Sanctions Shift India's Oil Imports From Russia to OPEC

Markets

Geopolitical tensions yesterday receded as a driver for global trading. President Trump taking a more guarded tone regarding direct action against Iran halted the recent upward squeeze in the oil price. Brent returned below $64/b.

The 'safe haven/scarcity' rally in gold and sliver that recently also spilled-over to other industrial metals (copper, thin,…) also fell prey to some profit taking. It has often been different of late, but in this (temporary?) more benign geopolitical context, US eco data even play a role in intraday price action. US weekly jobless claims (198k) eased back to sub 200k levels. The New York Fed Empire manufacturing survey (7.7 from -3.7, with strong orders and shipments) and the Philly Fed business outlook (12.6 from -8.8 also with solid underlying details) printed strong.

These series are no game-changers regarding the broader eco picture and their message still can be contradicted by other more high profile releases. Still, they confirm the view that the Fed is right in its assessment that the US economy is holding up rather well and that no immediate stimulus is needed, especially not as inflation is holding above target. After a risk-off driven bull flattening on Wednesday, the US yield curve yesterday bear flattened with yields rising between 5.5 bps (2 & 5 y) and 1.2 bps (30-y). Moves in Europe stayed more benign with the German 2-y yield adding 2.6 bps. The 30-y still eased 1.8 bps. Decent data and some easing in geopolitical tensions was enough to inspire a bid on global equity markets (Dow & Eurostoxx +0.6%). Still the dollar outperformed (DXY close 99.3) EUR/USD is struggling not to fall below the 1.16 barrier. The yen-decline took a breather after the announcement of new elections (USD/JPY 158.6), but the (yen)-picture remains fragile. UK yields rebounded 3.5-5.5 bps across the curve on better UK monthly GDP/production data, but it didn't help further sterling gains. EUR/GBP even rebounded from the 0.8650/55 support area to close at 0.8675.

Asian equities show a mixed picture today, with Japan and China suffering modest losses. US futures are gaining slightly (S&P +0.3%). The dollar is holding its recent gains (DXY 99.35, EUR/USD 1.1605). The eco calendar again only contains second tier eco data (NY Fed services activity, US production data, NAHB housing index). US markets are also preparing for a long weekend (Martin Luther King Day on Monday). A long weekend in the current uncertain (geopolitical) context might cause some cautious positioning. The technical picture in the likes of DYX and EUR/USD (break above 99.25 and below 1.161) at least suggests an ongoing constructive USD-momentum for now.

News & Views

The European Commission in reviewing the EU accession rules is considering to replace the current system with a two-tier model, the Financial Times reported. Under the current 30-yr old system, an EU member state candidate can only enter when it ticks all the boxes, including adopting huge amounts of EU regulation. The new model under discussion would allow for fast-tracking a candidate's entry. After joining, the country would hold far less decision-making power, stripped from voting rights at leaders' summits for example, and gain incremental access to parts of the bloc's single market as well as funding and subsidies, after meeting post-membership milestones.

The proposal is specifically being considered for Ukraine. As part of the US-led peace plan, the country is allowed to join the EU. But officials note it could take a decade of reform for Ukraine to meet the current EU accession rules and understand that president Zelenskyy can probably only accept other parts of the peace deal (including territorial concessions) if he has short-term EU membership to showcase in return. The EC's proposal is highly contentious with some fearing it waters down the value of membership and may undermine stability in the bloc.

The US and Taiwan signed a trade agreement yesterday that slashes the current 20% tariff rate on Taiwanese imports to 15%. That's in line with regional peers including Japan and South Korea. The deal also waives tariffs on generic drugs, aerospace parts and natural resources that are unavailable in the US and offers Taiwan a most-favoured nation treatment. In return, Taiwan pledges a $250bn investment in the chip industry in the US and tariff-free imports of chips to the US are subject to a quotum. President Trump has previously threatened to impose a 100% levy on semiconductors, which would significantly weigh on Tawain as being the world's most important producer. Some in Taiwan, however, criticize the agreement as moving the chip industry out of the country and thereby disincentivizing Washington to protect Tapei against a possible Chinese attack.

Source: KBC Bank

Yen is once again attempting to recover from its recent sharp losses, with momentum this time supported by a more forceful policy backdrop. Japanese authorities have stepped up verbal intervention, and crucially, officials have gone beyond routine warnings and have explicitly flagged the possibility of joint action with the US. Additionally, combined with speculation of earlier BoJ rate-hike , this has strengthened the perception that Japan is increasingly determined to defend the 160 level against Dollar.

That shift matters for positioning. After weeks of one-way yen selling, this week's developments argue that Tokyo is no longer comfortable letting depreciation run unchecked. With that resolve now more visible, speculators may be reluctant to test the authorities aggressively in the near term, opening scope for a more sustained rebound in USD/JPY.

Japanese Finance Minister Satsuki Katayama reinforced the message on Friday, saying the government is ready to take "decisive action" to stem Yen's continued fall. "I have repeatedly said that we will take every possible measure," she told reporters. Katayama pointed specifically to last September's joint statement with the US, emphasizing that its language on intervention was deliberate. Importantly, she stressed that the statement does not specify whether intervention must be coordinated, adding that "no options are excluded."

Monetary policy expectations are also in flux. According to a Reuters report, some BoJ policymakers see scope for raising rates earlier than markets expect, with April under discussion if Yen weakness amplifies inflationary pressures. That view contrasts with broader market consensus. Analysts polled by Reuters still expect the BoJ to wait until July before hiking again, with more than 75% forecasting rates to reach 1% or higher by September. Still, the gap between official thinking and market pricing is narrowing.

Sources suggest some policymakers are willing to move sooner if evidence builds that Japan can sustainably meet its 2% inflation goal. The BoJ is also expected to revise up its fiscal 2026 growth and inflation projections at next week's meeting, adding to the sense of policy optionality. That said, there remains no consensus within the policy board. Governor Kazuo Ueda has consistently signaled caution, stressing the need to assess how previous rate hikes affect a still-fragile economy before committing to faster normalization.

In FX performance terms this week, Kiwi remains the strongest, lifted again by robust domestic manufacturing data released today. Aussie follows, supported by stable risk sentiment, with Loonie third as it digests recent losses. Euro is the weakest, followed by the Swiss franc and then Yen, which has stabilized but not yet decisively turned. Sterling and Dollar are trading in the middle of the pack.

ECB's Lane: Remarkably stable baseline leaves no near-term rate debate

ECB Chief Economist Philip Lane said the Eurozone is now in a "remarkably stable situation," arguing there is "no near term interest rate debate" under the central bank's baseline scenario. Speaking in an interview with La Stampa, Lane said the current policy setting is consistent with inflation staying around target, growth close to potential, and low, declining unemployment.

Lane stressed that the current level of interest rates provides the baseline for "the next several years." With the economy expected to grow in the neighborhood of its potential rate, he said it would take a significant acceleration in activity to push outcomes meaningfully above the baseline and trigger a policy response.

One alternative scenario he flagged was a major global disruption similar to 2021–2022, involving supply-chain bottlenecks. Lane described this as a "nightmarish" outcome, noting it would also carry recessionary forces rather than a clean inflationary impulse.

NZ BNZ PMI surges to 56.1, a four-year high

New Zealand's manufacturing sector ended 2025 on a strong footing, with the BusinessNZ Performance of Manufacturing Index jumping sharply from 51.7 to 56.1 in December. The reading marked the highest level of activity since December 2021 and moved decisively above the long-run average of 52.5.

The rebound was broad-based. Production rose from 53.2 to 57.4, while new orders surged from 52.5 to 59.8, pointing to strong demand momentum. Employment also improved, climbing from 52.6 to 53.8, suggesting firms are beginning to respond to higher workloads. Positive commentary from respondents increased to 57.1%, up from 54.4% in November and just 45.9% in October.

BNZ Senior Economist Doug Steel said the PMI is positive for Q4 GDP calculations and points to good momentum heading into the new year, flagging "upside risks" to already constructive near-term growth forecasts.

USD/JPY Daily Outlook

Daily Pivots: (S1) 158.26; (P) 158.57; (R1) 158.94;

USD/JPY's retreat from 159.44 extends lower today. Intraday bias remains neutral for the moment, and deeper fall could be seen. But downside should be contained above 156.10 support to bring another rally. On the upside, above 159.44 will resume larger rise from 139.87. Next target is 200% projection of 142.66 to 150.90 from 145.47 at 161.95, which is close to 161.94 high.

In the bigger picture, corrective pattern from 161.94 (2024 high) could have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. Decisive break of 158.85 structural resistance will solidify this bullish case and target 161.94 for confirmation. On the downside, break of 154.38 support will dampen this bullish view and extend the corrective range pattern with another falling leg.

Economic Indicators Update

Source: ACTIONFOREX

Slovak Prime Minister Robert Fico is scheduled to meet with U.S. President Donald Trump at his Mar-a-Lago resort on Saturday, a move aimed at strengthening ties between Washington and a European Union member state known for its criticism of the bloc.

At the heart of the discussions is a plan for Slovakia to build a new nuclear power plant. The contract, valued at an estimated €15 billion ($17.4 billion), could be awarded to the U.S.-based company Westinghouse as soon as next year.

Laying the Groundwork for a Major Energy Partnership

Ahead of the Mar-a-Lago meeting, the Slovak delegation will be in Washington on Friday to sign an intergovernmental agreement on nuclear energy cooperation with the U.S. government. This agreement is a critical step that is expected to formalize the path for direct negotiations with Westinghouse.

The push for closer U.S. relations comes as Fico continues to challenge the European Union on multiple fronts.

A Collision Course with Brussels

Fico, a four-time prime minister who survived a 2024 assassination attempt, has been a vocal opponent of EU policies on several key issues, including:

• Military support for Ukraine

• Migration

• Climate protection

• LGBTQ rights

His government has simultaneously sought to maintain business relationships with Russia and China. Fico is keen on securing Slovakia's oil and gas supplies from Russia, a stance that has put him in direct conflict with Brussels.

While Trump has urged European nations to reduce their energy dependence on Moscow, his administration previously granted a temporary exemption to Slovakia and Hungary, led by Prime Minister Viktor Orban, another leader sympathetic to his political brand.

Fico's Stance on the War in Ukraine

Fico has held several meetings with Russian President Vladimir Putin regarding energy supplies. After returning to power in 2023, he halted Slovakia's military aid to Ukraine, arguing that it was "unnecessarily prolonging the war."

While he has described Russia's actions in Ukraine as a violation of international law, he also claims that Moscow was provoked by the West. Fico has indicated he would support a swift peace agreement, even if it required Ukraine to make territorial concessions.

This position was further highlighted last month when Fico, alongside Hungary's Orban and new Czech Prime Minister Andrej Babis, opted out of a plan to guarantee the EU's €90 billion ($105 billion) loan to Kyiv.

Source: Bloomberg Europe

The French government is drafting a new version of its 2026 budget after a contentious parliamentary debate collapsed, forcing officials to seek a way to pass the fiscal plan without a direct vote.

Budget Minister Amelie de Montchalin confirmed that the changes would effectively create a new text, which the government intends to enact using constitutional tools to circumvent the deadlocked legislature.

"We are putting new proposals on the table and the prime minister will ask political parties what they think and how to advance," she stated Friday on France 2 television. "We don't want nonsense, we want transparency for all French people."

Parliamentary Deadlock Forces Government's Hand

The move comes after Prime Minister Sebastien Lecornu's office declared on Thursday that a successful budget vote in the National Assembly had become impossible. The office blamed obstruction from far-left and far-right parties in the hung parliament, where no single group commands a majority.

To pass a budget under these circumstances, the government has several options outside of a standard vote. These include invoking the controversial Article 49.3 of the constitution, which allows legislation to be passed without a vote, or using a separate decree system.

Constitutional Options Spark Fresh Conflict

The choice of mechanism has created a new political dilemma. Prime Minister Lecornu had previously vowed not to use Article 49.3 to force the budget through, a significant concession aimed at placating opposition lawmakers who had ousted his two predecessors, Michel Barnier and Francois Bayrou.

However, the alternative path is now facing stiff resistance from a key political group. The Socialist Party, whose support is crucial for the government's survival, has come out strongly against the use of the untested decree route.

Socialist lawmaker Philippe Brun described the potential use of decrees in stark terms on France Info radio Tuesday. "It would be extremely grave," he warned. "It would be a kind of creeping coup d'état."

This opposition is notable because the government survived no-confidence votes last year after using Article 49.3 for the previous budget, largely because the Socialists abstained.

What to Expect in the Revised Budget

According to Montchalin, the new budget proposals will reflect negotiations held with political parties in recent weeks, including the Socialists. She outlined several key areas that will be addressed in the updated text:

• Local Government: New measures for local and regional authorities.

• Taxation: Adjustments and tweaks to the tax code.

• Youth Support: Plans to provide additional support for young people.

Vietnam has officially broken ground on its first semiconductor manufacturing plant in Hanoi, a landmark project designed to anchor the nation's ambitions as a high-tech economic power. The facility is being developed by Viettel, a military-run technology giant, and is positioned as a core piece of national infrastructure for chip research, design, testing, and production.

Bridging a Critical Supply Chain Gap

According to Viettel, while Vietnam participates in five of the six main stages of semiconductor production, it has historically lacked capability in the most complex and crucial step: fabrication. The new plant aims to close this gap, creating a complete, end-to-end semiconductor production process within the country's borders.

Once operational, the factory is expected to serve a wide range of industries, including aerospace, telecommunications, automotive manufacturing, and medical equipment. It will also support the development of internet-connected devices and automation technologies.

A Clear Roadmap to Production

Viettel has set a clear timeline for the project's development. Lt. Gen. Tao Duc Thang, the company's chairman and CEO, stated that trial production is slated to begin by the end of 2027. The subsequent three-year period will be dedicated to perfecting the manufacturing process, optimizing efficiency, and ensuring the facility meets stringent global chip industry standards.

The plant is situated on a 27-hectare site, providing ample room for future expansion as Vietnam's semiconductor sector grows.

A Pillar of National Economic Strategy

This project is a cornerstone of Vietnam's broader strategy to prioritize semiconductors and artificial intelligence. The government has been actively rolling out incentives—including tax breaks, visa perks, and housing benefits—to attract international experts and drive investment in these high-tech fields.

These efforts are directly linked to ambitious national goals. Vietnam is targeting at least 10% economic growth in 2026 and aims to achieve developed-country status by 2045. Investing in advanced technology is seen as the primary vehicle for reaching these targets.

Building a Complete Chip Ecosystem

The government's vision extends beyond a single factory. Last week, the country launched the National Center for Semiconductor Chip Prototyping Support to foster a complete ecosystem from design to commercialization.

Speaking at the groundbreaking ceremony, Prime Minister Pham Minh Chinh outlined specific goals for 2030:

• At least 100 chip design companies operating in Vietnam.

• One national chip manufacturing plant.

• Approximately 10 assembly, packaging, and testing facilities.

• Annual revenue from the chip industry reaching $25 billion.

Shifting from Assembly to Innovation

Vietnam is working to elevate its manufacturing base, which is currently concentrated in low- and mid-skilled labor. The country, already one of Samsung's largest global production hubs, exported $132 billion in hardware products in 2024. The move into chip fabrication represents a strategic shift toward becoming an advanced technology production center. U.S. chip designer Marvell has noted that the global boom in AI demand presents a significant opportunity for Vietnam to achieve its tech ambitions.

Currently, Vietnam hosts over 170 foreign investment projects in the semiconductor sector with a combined capital of nearly $11.6 billion. These projects are primarily focused on chip design, packaging, and testing. Government data shows there are approximately 60 design companies, eight packaging and testing projects, and more than 20 firms supplying materials and equipment in the country today.