Rate Cut Expectations and Geopolitical Tensions Raised, Markets Focus on Central Bank Decisions and Energy Risks

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Summary:

Waller: Still room for a 50–100 bps rate cut; U.S. President Trump may take military action against Venezuela......

[Quick Facts]

1. The U.S. prepares new sanctions on Russia if Putin rejects the Ukraine-Russia Peace Deal.

2. Venezuela's largest refinery restarts production.

3. Waller: Still room for a 50–100 bps rate cut.

4. Trump orders a full blockade of sanctioned oil tankers entering or leaving Venezuela.

5. UK inflation unexpectedly falls to an 8-month low, fueling rate cut expectations.

6. ECB expected to hold rates steady Thursday; Economic resilience may close the door on cuts.

7. U.S. President Trump may take military action against Venezuela.

8. New Zealand Q3 GDP rebounds more than expected, showing the effect of rate cuts.

[News Details]

The U.S. prepares new sanctions on Russia if Putin rejects the Ukraine-Russia Peace Deal

According to informed sources, the United States is preparing a new round of sanctions targeting Russia’s energy sector should Russian President Vladimir Putin reject a Ukraine-Russia peace agreement, in order to increase pressure on Moscow. Sources say the U.S. is considering various options, such as targeting vessels in the so-called "shadow fleet" used to transport Russian crude, as well as traders facilitating related transactions. Some sources indicate that new measures could be announced as early as this week.

Sources reveal that U.S. Treasury Secretary Scott Bessent discussed the plans earlier this week during meetings with ambassadors from European countries. After the meetings, he posted on the social media platform X that President Trump is a president for peace, and reiterated that under his leadership, the U.S. will continue focusing on ending the Russia-Ukraine conflict. Sources note that the final decision rests with Trump. Agencies are tasked with preparing different options for the president to execute, according to a White House statement. The president has not yet made any new decisions on sanctions.

Citing Interfax, Kremlin spokesman Dmitry Peskov told reporters Wednesday that the Kremlin is aware some U.S. officials are considering new sanctions on Russia. He noted that any sanctions would clearly hinder the process of rebuilding bilateral relations.

Venezuela's largest refinery restarts production

Venezuela's largest refinery, the Amuay Refinery, has resumed operations after a power outage. The facility is a key part of PDVSA's Paraguana Refining Center, with a daily capacity of 645,000 barrels. Its stable operation is critical for domestic fuel supply and oil exports.

Waller: Still room for a 50–100 bps rate cut

Federal Reserve Governor Christopher Waller stated at a Yale University event on Wednesday that, following last week's 25-basis-point rate cut, the current interest rate level remains slightly restrictive, leaving room for a further reduction of 50–100 basis points to bring the federal funds rate below 3%. This, he believes, is a neutral level that would not drag on the economy.

He expressed little concern about inflation remaining above the Fed's 2% target, believing tariffs will not sustainably push up prices, and expects inflation to start falling over the next 3–4 months. However, he is worried about short-term labor market conditions but thinks jobs will still grow next year. Overall economic prospects mean there is no need to rush cuts; they can proceed steadily.

Waller is scheduled to meet with President Trump on Wednesday afternoon for an interview to determine whether he will be nominated as the next Fed Chair. He emphasized he will stress in person the importance of the Fed's independent decision-making, something he has worked toward during his 20 years at the Fed. He also believes having breakfast with the Treasury Secretary every two weeks is an appropriate communication channel between the White House and the Fed.

Trump orders a full blockade of sanctioned oil tankers entering or leaving Venezuela

President Trump has ordered a full blockade of sanctioned oil tankers entering or leaving Venezuela. Markets worry that Venezuela's oil storage capacity is increasingly strained, which could force state oil company PDVSA — producing nearly 1 million barrels per day — to shut down some wells.

Consultancy Rapidan Energy Group estimates the chance of U.S. military action against Venezuela has risen from 40% to 60%, and the probability of a regime change next year has increased from 60% to 70%. However, Venezuela's output is far below its level a decade ago; last month it unloaded nearly 590,000 barrels per day onto tankers, compared with global daily consumption of over 100 million barrels. ING commodity strategy head Warren Patterson notes that, given expectations of severe oil oversupply next year, markets are less concerned about supply risks.

UK inflation unexpectedly falls to an 8-month low, fueling rate cut expectations

UK November CPI rose 3.2% YoY, the smallest increase in eight months (vs. market forecast 3.5%, previous reading 3.6%). MoM decline was 0.2% (previous reading +0.1%). Core CPI rose 3.2% YoY (forecast 3.4%, previous reading 3.4%).

Following the data release, expectations for Bank of England rate cuts rose sharply. Besides fully pricing in a 0.25% cut tomorrow, Bloomberg data shows investors previously expected another 0.68%+ of cuts next year, about 0.1% higher than before the release — equivalent to a 72% chance of three cuts. Sterling fell from near 2-month highs, briefly dropping below 1.34 vs USD.

ECB expected to hold rates steady Thursday; Economic resilience may close the door on cuts

Markets widely expect the ECB to keep rates unchanged at Thursday's meeting and signal clearly that rate cuts are not on the table in the near term. The backdrop is that the eurozone economy has shown resilience amid global trade shocks, while inflation remains stable near the central bank's target.

Latest data show eurozone growth slightly better than ECB forecasts, mainly due to exporters effectively countering U.S. tariffs and German domestic spending offsetting manufacturing weakness. Meanwhile, inflation has remained near the ECB's 2% target, supported by rising services prices. Analysts believe the ECB may upgrade growth and inflation forecasts at this meeting, effectively signaling the end of its easing cycle.

Although some traders have begun betting on future rate hikes, and comments from certain ECB officials have fueled speculation, most analysts think discussing hikes is premature, given significant spare capacity in manufacturing. Economists expect the ECB to keep rates steady through 2026 and 2027. Stable labor markets, expanding services, and Germany's fiscal stimulus will continue to support the eurozone economy in the coming months.

U.S. President Trump may take military action against Venezuela

Reports say the U.S. aircraft carrier strike group USS Gerald R. Ford is approaching Venezuela and within range for rapid air strikes. Earlier Wednesday, after Trump threatened Venezuela, three Boeing F/A-18E/F Super Hornet and two Boeing EA-18G Growler aircraft were sent toward Venezuela's coast. U.S. journalist Tucker Carlson cited a member of Congress saying President Trump may declare war on Venezuela at 10 a.m. Beijing time on December 18th. Geopolitical tensions could boost precious metals and oil prices in the short term.

New Zealand Q3 GDP rebounds more than expected, showing the effect of rate cuts

Latest data show New Zealand's economy recovered more strongly than expected in Q3. The effects of interest rate cuts are beginning to show, helping the economy rebound after the contraction in Q2.

Statistics New Zealand reported Thursday that Q3 GDP grew 1.1% QoQ, above economists' forecast of 0.9%. After a notable recession last year, the economy is finally responding positively to the central bank's aggressive rate cuts, with improvements seen in retail spending, manufacturing, and construction.

Analysts note that with substantial spare capacity remaining in the economy, this recovery is unlikely to stoke inflation pressures effectively over the next year.

[Today's Focus]

UTC+8 20:00 BoE December Interest Rate Decision

UTC+8 21:15 ECB December Interest Rate Decision

UTC+8 21:30 US November CPI

UTC+8 21:45 ECB President Lagarde holds monetary policy press conference

Risk Warnings and Disclaimers

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Justin

Political

Economic

China is dispatching a diplomat to Cambodia and Thailand as a new bout of violence between the two Southeast Asian nations threatens to derail a ceasefire brokered by President Donald Trump.

Deng Xijun, China's Special Envoy for Asian Affairs, will travel to Cambodia and Thailand on Thursday to conduct mediation, the Foreign Ministry in Beijing said in a statement.

"China closely follows the ongoing border conflict between the two countries," according to the statement. "Through its own way, China has been working actively for deescalation."

Trump has pushed for peace since the conflict spiked in July and has threatened both with trade retaliation if either nation violates the terms of an October peace declaration he orchestrated. While Deng has traveled at least twice to seek mediation, this is his first since the so-called Kuala Lumpur Peace Accords were signed.

Clashes along the 800-kilometer (497-mile) border resumed earlier this month, including Thai airstrikes on Cambodian military targets. More than two dozen people have been killed, including 16 Thai soldiers and 12 Cambodian civilians, and over half a million people have fled the area because of the fighting.

China has engaged with both sides since the start of the violence, but has kept a much lower profile than the US as Beijing generally avoids publicly intervening in conflicts, beyond seeking to facilitate discussions.

The Trump administration has sought to highlight that China hasn't played a role in the peace process. The White House didn't immediately respond to a request for comment sent outside normal working hours.

Trump called both leaders last week to push again for a ceasefire, although the fighting has since continued.

Malaysia's Prime Minister Anwar Ibrahim, who chairs Asean this year, said Wednesday that he's been in contact with the leaders as well, and that both told him they want to resolve their border clashes as soon as possible.

Deng's trip also comes as Cambodia's use of Chinese weapons comes into focus, following reports that the Thai military seized a large number of Chinese-made weapons from Cambodian soldiers.

China's Foreign Ministry spokesman Guo Jiakun didn't confirm nor deny the news at a press briefing Wednesday, but reiterated that Beijing has had "normal defense cooperation" with both countries and that such cooperation doesn't target any third party.

Thailand, which is a treaty ally with the US, has far larger and more sophisticated armed forces than Cambodia. Its attacks on Cambodia have included the use of American F-16 fighter jets.

Source: Bloomberg Europe

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Samantha Luan

Stocks

Key Points:

· US stocks closed lower as AI spending doubts hit tech stocks, pushing the Nasdaq and S&P 500 to three-week lows.

· Heavy selling in chipmakers like Nvidia and Broadcom raised questions about AI returns and balance sheet pressure.

· Traders trimmed risk rather than buying dips, signaling fading conviction in the crowded AI trade.

Wall Street Slides as AI Spending Doubts Knock Tech to Three-Week Lows

Daily S&P 500 Index (SPX)

U.S. stocks finished Wednesday on the back foot, with the S&P 500 and Nasdaq closing at three-week lows as renewed unease around artificial intelligence funding hit big-name tech.

Daily Nasdaq Composite Index (IXIC)

The selling wasn't panicky, but it was persistent. Traders trimmed exposure where conviction has thinned, especially across chips and cloud names tied to heavy capital spending.

Daily Dow Jones Industrial Average Index

The Dow slipped 228 points, while the S&P 500 fell 1.16% and the Nasdaq dropped 1.81%. Breadth leaned defensive, and volume ran slightly above recent averages — a sign this wasn't just passive drift lower.

Is the AI Trade Losing Its Shine?

The pressure started in megacap tech. Oracle slid 5.4% after reports that Blue Owl Capital won't back a planned $10 billion data center deal. That hit a nerve. The market has been fine with big AI checks — until it isn't.

Nvidia fell 3.8% and Broadcom dropped 4.5%, dragging the chip index down nearly 4%. The message was clear: traders are questioning how much balance sheet strain the sector can absorb before returns become harder to justify. There's growing concern that AI spending is feeding back into itself, with OpenAI sitting at the center of the loop.

Amazon slipped 0.6% after news it's in talks to invest roughly $10 billion in OpenAI. The deal may strengthen its AI position, but the tape treated it as another reminder that the bill is still rising.

How Are Traders Responding to the Risk?

They're stepping back rather than chasing dips — at least for now. Decliners outpaced advancers by a wide margin, especially on the Nasdaq. This wasn't indiscriminate selling, but positioning felt lighter as traders reassessed exposure going into year-end.

Alphabet shares fell 3.2% after reports that Google is working with Meta to challenge Nvidia's software edge. It's ambitious, but the market focused on execution risk and timelines rather than the long-term vision.

Outside tech, media names were mixed. Netflix edged higher after its bid for Warner Bros Discovery gained board support, while Warner Bros and Paramount slid after rejecting a hostile offer.

Can Energy and the Fed Offset Tech Weakness?

Energy stocks provided a pocket of strength. Crude prices climbed after President Trump ordered a blockade of sanctioned oil tankers linked to Venezuela. ConocoPhillips and Occidental both jumped more than 4%, offering some balance to an otherwise tech-heavy selloff.

Rates also helped steady nerves at the margin. Fed Governor Christopher Waller said the central bank still has room to cut if the labor market softens. That kept yields in check, even if it didn't spark risk-on buying.

What's the Setup Into Inflation Data?

The next test is Thursday's consumer inflation report. A softer print could calm nerves around rates, but it won't answer the bigger question hanging over tech: how sustainable all this AI spending really is.

Bottom line: the market isn't abandoning AI, but it's no longer giving the trade a free pass. Until confidence improves on returns, traders look content to stay selective rather than aggressive.

Source: FX Empire

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Gerik

Economic

Cryptocurrency

Steady Liquidation by Veteran Holders Alters Market Structure

More than two months after reaching a historic peak above $126,000, Bitcoin has entered a pronounced downturn, dropping nearly 30% and struggling to maintain technical support. This downturn is not attributed to speculative blow-offs or panic selling but rather to a measured, prolonged exit by long-standing holders. New data from K33 Research reveals that approximately 1.6 million BTC, or around $140 billion in value, previously dormant for at least two years, has re-entered the market since early 2023.

This movement is causally linked to the recent price slide. These early adopters often referred to in crypto circles as “OGs” have taken advantage of six-digit prices to realize profits, reducing long-term ownership concentration. Unlike sharp leverage-driven capitulations, the current environment is characterized by a persistent supply increase facing shrinking demand, causing what Chris Newhouse of Ergonia describes as a “slow bleed.”

Fading Demand from ETFs and Retail Amplifies Imbalance

During much of 2024 and early 2025, surging interest from U.S. exchange-traded funds and institutional crypto funds provided a counterbalance to selling pressure. However, ETF inflows have now turned negative, and retail enthusiasm has diminished. The derivatives market, which historically absorbs excess volatility, remains subdued. Open interest in Bitcoin options and perpetual futures is notably lower than pre-crash levels, according to Coinglass, highlighting a retreat from leveraged speculation and reducing depth in key liquidity pools.

This shift does not imply a direct causal effect between ETF flow reversals and price drops, but there is a strong correlation between diminishing buy-side absorption capacity and the speed of the current decline. Notably, the steepest fall came after October 10, when comments by U.S. President Donald Trump regarding tariffs led to $19 billion in liquidations the largest single-day leverage flush in crypto history.

Market Psychology and Price Action Reflect Fatigue

Wednesday's brief rally to $90,000, triggered by short squeeze liquidations, quickly reversed, with Bitcoin falling back to $85,278 before recovering slightly above $86,000 in Singapore trading. This kind of whipsaw movement is indicative of a market with low conviction and limited fresh capital.

Veteran holders' ongoing distribution has proven unusually persistent. According to CryptoQuant, the last 30 days alone witnessed one of the heaviest long-term holder selloffs in more than five years. This extended profit-taking, rather than panic selling, exerts a subtler but more sustained drag on prices, especially in an environment of limited bid support.

Reactivation Nearing Saturation Point

Vetle Lunde, Senior Analyst at K33 Research, notes that approximately 20% of Bitcoin’s circulating supply has been reactivated over the past two years. Historically, such waves of reactivation tend to taper off, suggesting that the majority of profit-taking may be behind us. Lunde believes that the market is nearing a saturation point where sell-side pressure from early adopters will diminish, potentially allowing a return to net accumulation in 2026 particularly if institutional integration deepens and demand regains momentum.

Bitcoin’s current correction, while severe, is rooted not in short-term panic but in a structural reshaping of its ownership base. Long-term holders, emboldened by high prices and access to liquid markets via ETFs, have seized the opportunity to exit. The correlation between diminished demand and reactivated supply has created a delicate market imbalance that is proving difficult to resolve through traditional catalysts. However, if historical patterns hold, this exodus could pave the way for a healthier consolidation phase, resetting ownership and reducing concentration risk as Bitcoin moves toward broader institutional adoption.

Source: Bloomberg

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Winkelmann

Commodity

Stocks

Women holding umbrellas stand in front of a stock quotation board outside a brokerage in Tokyo, Japan June 30, 2025. REUTERS/Issei Kato

· Asian shares all in red, with Nikkei down 1.2%

· Oil up over 1.5% on Trump's Venezuela blockade

· BOE, ECB, Norges Bank, Riksbank set to decide policy

· US CPI report for November also due on Thursday

Asian shares fell on Thursday as the tech sector took a beating on renewed angst about AI spending, while investors braced for a wave of central bank meetings set to underscore policy divergence worldwide.

Geopolitical tensions are roiling the commodities markets. Oil prices extended a rebound from five-year lows after President Donald Trump ordered a "blockade" of all sanctioned oil tankers entering and leaving Venezuela. Silver hit a new record that helped pull up gold.

Sterling nursed losses after an unexpected drop in UK inflation all but guaranteed a rate cut from the Bank of England later in the day.

The European Central Bank, the Norges Bank and Riksbank are also due to deliver their policy decisions on Thursday, with focus squarely on the outlook as all three are widely expected to hold rates steady. In the region, traders are bracing for a rate hike in Japan on Friday though there is less certainty about the pace of tightening next year.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), fell 0.5% as South Korea (.KS11),dropped 1.3% and Hong Kong's Hang Seng index (.HSI),slipped 0.5%. Japan's Nikkei (.N225),was down 1.2%.

Nasdaq futures gained 0.3% and S&P 500 futures rose 0.2%, after a tech-led selloff on Wall Street as investors grappled with renewed concerns over record AI spending. Shares of AI bellwether Nvidia (NVDA.O), tumbled 3.8%.

Oracle (ORCL.N),plunged 5.4% after it announced an equity deal to support a data center project would not include a key partner Blue Owl Capital (OWL.N), The stock has shed almost 50% from mid-September when a deal with OpenAI sparked a 35% one-day rally.

"Oracle remained the primary source of anxiety... This latest setback deepened investor scepticism around Oracle's aggressive AI infrastructure buildout," said Tony Sycamore, analyst at IG, adding that he has now moved to a more neutral stance on the Nasdaq 100.

"Worries over soaring capex, heavy debt, construction delays, OpenAI's massive cash burn, and mixed Q2 earnings have eroded confidence, positioning Oracle as the poster child of fading AI infrastructure hype."

INFLATION SURPRISE FIRMS CASE FOR BOE RATE CUT

On the monetary policy front in the U.S., Federal Reserve Governor Christopher Waller, who is expected to be interviewed by Trump as a candidate for the next Fed chair, said the central bank has room to cut interest rates amid signs of job market weakness.

Investors are also watching out for a U.S. inflation report for November later in the day that will not include the month-on-month measure since a record government shutdown prevented data collection for October.

Forecasts are centred on an annual rise of 3% in core inflation last month.

In the forex markets, sterling held at $1.3374, having slumped to as far as $1.3313 overnight after data showed British inflation fell much more than forecast to 3.2% in November, its lowest since March. That all but cemented the case for a rate cut from the BOE later in the day, which is about 98% priced in.

The euro was steady at $1.1742, not far from a three-month top of $1.18, ahead of the European Central Bank policy decision where expectations are for no change.

Treasuries were largely steady. Two-year Treasury yields fell 1 basis point to 3.4725%, having budged little overnight, while the 10-year yield was flat at 4.1431%.

Oil prices gained for a second day after Trump's announcement of the Venezuela blockade with most exports from the country remaining on hold. U.S. crude rose 1.7% to $56.91 per barrel, while Brent crude futures were up 1.5% at $60.62 a barrel.

Spot gold prices slipped 0.3% to $4,330 per ounce, while silver also eased 0.2% to $66.17 per ounce but remained just a touch below a record high of $66.88 hit on Wednesday.

Source: Reuters

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Gerik

Economic

Internal Republican Tensions Disrupt Leadership Strategy

In a notable political shift, moderate Republicans from swing districts have broken ranks with Speaker Mike Johnson, partnering with Democrats to push for a vote on the expiring Affordable Care Act (ACA) subsidies. This rebellion follows Johnson’s refusal to allow a vote on a GOP-backed proposal that would have temporarily extended the subsidies originally boosted during the pandemic while introducing cost-saving reforms to the program.

The dissident faction, seeking to safeguard constituents in competitive districts, viewed Johnson’s blockade as politically untenable. Their decision to collaborate across the aisle demonstrates growing dissatisfaction within the party’s more centrist ranks and underscores the fragility of GOP unity ahead of the 2026 election cycle.

Subsidy Extension Delayed Until January Amid Expiration Risks

The immediate consequence of this internal revolt is the postponement of any ACA subsidy vote until at least January 2026. As a result, enhanced subsidies used by an estimated 22 million Americans are set to expire at year-end. Without Congressional action, many recipients could face steep increases in health insurance premiums starting in January.

This situation highlights a causal relationship between legislative gridlock and policy discontinuity. The refusal to allow a vote this week directly triggered the expiration risk and compelled moderates to seek alternative procedural pathways.

Political Implications and Strategic Calculations

The moderate revolt also reflects a strategic recalibration. By pressing for a bipartisan resolution, swing-district Republicans are signaling to voters that they are willing to prioritize pragmatic governance over party orthodoxy. Meanwhile, Speaker Johnson’s refusal to negotiate appears correlated with increasing pressure from the party’s conservative wing, which remains skeptical of extending ACA provisions without structural reform.

This intraparty split could shape legislative outcomes beyond healthcare, potentially influencing future budget negotiations and bipartisan coalitions. It also reflects broader tensions between ideological purity and electoral viability a recurring theme in recent legislative sessions.

The revolt by moderate Republicans represents more than just a policy disagreement; it signals a deeper fracture within the GOP’s legislative strategy. By joining forces with Democrats to secure a January vote on ACA subsidies, these lawmakers are asserting independence in defense of vulnerable constituents, while putting additional pressure on House leadership to find common ground. As healthcare policy becomes a defining issue heading into 2026, this moment marks a critical test of the party’s cohesion and legislative adaptability.

Source: Bloomberg

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Winkelmann

Stocks

Economic

Honda Motor Co. will halt production at plants in Japan and China in coming weeks, highlighting the lingering fallout of the global chip shortage.

The Japanese carmaker will suspend output in Japan on Jan. 5 and Jan. 6, a spokesperson said Thursday, without specifying which plants will be affected. All three of the facilities in its joint venture in China, Guangqi Honda Automobile Co., will be offline from Dec. 29 to Jan. 2.

The company had said it anticipated getting disrupted production back on track from late November, but the looming suspension of some of its factories indicates ongoing snarls in the supply chain. Honda shares declined 1.5% in Tokyo. Japanese media outlets reported the news earlier.

Carmakers around the world have had their production plans thrown into disarray in recent months after China blocked Nexperia BV — owned by Chinese company Wingtech Technology Co. — from exporting products made at its local plants.

Honda has been hit hard, with the chip shortage prompting it to reduce its sales forecast to to 3.34 million units from 3.62 million. It had previously curbed or suspended output at some plants in North American due the issue.

Nexperia makes semiconductors used in vehicle control systems for functions such as activating windshield wipers and opening a window.