companies and hobbling the Dutch chipmaker. Wingtech has denied wrongdoing.

The court decision prompted Nexperia's site in Guangdong — which has capacity for over 50 billion units a year, or about half of the group's pre-crisis production — to stop cooperating with its parent in the Netherlands, which in turn halted wafer deliveries to China.

Alongside the internal corporate feud, the Dutch and Chinese governments stepped in. The Netherlands imposed oversight powers on national security grounds and Beijing restricted Nexperia's exports from China. The political spat eased after deliveries were allowed to resume, but China continues to press for the Dutch to back down.

"There is clearly an intention to turn Wingtech into kind of a future champion," said Mathieu Duchâtel, director of international studies at think tank Institut Montaigne. "For the Europeans, what it showed is the key importance of having safe access to assembly capacity, which is clearly a weak point."

While Nexperia is a bit player in the global semiconductor industry, its importance is in its ability to produce chips that perform simple functions like controlling power supply at high volumes — about 3,000 components every second. While they're low-tech, the components are used in almost every electronic device.

Nexperia's operations are set up for an era of seamless global commerce. Wafers from facilities in Germany and the UK are shipped for testing and assembly to sites in China, Malaysia and the Philippines. From there, finished components are delivered to customers around the world, including back to Europe.

Concerns about supplies has spurred some big customers — such as auto-parts supplier Robert Bosch GmbH — to shuttle wafers from Nexperia facilities in Europe to China, according to people familiar with the matter. The process is costly and complex and consequently not seen as a long-term solution, the people said.

As part of its expansion plans, the Dutch parent has held talks with customers on investing in Nexperia's sites in southeast Asia, the people said.

A Bosch spokesman declined to comment on supplier relationships for competitive reasons, but said the company remains in close contact with Nexperia and is working to minimize any production constraints.

Shortages of Nexperia chips have caught automakers by surprise. Honda Motor Co. halted production at several plants, while Volkswagen AG and others scrambled teams to secure alternatives. Top parts supplier ZF Friedrichshafen AG reduced output.

To avoid a similar choke point in the future, European nations are discussing how to subsidize backend production outside of China, a person familiar with the matter said. At the same time, China also faces pressure from the country's carmakers, including BYD, to ensure stable supply, according to people briefed on the matter.

Even if one or both Nexperias survive or find a way to reconcile, the brand's reputation has been damaged and that could be hard to repair and creates longer term uncertainties.

"As countries jockey for control over different stages of the semiconductor value chain, it's going to lay out these potential breaking points," said Jacob Feldgoise, senior data research analyst at Georgetown University's Center for Security and Emerging Technology. "The risk associated with this situation was really not on anyone's radar."

Source: Bloomberg Europe

Federal Reserve Chair Jerome Powell has accused the Trump administration of using the threat of criminal charges as a form of political pressure, framing it as a direct challenge to the central bank's independence for refusing to align monetary policy with the former president's wishes.

In a rare public statement on Sunday, Powell revealed that the Department of Justice had issued grand jury subpoenas to the Federal Reserve. The subpoenas are officially linked to his testimony before the Senate Banking Committee last year concerning a multiyear renovation project of historic Fed buildings.

However, Powell asserted that the legal action is not truly about the renovation. "Those are pretexts," he stated, arguing that the threat of indictment is a direct result of the Fed setting interest rates based on economic data rather than political demands from the executive branch.

Powell positioned the conflict as a fundamental test of whether U.S. monetary policy will remain independent or be shaped by political intimidation.

A Legal Probe or Political Retaliation?

The conflict between the White House and the Federal Reserve has escalated into a direct legal confrontation, raising questions about the motivations behind the investigation. Powell, while emphasizing his respect for the rule of law, was clear that he views the legal action as a politically motivated campaign.

The subpoenas focus on his prior testimony about the Fed's building renovations, but Powell insists this is a smokescreen. He contends the real issue is the central bank's refusal to bow to political pressure on interest rate decisions, a stance that has put him at odds with Donald Trump for years.

The Long-Simmering Feud Over Interest Rates

This latest development revives a years-long conflict between Powell and Trump. During his presidency, Trump repeatedly and publicly criticized the Fed for maintaining interest rates at levels he considered too high, arguing they were undermining economic growth.

Trump openly considered removing Powell from his position and consistently pressured the central bank to implement more aggressive rate cuts. Despite being appointed by Trump in 2018, Powell consistently resisted these demands, emphasizing the Federal Reserve's statutory independence and its dual mandate to ensure price stability and maximum employment. These sustained attacks from a sitting president were widely seen as an unprecedented effort to influence U.S. monetary policy.

Powell noted that he has served under four different administrations from both political parties and has always performed his duties "without political fear or favor."

Market Ripples and Questions of Credibility

The legal escalation introduces a new layer of uncertainty for financial markets, which are already navigating a complex landscape of fiscal policy, rising government debt, and central bank actions.

Jimmy Xue, co-founder and COO of Axis, told Yellow.com that these proceedings could challenge the Fed's autonomy at a time of growing fiscal dominance. According to Xue, attacks on central bank independence enhance the appeal of assets like Bitcoin, which operate outside of direct political and legal influence. He noted that as concerns grow over policy being driven by executive pressure, institutional investors are increasingly looking to Bitcoin's fixed supply as a hedge against potential currency debasement.

A Broader Test for Institutional Independence

Powell framed the situation as a critical test that extends beyond his own position or the Federal Reserve itself. He described it as a defining moment for whether independent American institutions can operate without facing political coercion.

He asserted that public service sometimes requires standing firm against threats and vowed to continue carrying out the duties for which he was confirmed by the Senate. This confrontation marks one of the most direct clashes between the White House and the Federal Reserve in recent history, carrying significant implications for U.S. monetary policy and the global financial system's confidence in America's institutional guardrails.

Chilean fixed-income investors are turning their attention outward in 2026, with decisions made in Washington and global geopolitical tensions now seen as more influential than the country's new political leadership.

A Bloomberg survey of analysts and traders reveals a clear shift in focus. When asked about the most important driver for Chilean interest rates this year, respondents were split evenly: 30% pointed to the US Federal Reserve, and another 30% cited global geopolitics. For January alone, the Fed's influence is even more pronounced, with 40% identifying US monetary policy as the top factor. Geopolitics ranked third, its highest share in the survey since May.

This outlook underscores just how tightly Chile's bond market is linked to international trends. Movements in US Treasury yields and shifts in global risk appetite often have a more direct impact on peso-denominated assets than domestic economic or political events.

Geopolitical Tensions Add a New Layer of Risk

Global political risks have surged to the forefront, driven by upheaval in Venezuela and renewed friction between the United States and China. Following the removal of Nicolás Maduro in Venezuela, Vice President Delcy Rodríguez was sworn in as acting president. The Trump administration has since encouraged US energy firms to help revive the country's oil sector while pressing Caracas to limit its relationships with China, Russia, Iran, and Cuba.

China has responded firmly. Foreign Ministry spokeswoman Mao Ning recently condemned reports of US pressure on Venezuela as a "typical bullying act." While US Energy Secretary Chris Wright later clarified that Washington would not block China's access to Venezuelan oil, uncertainty persists. It remains unclear how aggressively the Trump administration will move to counter China's deep investment footprint across Latin America.

"In the event of an escalation or increased tensions between major powers, a risk-off stance in portfolios would not be unreasonable," noted Rodrigo Skarmeta, a strategist at SURA Investments. He explained that such a scenario could lead to capital flowing out of Chilean fixed-income assets and into safer havens, which would hurt valuations and push local yields higher.

Investor Strategy for a Changing Market

Even without a major geopolitical shock, investors are bracing for a less lucrative year after a strong 2025. "Fixed income will offer lower returns compared to last year," Skarmeta said, adding that opportunities can still be found in the middle of the yield curve, especially in bonds with maturities of three to five years that offer good risk-adjusted returns.

Survey data reveals a clear consensus among investors:

• Maturity: Three-quarters of respondents favor securities with maturities between one and five years.

• Debt Type: Among those, 45% prefer debt linked to the Consumer Price Index (CPI).

• Yields: A majority expect yields to fall, with 60% anticipating a decline for nominal bonds and 45% for inflation-linked notes.

• Yield Curve: Nearly 45% expect the nominal yield curve to steepen.

Fed Uncertainty Remains the Dominant Concern

For investors, the issue isn't whether the Federal Reserve will cut rates, but the ambiguity around the timing and speed of its actions.

"Although the Fed is likely to cut rates moderately this year, there is considerable uncertainty regarding the pace and timing of these cuts, as well as how changes in the Fed's composition might influence the rate path," said Pedro Quintanilla-Dieck, a strategist at UBS. He stressed that any volatility in US Treasuries would be "transmitted directly to the Chilean bond market."

Domestic Politics Take a Backseat

Meanwhile, local political developments are becoming less of a concern for the market. Despite the upcoming March 11 inauguration of President-elect José Antonio Kast, Chilean politics ranked last as a potential driver for interest rates for the first time since September.

Kast has outlined an agenda that includes cutting $6 billion in spending over 18 months, reducing corporate taxes, streamlining regulations, and boosting infrastructure investment. He also plans to tighten immigration enforcement and address crime.

"The arrival of a center-right government with a fiscal consolidation agenda is positive for Chilean assets," Quintanilla-Dieck concluded. He suggested this should "limit sharp movements in the yield curve, especially at the long end."

Iran is grappling with one of the most significant challenges to its clerical leadership since the 1979 Islamic Revolution, as nationwide protests are met with a violent state crackdown. In response, U.S. President Donald Trump is weighing a range of options, including potential military action, while Tehran signals it remains open to dialogue.

The unrest, which began over severe economic distress, has escalated into widespread calls for the fall of the clerical establishment. As the government attempts to suppress the demonstrations, Iran's leaders find themselves confronting a defiant populace and mounting international pressure, all while their regional influence has diminished.

Protests and Crackdown Grip the Nation

The demonstrations, which started on December 28, have spread across the country. Initially sparked by soaring prices, they quickly evolved into a broader anti-government movement. The government's response has been severe.

According to the U.S.-based rights group HRANA, the crackdown has resulted in a significant death toll. The group has verified the deaths of 490 protesters and 48 security personnel. Additionally, more than 10,600 people have been arrested. Iranian authorities have not released an official count, and a state-imposed internet blackout since Thursday has severely restricted the flow of information.

Figure 1: This map illustrates the widespread nature of protests across Iran, which started on Dec. 28 and peaked at 177 locations by Jan. 8 before a nationwide internet blackout was imposed.

Washington Considers Military Strikes and Sanctions

The White House is actively considering its response to the escalating violence. President Trump confirmed on Sunday that he is in contact with the opposition and that a meeting with Iranian officials is being arranged to discuss the country's nuclear program.

However, he also warned that action might be necessary before any meeting takes place. "Iran wants to negotiate," Trump told reporters. "We might meet with them... but we may have to act because of what is happening before the meeting."

Trump is scheduled to meet with senior advisers on Tuesday to discuss a list of options for Iran. According to The Wall Street Journal, these include:

• Military strikes

• Deployment of secret cyber weapons

• Expanded sanctions

• Providing online support to anti-government groups

Executing military strikes on installations could be highly risky, as some elite military bases are located in densely populated areas, potentially causing large civilian casualties.

Tehran's Dual Strategy: Dialogue and Deterrence

Despite the tense situation, Iran claims it is maintaining lines of communication with the United States. Foreign ministry spokesperson Esmaeil Baghaei confirmed on Monday that a channel between Foreign Minister Abbas Araqchi and U.S. special envoy Steve Witkoff remains open for necessary exchanges. Traditional diplomatic contacts through Switzerland are also active.

"The Islamic Republic is a country that never left the negotiating table," Baghaei stated, but noted that "contradictory messages" from the U.S. undermined their seriousness. Araqchi echoed this sentiment, stating that Iran is prepared for war but also open to dialogue.

At the same time, Iranian officials have issued stark warnings. Parliament Speaker Mohammad Baqer Qalibaf, a former Revolutionary Guards commander, cautioned Washington against a "miscalculation." He declared that in the event of an attack, "the occupied territories (Israel) as well as all U.S. bases and ships will be our legitimate target."

This aggressive posturing comes as Tehran recovers from a war last June, during which the U.S. and Israel bombed its nuclear sites. Iran's regional power has also been weakened by setbacks for allies like Lebanon's Hezbollah following the October 7, 2023, attacks on Israel.

Iran's Official Narrative: Blaming Foreign Powers

Iranian authorities have accused the United States and Israel of orchestrating the unrest. State media has called for nationwide rallies to condemn what it calls "terrorist actions led by the United States and Israel." State television broadcasted footage of pro-government demonstrations and funeral processions for security forces killed in the clashes.

Araqchi asserted the situation was "under total control" and claimed Trump's warnings had encouraged "terrorists" to target both protesters and security forces to provoke foreign intervention.

To control the narrative, authorities have blacked out the internet. In response, President Trump said he would speak with Elon Musk about potentially restoring access through the Starlink satellite service. Araqchi said internet service would be restored in coordination with security agencies.

Alan Eyre, a former U.S. diplomat and expert on Iran, told Reuters he believes it is unlikely the protests will topple the government. "I think it more likely that it puts these protests down eventually, but emerges from the process far weaker," he said, pointing to the cohesion of Iran's elite and the lack of an organized opposition.

Indonesia plans to sell US-dollar bonds, the first such offering by an Asian sovereign this year, giving further impetus to a record start to global debt issuance by borrowers in 2026.

Southeast Asia's largest economy started marketing fixed-rate bonds with maturity of a little over five years, 10- and 30 years, according to people familiar with the matter that asked not to be identified talking about confidential information.

The sale comes as the administration of President Prabowo Subianto looks to fund a budget deficit that risks exceeding the legal cap of 3% of gross domestic product (GDP) in 2026.

Indonesia has set its budget deficit target at 2.68% of GDP this year, with total net bond issuance — including local- and foreign-currency debt — pegged at 799.5 trillion rupiah (RM192 billion) in 2026. The gap hit the highest level in at least two decades in 2025.

Citigroup Inc raised its 2026 budget deficit forecast to 3.5% of GDP from 2.7%, citing expectations of faster spending on the free-meals programme and larger transfers to regional governments.

Source: Theedgemarkets