The Global Chip Cold War. How China is Changing the Rules of Technology

Economic

Summary:

China’s drive to build domestic EUV chip tech threatens Western dominance, reshaping supply chains, raising costs, boosting Chinese firms, and intensifying a long-term geopolitical struggle over semiconductor power.

Events with the potential to reshape the long-term fundamentals of the technology sector rarely occur on the global stage. China’s progress in developing its own EUV lithography technology belongs to this category. Although the project is still in the testing and prototype phase, its significance extends far beyond current market cycles and short-term corporate earnings.

EUV machines, costing around 250 million USD each, are critical for producing chips below 7 nm, used by Nvidia, AMD, TSMC, Intel, and Samsung. The Western monopoly on this technology defines the so-called "technological cold war." China's success in developing its own EUV capabilities could fundamentally reshape global supply chains, reducing dependence on the West and strengthening potential in AI, military applications, and the broader economy.

For several years, China has been pursuing a coordinated, state-led program aimed at achieving full independence from Western semiconductor technologies. The program encompasses the construction of next-generation lithography machines, the development of domestic capabilities in precision optics, design software, critical materials, and manufacturing processes. The scale of financial and institutional commitment indicates that this is not an experimental endeavor, but a key component of a long-term economic and geopolitical strategy.

From a technological perspective, China remains a few years behind global leaders, but it could reach a level sufficient to blunt the impact of sanctions, reduce reliance on Western suppliers, and gradually build a competitive offering for third-party markets. This scenario carries significant implications for Western tech giants, which currently derive a substantial portion of their revenue from the Chinese market.

China’s drive for self-sufficiency in high-end chip production, supported by a state-backed mega-fund, is destabilizing global supply chains. Beijing controls 90% of the gallium, germanium, and palladium markets, restricting exports and creating worldwide shortages, which in turn could raise silicon wafer prices by 20–30%. The West is responding with investments in production diversification, including the CHIPS Act and new projects in India and Europe. These measures increase production costs, delay factory start-ups, and push up consumer electronics prices, including smartphones, laptops, and AI servers, while simultaneously raising the risk of global supply chain fragmentation.

These supply chain shifts have significant implications for the valuations of sensitive technology companies. Among the most exposed Western firms are ASML, TSMC, Nvidia, Intel, AMD, Apple, Samsung, and Microsoft, all of which face pressure from restricted access to the Chinese market, higher production costs, and component shortages. Conversely, Chinese companies such as SMIC, Huawei, and other domestic semiconductor fabs could benefit from growing self-sufficiency, state support, and the gradual reduction of dependence on Western technologies, enhancing their market position and growth potential.

The geopolitical consequences are equally profound. Technological competition increasingly resembles a long-term systemic conflict, in which access to advanced chips determines economic, military, and strategic advantage. In this environment, the tech sector ceases to be solely a space for market-driven innovation and becomes a tool of state policy.

For investors, this necessitates a shift in perspective. Short-term performance and current demand trends remain important, but resilience to geopolitical tensions and structural changes is becoming increasingly critical. Projects on the scale of China’s program do not need to achieve full success to influence valuations and corporate strategies. Over the long term, it is enough that they alter the rules of the game. This slow-moving process may ultimately prove the most costly for investors once fully recognized by the market.

Source: xtb

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Adam

Economic

Central Bank

Investors are gearing up for the last interest-rate decisions of 2025, with four of Europe’s central banks announcing their monetary policies and macroeconomic outlooks on Thursday.

The European Central Bank, Bank of England, Riksbank, and Norges Bank are all meeting, but only one of them is expected to change its rate.

This is what to expect:

European Central Bank

The ECB is expected to keep rates on hold, with recent economic data not pointing to an adjustment.

But investors will be more interested in any commentary on the apparent growing tensions inside the governing council, with some members, like Isabel Schnabel, openly endorsing the market’s view that the next rate move will be a hike, while others think there is still room to cut.

Christian Kopf, who heads the bond portfolio management of German asset manager Union Investment, told CNBC: “I don’t expect and rate change in the Euro area for the time being. If there is a change in 2026, most likely we will get a rate hike towards the end of 2026 or at the beginning of 2027.”

The ECB is expected to hike its growth outlook for the Eurozone when publishing its new round of staff projections, its in-house economic forecasts.

Norges Bank

Norway’s central bank kept rates on hold at 4% on Thursday, with economists suggesting the next rate cut might not come until summer 2026. Norges Bank announced its policy decision at 10 a.m. local time, 9 a.m. London time.

The bank said Thursday that the outlook is uncertain “but if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of the coming year.” For now, however, Norges Bank’s policymakers judged “that a restrictive monetary policy is still needed. Inflation is still too high.” It added that its current forecast “is consistent with 1-2 rate cuts next year.”

Morten Lund, Scandinavia chief economist at JPMorgan, had commented before the rate hold that the bank’s guidance on Thursday “should be a push-back against markets’ rising expectations” that it will cut rates in March, which he said was currently seen as “a coin toss.”

Instead, JPMorgan expects a rate cut to next take place in June, although Norges Bank was not, on Thursday, explicit about the timing of a cut.

Riksbank

Sweden’s central bank kept its key policy rate unchanged at 1.75% when it announced its decision at 9.30 a.m. CET, 8.30 a.m. London time.

No change is likely in the coming quarters either, according to Franziska Fischer at UBS Investment Bank, who said that the Riksbank’s easing cycle was over.

“The Riksbank cut the policy rate by 25 basis points in September but remained on hold in November, while signalling that the policy rate will likely remain unchanged ‘for some time to come’,” Fischer said.

Developments since November do not warrant a change to the rate outlook, in UBS’ view, he added.

Bank of England

The Bank of England is the only central bank that’s expected to cut interest rates on Thursday, with a small majority of the bank’s nine-member monetary policy committee (MPC) expected to opt for a 25 basis points cut, bringing the base rate down to 3.75%.

Expectations of a cut rose after the latest inflation data showed it fell sharply to 3.2% in November, and recent downbeat economic data in the U.K., ranging from somber growth figures to an uptick in unemployment.

While inflation remains above the bank’s 2% target, the trend downwards gives the bank room for manoeuvre when it comes to lowering interest rates to stimulate the economy, consumption and borrowing.

The government’s Autumn Budget last month was also seen as disinflationary, given it included measures to lower energy bills and freeze fuel duty and train fares.

Source: cnbc

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Daniel Carter

Bond

Economic

The new bond will be sold for the first time in 2026, according to Tammo Diemer, co-director of the German finance agency. The aim is to increase sales by expanding the range of debt offerings after strict fiscal rules were loosened earlier this year.

German Chancellor Friedrich Merz's government is ramping up borrowing in a bid to revive Europe's biggest economy, which has struggled to grow since the pandemic. Much of the money raised will be channeled into a €500 billion ($586 billion) infrastructure fund and the country's armed forces over the coming decade.

The US struggled to find consistent buyers when it relaunched 20-year bonds five years ago, with a notably poor auction in May triggering a broader selloff. Steve Mnuchin, the Treasury Secretary who brought the bond back during President Donald Trump's first term, later admitted the move was "costly to the taxpayer."

Diemer, whose agency has already launched a seven-year maturity, sees growing demand for 20-year debt, especially given expectations that an overhaul of the Dutch pension system will reduce appetite for longer-maturity bonds. Other government borrowers, including Austria and the Netherlands itself, have said they may tilt sales shorter in response to the change in demand.

Dutch Pension Overhaul to Fuel Pivot From Long Bonds in EU

"The 20-year segment is currently trending," Diemer said at a press conference in Frankfurt. "The trend among Dutch pension funds is very much in line with this strategy."

Appetite for the maturity now seems to be improving in the US, with the yield on 20-year Treasuries moving below 30-year rates in July, ending an inversion of the yield curve that had been in place since 2021. Meanwhile, longer-dated bonds are underperforming globally.

The yield premium on 30-year German bonds relative to 10-year notes has risen over 40 basis points this year. Cyril Regnat, a rates strategist at Natixis in Paris, said the German finance agency's "clear goal" is to reduce the average duration of its issuance.

Diemer said at the launch that the weighted—average-maturity of Germany's debt from the launch will decline to 7.7 years in 2026 from 7.8 currently.

"We have learned from the capital market performance of our colleagues in Washington, their experiences have been incorporated, and the 20-year segment is being developed to meet demand," Diemer said.

Source: Bloomberg Europe

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Warren Takunda

Economic

Rachel Reeves has reason to be cheerful. After last month’s budget, the Bank of England cutting interest rates will come as an early Christmas tonic for the chancellor by lifting some of the pressure on hard-pressed borrowers.

The City had been heavily betting on a sixth cut since August last year, and Threadneedle Street delivered with a reduction in the base rate from 4% to 3.75%. The question, however, is how much further the Bank can go to bring to an end its current easing cycle, after a painful hump in inflation over the past year.

For borrowers, Thursday’s decision suggests the endpoint is coming into focus – spelled out succinctly by the Bank’s governor, Andrew Bailey. “We still think rates are on a gradual downward path,” he said. “But with every cut we make, how much further we go becomes a closer call.”

Some of this reflects deep divisions in the Bank’s monetary policy committee (MPC) over the UK’s inflation prospects. Even though five members on the nine-strong panel, including Bailey, backed a Christmas cut, the four in the minority already reckon the endpoint may have arrived.

Heading into Thursday, a majority call from the MPC had been all but guaranteed after figures showing a pronounced slowdown in headline inflation to 3.2% in November were released on Wednesday. At the same time, the economy is struggling for growth momentum and unemployment is rising, removing some of the kindling required for inflation to reignite next year.

Given these bleak winter conditions, the Bank believes economic growth probably flatlined in the fourth quarter.

For some members of the MPC, the weakness in the economy and widening slack in the jobs market are enough to justify further rate cuts. Last month’s autumn budget could help further justify the case.

Threadneedle Street reckons the chancellor’s measures in last month’s budget – including relief on energy bills, rail fares and prescription charges – will cut headline inflation by 0.5 percentage points from the second quarter of next year. This should be enough to get the rate close to the Bank’s 2% target a year earlier than previously anticipated.

In the views of some on the MPC, this could help to ensure inflation sticks close to the government-set target thereafter, by convincing businesses and households to bargain for wages and set prices in the knowledge that the headline rate is close to 2%.

For others on the MPC, however, there are still worrying signs of problems bubbling underneath the surface that could risk inflation drifting higher.

Central to this is a concern that wage growth remains much higher than would normally be considered usual given the weakness in the economy and rising levels of unemployment.

The Bank’s network of agents estimate that annual pay settlements next year will probably be in the region of 3.5% – significantly higher than levels that are consistent with keeping inflation near to the 2% target.

And while Reeves’s budget measures are expected to subtract from headline inflation in 2026, the MPC thinks the government will probably add to price growth in 2027 and 2028 by between 0.1 and 0.2 percentage points. This would chime with business leaders’ warnings that adding to employment costs – with a higher living wage, employment rights, and planned taxes on pensions – could force companies to increase prices in response.

For Reeves, the Bank’s six rate cuts have provided Labour with ammunition to defend its record. In the short term, that story remains intact.

The hope in Downing Street will be that whacking inflation down in 2026 could help prevent the headline rate sticking at elevated levels. Most economists anticipate at least another cut in interest rates next year as a result. Weaker growth, rising unemployment, and evidence of a further inflation slowdowncould put more on the table. But the endpoint is getting closer.

Source: Theguardian

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Adam

Economic

Japan’s central bank on Thursday kicked off its last policy meeting of the year, with expectations that it will raise benchmark interest rates to their highest in 30 years, as it seeks to move ahead with policy normalization set forth last year.

The decision, due Friday, could see rates raised to 0.75% — highest since 1995 — with data from LSEG showing an 86.4% probability of a hike by the Bank of Japan.

A rate hike will likely strengthen the yen against the dollar, and contain inflation, which has run above the BOJ’s target for 43 straight months. But it could further slow a weak Japanese economy that contracted in the third quarter.

Revised GDP numbers showed that Japan’s economy in the three months through September contracted more than initially estimated, shrinking 0.6% quarter on quarter, and 2.3% on an annualized basis.

With a rate hike almost certain, experts said that market focus will be more on the BOJ’s commentary after the decision.

Gregor MA Hirt, global multi-asset chief investment officer at Allianz Global Investors, said in a Tuesday note that the market reaction will depend on the nuances of the BOJ’s communication.

Signals around the neutral, or terminal, rate — one that balances inflation and economic growth — and comments on yen weakness will be some of the things to look out for.

Governor Kazuo Ueda reportedly said earlier this month that it was difficult to estimate the terminal rate, with the central bank pegging it at 1% to 2.5%.

“Unfortunately, the neutral rate of interest is a concept for which we can only produce an estimate with quite a wide range,” Ueda told Japan’s parliament.

While efforts have been made to narrow the rate range, Ueda said that the BOJ must guide monetary policy without clarity on where exactly the neutral rate lies.

Carl Ang, fixed income research analyst at MFS Investment Management, said that an updated estimate on the neutral rate may be shared after the Friday meeting.

Pace of rate hikes

Japan embarked on policy normalization last year, abandoning the world’s only negative interest rate regime that had been in place since 2016. Since then, the BOJ has been consistently maintained it’s stance of gradually raising rates.

Investors will be looking out for the BOJ’s commentary around the pace of future rate hikes.

Dutch bank ING said in a note on Wednesday that while the market largely expects another hike in June 2026, it is more likely that the BOJ will next raise rates only in October.

In contrast, Bank of America estimates a hike in June, while not entirely discounting the BOJ fast-forwarding it to April if the yen weakens rapidly. BofA analysts expect the BOJ to bring the terminal rate to 1.5% by end 2027.

While MFS’ Ang said there were some risks to Japan’s policy normalization path, including a U.S. economic slowdown and escalating China-Japan tensions, it would take a “material shock” to veer the BOJ away from its rate trajectory.

Bonds and forex outlook

The central bank has not directly addressed foreign exchange concerns, but should Ueda comment on the yen’s weakness directly, it would be seen as a “line in the sand,” Allianz’s Hirt said.

The yen has been trading around the 154-157 against the dollar since November, having weakened over 2.5% since Prime Minister Sanae Takaichi, a proponent of looser monetary policy, took office in October.

Takaichi during her leadership contest had staunchly opposed rate hikes by the BOJ, but has since softened her stance.

A higher rate will also push up bond yields and borrowing costs for the Japanese government, which has unleashed its largest stimulus package since the Covid-19 pandemic as it tries to boost the economy.

Nikkei earlier this month reported that Japan’s borrowing costs could double, if benchmark yields rise to 2.5% from its current level of about 2%. Yields on 10-year Japanese government bonds are hovering near 18-year highs, last at 1.971%.

Yields at 2.5% would mean interest payments for the Japanese government will jump to 16.1 trillion yen in its 2028 fiscal year compared to 7.9 trillion yen in fiscal 2024.

Accounting for fiscal concerns and possible finance ministry intervention in forex markets, something that finance minister Satsuki Katayama has not ruled out, MFS’ Ang expects the yen to stay between 150 and 160 next year.

Source: cnbc

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Justin

Stocks

Stocks rallied at the open, bouncing after a sharp selloff Wednesday, as a cooler-than-expected inflation report lifted hopes that the Federal Reserve would cut interest rates further. An optimistic outlook in the tech sector also lifted sentiment.

The S&P 500 Index opened 1% higher Thursday morning and looks to snap a four-day losing streak. Micron Technology Inc. was the top-performing stock in the benchmark after providing an upbeat forecast, citing the ability to charge more for products given rising demand and supply shortages.

The tech-heavy Nasdaq 100 Index advanced 1.3%, rebounding after its biggest daily drop in a month, while the blue chip Dow Jones Industrial Average rose 0.5%.

"The earnings engine in the United States is on," Emily Roland, co-chief investment strategist at Manulife John Hancock Investments, in a Bloomberg TV interview. She's looking for earnings growth outside of the tech for 2026, after being overweight the sector for much of 2025.

"We still like tech, but there's no doubt about it, it's expensive," she added.

The lofty valuations of AI stocks continue to concern investors. About 57% of participants in a Deutsche Bank survey said a potential plunge in AI valuations is the biggest risk to market stability in 2026. Separately, JPMorgan Chase & Co. warned of "extreme crowding" in speculative stocks, including a handful of AI-linked names.

Thursday's market move follows a cooler-than-expected inflation report. The core consumer price index rose 2.6% in November, according to the Bureau of Labor Statistics — well below expectations for a 3.1% gain. Traders also focused on jobless claims data, which showed continuing claims rising to 1.9 million.

"The Fed could look at the increase in the unemployment rate and the tame inflation reading as a reason to cut again," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.

US President Donald Trump said in a televised address Wednesday night that he would soon pick a new Fed chair that would bring rates down significantly further as he sought to calm concerns about the high cost of living.

"A Santa Rally could still be in the cards," said David Russell, global head of market strategy at TradeStation,

Still ahead, FedEx Corp. and Nike Inc. are set to report earnings after the closing bell Thursday. Traders will also parse existing home sales data and a University of Michigan survey of inflation expectations, which are expected Friday morning, for additional clues on the central bank's rate path.

Source: Bloomberg Europe

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Samantha Luan

Political

Economic

The US government acknowledged in a federal court filing that it was liable for damages resulting from a deadly collision between an Army helicopter and a regional American Airlines Group Inc. jetliner earlier this year near Washington, one of the deadliest crashes in decades.

"The United States admits that it owed a duty of care to plaintiffs, which it breached, thereby proximately causing the tragic accident" on Jan. 29 that killed 67 people, Justice Department lawyers wrote in a court document Wednesday in one of about two dozen lawsuits filed over the crash.

The American CRJ-700 jet and the Sikorsky UH-60 Black Hawk helicopter collided as the plane approached Ronald Reagan Washington National Airport in Virginia, with both aircraft falling into the Potomac River. The jet was carrying 60 passengers and four crew members on Flight 5342 from Wichita, Kansas. The helicopter was carrying three people participating in a regular training mission. Family members of the victims have sued the government and American, along with one of its subsidiaries, PSA Airlines.

CNN reported earlier on the Justice Department filing.

Robert Clifford, an attorney representing the wife one of the passengers killed in the crash, said in a statement that the US Army had admitted its "responsibility for the needless loss of life," as well as the Federal Aviation Administration's "failure to follow air traffic control procedure." However, the government was just "one of several causes," Clifford said, pointing out that American and PSA have sought to dismiss the complaints.

American declined to comment on the recent filing but referred Bloomberg to its previous motion to dismiss the case against it. In that motion, the airline said it's "sympathetic to plaintiffs' desire to obtain redress for this tragedy" but "plaintiffs' proper legal recourse is not against American. It is against the United States government."

The FAA referred questions to the Justice Department. The US Army didn't immediately respond to messages seeking comment after normal business hours.

The collision was followed by several other aviation mishaps, including crashes and near misses, that resulted in widespread concern among the flying public. Since then, the Federal Aviation Administration has stepped up safety measures at the busy Reagan airport and restricted non-essential helicopter operations.

The case is Crafton vs. American Airlines, 25-cv-03382, US District Court, District of Columbia (Washington).