Treasury Yields Ease as Markets Brace for Delayed Data Flood and Key Inflation Report

Economic

Summary:

U.S. Treasury yields edged lower on Monday as investors adopted a cautious stance ahead of a packed week featuring long-delayed jobs data, November’s inflation report...

Bond Market Softens as Investors Turn Defensive

Kicking off the final full trading week of 2025, U.S. Treasury yields drifted lower in early trading, reflecting a more cautious tone across financial markets. The benchmark 10-year yield dropped 3.3 basis points to 4.163%, while the 2-year slipped to 3.51%. The 30-year bond yield also retreated to 4.824%, suggesting a mild rally in longer-dated bonds as investors reassess growth and inflation expectations.

This move in yields, though moderate, signals investor wariness as several postponed economic reports originally delayed due to the recent 43-day government shutdown are set to be released in a compressed window this week. In effect, markets are now bracing for a data deluge that could reshape the near-term interest rate narrative.

Shutdown Backlog Sets Stage for Volatile Week

Tuesday will bring the October and November nonfarm payrolls reports both delayed by the shutdown which are expected to shed light on labor market resilience heading into the year’s end. These job figures will be closely watched to gauge whether the Fed's tightening has finally cooled the employment market enough to reinforce the recent policy pause.

Alongside jobs data, the October retail sales report and the November unemployment rate will provide further insight into consumer health and overall economic momentum two areas of particular concern given recent signs of consumer fatigue and mixed earnings results from major retailers.

Inflation Report in Focus as Fed Pivot Watch Intensifies

The marquee release this week will come on Thursday, when the Consumer Price Index (CPI) for November is published. According to FactSet consensus, headline inflation is expected to rise 3.1% year-on-year, with core inflation excluding food and energy also forecast at 3.1%.

Any deviation from these expectations could have a significant impact on bond yields and equity market direction. A softer-than-expected print would likely boost bets on earlier Fed rate cuts in 2026, whereas hotter numbers could reignite fears of sticky inflation, putting upward pressure on yields once more.

Other Data to Watch: Jobless Claims and Housing

Also on Thursday, investors will digest the latest weekly jobless claims, which serve as a real-time gauge of labor market softness. Then on Friday, existing home sales data for November will provide clues on how much the housing sector continues to struggle under the weight of elevated mortgage rates and tight inventory.

While bond yields have retreated modestly, markets remain in a wait-and-see mode. With growth and inflation data compressed into a single, high-stakes week, both Treasury and equity markets may experience sharper moves once the numbers are in.

Should inflation continue to ease and job market resilience hold, expectations for rate cuts in early 2026 could strengthen, putting further downward pressure on yields. Conversely, persistent inflation or strong jobs data could delay the Fed’s pivot, reinforcing higher-for-longer rate dynamics.

Until then, the bond market's soft tone reflects investor preference for defensiveness and optionality as clarity remains elusive.

Source: CNBC

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Warren Takunda

Economic

The pair raced to 1.1762 last week, the highest level since October, just a little higher than where we find it at the time of writing Monday (1.1743).

The speed of the euro's recent advance takes the Relative Strength Index (RSI) - see lower panel on the daily chart - to the cusp of 70, the level at which EUR/USD would be officially overbought.

Euro-to-Dollar Week Ahead Forecast: Flirting With Overbought_1

The RSI has mean-reverting tendencies when it reaches overbought conditions, meaning it will ultimately turn lower again. For this to happen, we would require the euro-dollar exchange rate to enter a sideways pattern or shallow retracement lower.

In short, we think the euro is due to cool down somewhat after a solid run, and we wouldn't be surprised to see a retreat back below 1.17 this week before the next leg higher.

However, the charts can tell us only so much in a week that will be dominated by important data releases.

Euro-dollar will react to the outcome of Tuesday's Eurozone PMI figures for December, which are expected to confirm the bloc's economy maintained positive momentum into year-end.

The Eurozone services PMI is expected to come in at 53.3, while manufacturing's recovery is anticipated to be confirmed by another tick higher to 49.9, leaving it on the cusp of returning to growth territory.

Strong data will be consistent with no need for further interest rate cuts at the European Central Bank. In fact, an above-consensus PMI would encourage the steady creep higher in bets that the next move will be a hike.

Yet, it will be the U.S. Dollar that will drive EUR/USD this week; the release of U.S. labour market numbers is the highlight for global financial markets; recall these releases were delayed by the U.S. government shutdown, which means they will fill a notable gap in the data.

The November payrolls data are released Tuesday, where expectations are for an increase in jobs of 50K and a fall in the unemployment rate to 4.4%.

Should the numbers undershoot, the market will ramp up bets for Fed rate cuts in 2026, which will weigh on U.S. yields and on the dollar.

However, should the data beat expectations, those rate cut bets will recede and the dollar can jump and potentially extend gains over the remainder of the week, setting EUR/USD's rally back.

Keep an eye out for U.S. retail sales, also due Tuesday, which should give an indication of how demand in the economy is holding up. Here the figure to beat is 0.2% m/m for October.

Thursday brings U.S. CPI inflation data, where the expectation is for an uptick to 3.1% y/y in November, up from 3.0%.

This is clearly heading in the wrong direction for the Fed, and an above-consensus figure would question market expectations for rate reductions next year, helping the dollar in the process.

Source: Poundsterlinglive

To stay updated on all economic events of today, please check out our Economic calendar

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Gerik

Economic

Stocks

AI Boom Enters Reality Check as Spending Surges and Returns Lag

Three years after ChatGPT launched the AI frenzy, investor euphoria is giving way to deeper scrutiny. While money continues to flow into artificial intelligence ventures at record pace, Wall Street is becoming increasingly cautious about the sector’s financial sustainability and long-term payoff. At the center of this shift is a growing divergence between high capital expenditures and slowing earnings growth, creating the conditions for what many see as a potential inflection point in the AI trade.

Key stocks that have been the bedrock of the AI boom including Nvidia, Oracle, and others linked to OpenAI’s ecosystem have begun to lose steam. Nvidia’s recent pullback, Oracle’s sharp correction after disappointing cloud metrics, and ballooning expenditures across Big Tech have all signaled that the sector’s meteoric run may be approaching its limits.

Capital Access and Circular Financing Raise Structural Concerns

At the heart of Wall Street’s worry is whether the trillions poured into AI infrastructure can generate sustainable cash flows. OpenAI alone plans to spend $1.4 trillion in the years ahead but may not turn cash-flow positive until 2030. Nvidia, which has committed to funding some of its customers, is facing concerns about circular financing where chipmakers are funneling capital to clients that in turn use it to buy more chips.

If investor confidence in OpenAI’s financial trajectory falters, the consequences could cascade across the broader ecosystem, affecting firms such as CoreWeave and others reliant on external funding. Oracle, which raised tens of billions through bond issuances to finance AI infrastructure, faces rising credit risk, with its debt spreads recently hitting the highest level since 2009.

These developments highlight a structural fragility beneath the AI boom: many players depend heavily on external capital and could face pressure if market conditions tighten or sentiment shifts.

Big Tech Spending Explodes but Cash Flow Growth Slows

The top four cloud and AI giants Alphabet, Microsoft, Amazon, and Meta are projected to spend over $400 billion on capital expenditures in the next year, primarily on data centers. However, revenue growth is not keeping pace. For example, depreciation expenses from AI infrastructure have soared: Alphabet, Microsoft, and Meta reported $22 billion in depreciation in Q3 2025, up from $10 billion a year earlier, and this figure could hit $30 billion by Q3 2026.

This expenditure surge risks undermining the free cash flow strength that traditionally underpinned Big Tech valuations. According to Bloomberg data, Meta and Microsoft are projected to run negative free cash flows in 2026 after accounting for shareholder returns, while Alphabet is expected to merely break even.

As a result, companies that once generated high-margin, low-capex revenue are now operating under a new capital-heavy model. This pivot could compress valuation multiples unless AI-driven revenue ramps up quickly something that is still uncertain.

Investor Psychology and the Risk of a Sentiment Shift

Despite these headwinds, current valuations are still far from dot-com era extremes. The Nasdaq 100 trades at 26 times forward earnings, compared to over 80 times during the 2000 tech bubble. The Magnificent Seven’s earnings are forecast to grow 18% in 2026, slower than previous years but still outpacing the broader market.

Yet pockets of speculative excess exist. Companies like Palantir and Snowflake are trading at over 100x projected profits, raising red flags for value-oriented investors. Meanwhile, AI giants like Nvidia and Microsoft remain more reasonably priced but the risk lies not in current multiples, but in any shift in growth trajectories.

As Eric Clark of the Rational Dynamic Brands Fund noted, capital is heavily concentrated in a narrow group of names. If sentiment breaks, the exodus could be swift. Analysts warn that it may not take a dramatic crash to trigger a re-rating merely a plateau in earnings growth could be enough to cause a sector rotation.

A Rotation, Not a Collapse, May Define AI’s Next Phase

Wall Street is not forecasting a sudden collapse in AI valuations. Instead, what appears to be taking shape is a rational recalibration. Investors are beginning to differentiate between firms with durable business models and those riding hype without delivering monetization. Companies with negative cash flows and high dependency on debt may be most exposed.

As AI infrastructure spending continues to climb, the debate in 2026 will focus on timing: When does investment translate into profit? If revenues do not begin to justify the costs, valuations could compress and capital could shift toward more balanced growth opportunities.

The AI trade, it seems, is entering its “prove-it” phase. Whether this results in a rotation or a reckoning will depend on how quickly the sector delivers real, scalable returns. For now, the mood is shifting from blind belief to cautious evaluation and markets are preparing accordingly.

Source: Bloomberg

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Glendon

Forex

Economic

Tariffs have re‑emerged as a central pillar of U.S. trade policy. While the policy aims to reshape global trade and support domestic industries, early signs indicate falling revenue, rising costs, and growing legal risks. Economic and financial indicators now suggest mounting pressure across multiple sectors. This article presents the analysis of recent U.S. tariff actions, refund risks, and trade policy shifts, including the implications of the Trump-era trade measures.

Tariff Revenue Drops Despite Ongoing Support

At a recent rally in Pennsylvania, President Trump expressed strong support for the use of tariffs. However, after lifting tariffs on items such as coffee, oranges, and cocoa, monthly tariff revenue declined from $31.35 billion in October to $30.76 billion in November. This marked the first monthly drop since the reimplementation of broad-based duties.

Since the start of his tariff policy, multiple proposals have been discussed regarding how the revenue could be used. These range from issuing direct payments to households to offsetting recent tax adjustments. However, these plans remain unconfirmed and have not been implemented.

Supreme Court May Overturn Tariffs and Trigger Refunds

Moreover, looming over the tariff debate is a Supreme Court case that could strike down most of the tariffs introduced under the Trump administration. If the court rules against them, the government may owe businesses up to $100 billion in refunds.

Several companies, including major retailers like Costco, have already filed lawsuits seeking repayment. They argue that the use of emergency powers under the IEEPA law may be found unlawful.

If the court agrees, it could challenge the legal basis of the tariffs and potentially increase the federal government's debt burden.

Agriculture Bears the Brunt of Tariff Fallout

On the other hand, tariffs had a significant impact on U.S. farmers. During the early phase of the trade conflict, China halted purchases of American soybeans, causing prices to collapse and exports to slow.

In response, the administration announced a $12 billion bailout for the agricultural sector, stating that tariff revenue would fund the program. While farmers accepted the aid, many noted it fell short of addressing long-term challenges related to lost market access and profitability.

In recent months, policymakers introduced additional carveouts, including tariff reductions on beef, coffee, and bananas. These changes suggest increasing pressure on the tariff policy, highlighting how certain industries and consumers have been negatively affected.

Tariffs Drive Higher Consumer Costs

Recent statements acknowledge that tariffs impose costs on domestic consumers. Independent estimates suggest that the average U.S. household has paid around $1,200 more as a result of these duties, adding pressure during a period of elevated inflation.

In practice, tariffs increase import costs for U.S. companies, which are often passed on to consumers through higher prices. This dynamic can reduce demand, strain household budgets, and weigh on overall economic activity.

Global Trade Uncertainty Meets Rising Financial Stress

Trade risks now extend beyond China. The U.S.-Indonesia trade deal faces uncertainty, with reports citing Jakarta's failure to meet certain commitments. If the agreement collapses, it could weaken broader trade objectives.

At the same time, U.S. officials approved chipmaker Nvidia to sell high-performance H200 chips to China. This move reflects a shift toward a more flexible and adaptive trade policy. In my view, it represents a pragmatic adjustment that strikes a balance between economic priorities and broader strategic interests.

The policy direction eases earlier restrictions. It also creates uncertainty over how national security concerns are balanced against the benefits of trade. This evolving approach underscores the complexity of modern trade policy, where economic competitiveness and security considerations must often be reconciled.

Beyond tariffs, broader financial indicators show warning signs. Unemployment claims dropped sharply. However, this decline might be due to seasonal distortions rather than genuine improvement.

The Chicago Fed National Financial Conditions Index fell to -0.546, indicating loose monetary conditions. While easy money supports elevated stock prices, it also increases the risk of asset bubbles.

Conclusion: U.S. Trade Policy Faces Mounting Pressure

The Trump trade war represents a high-stakes shift in U.S. trade strategy with broad economic consequences. Tariff revenue is declining, legal refund risks are increasing, and key industries, such as agriculture, continue to face pressure. Households are paying more, and financial markets are showing signs of stress. As trade relationships evolve and new policy adjustments emerge, the future direction of U.S. trade strategy remains uncertain and increasingly complex.

Source: FX Empire

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Justin

Forex

Economic

Switzerland lifted the growth outlook for next year on the back of its trade deal with the US, while lowering expectations on inflation after the central bank refrained from further easing.

The State Secretariat for Economic Affairs sees gross domestic product adjusted for large sports events expanding 1.1% in 2026, up from its September projection of 0.9%. That almost matches the growth seen before outsized American tariffs took effect. In its first estimate for the year after, the agency known as SECO penciled in 1.7%.

"Despite some easing of tensions, uncertainty remains high regarding international economic and trade policy and its macroeconomic impact," SECO said in a statement on Monday, citing tariffs, financial and real estate markets, sovereign debt and geopolitics. "Should any of these risks materialize, further upward pressure on the Swiss franc would be expected."

The authority, which is in charge of drawing up economic forecasts for the Swiss government, now expects consumer prices to rise by just 0.2% next year, down from 0.5% previously predicted, before accelerating to 0.5% in 2027.

The inflation outlook is even weaker than projections given by the Swiss National Bank after it decided to keep interest rates at zero on Thursday — the second meeting in a row to see officials hold off on changing policy. A rate cut would mean the reintroduction of negative borrowing costs, a move that policymakers have said faces a higher bar than a conventional reduction. Most analysts think rates won't go any lower in this cycle.

The resolution of its tariff spat with the US is widely expected to return Switzerland to a path of stable growth, after the economy suffered its first quarterly contraction since 2023 in the July-September period. Donald Trump's administration imposed a shock 39% levy on many Swiss exports in August, but both nations reached a preliminary trade agreement reducing surcharges to 15% in November.

Source: Bloomberg Europe

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Gerik

Political

Russia-Ukraine Conflict

Kyiv Makes Landmark Concession in Pursuit of Peace

Ukraine has announced a readiness to relinquish its long-held aspiration of joining NATO, proposing instead a framework of bilateral security guarantees with major allies such as the U.S., the EU, Canada, and Japan. The offer was made during high-level negotiations in Berlin between President Volodymyr Zelenskyy and U.S. officials Steve Witkoff and Jared Kushner. Talks are set to continue, with Zelenskyy describing the move as a “compromise” intended to break a diplomatic deadlock and reduce the risk of renewed aggression from Russia.

This announcement represents a significant pivot for Kyiv, which for years maintained NATO membership as a cornerstone of its national security policy. Despite widespread public support in Ukraine for alliance membership and years of cooperation with NATO forces, full integration has remained elusive due in large part to concerns among member states about direct confrontation with Russia and Moscow’s persistent threats.

From Collective Defense to Conditional Security Guarantees

Zelenskyy acknowledged that NATO accession would have provided Ukraine with the collective defense protections enshrined in Article 5 of the NATO treaty. However, opposition from some key Western allies, including Hungary and Slovakia, as well as a broader fear of escalating the conflict with Russia, have rendered the bid politically untenable. In this context, Ukraine is now seeking a new form of binding bilateral defense arrangements to act as a deterrent.

Specifically, Kyiv is proposing Article 5–like guarantees from the United States and similar security commitments from European and Pacific partners. These would be designed to ensure that any future aggression from Russia is met with coordinated international response, even in the absence of NATO membership. Zelenskyy emphasized that these guarantees must be part of any final peace agreement, making them a non-negotiable demand in ongoing discussions with Moscow.

Russia’s Red Lines and the Shifting Negotiation Landscape

Moscow has long framed NATO expansion as a direct threat to its security and cited Ukraine’s alignment with the West as a primary justification for its 2022 invasion. The Kremlin’s firm opposition to Ukrainian NATO membership has been echoed by pro-Russian voices in Europe and remains a central issue in peace negotiations.

The abandonment of the NATO bid could be interpreted as a strategic move by Kyiv to remove what has been a persistent sticking point in negotiations. However, Russia continues to oppose the presence of Western forces on Ukrainian soil under any security framework, even those outside NATO. This makes Ukraine’s demand for Western-backed guarantees a complex issue to resolve, particularly if it involves foreign military support or peacekeeping operations.

Compromise, But No Capitulation

Zelenskyy’s comments suggest the decision is driven more by realism than defeatism. Despite recognizing the geopolitical limitations of NATO membership, he maintains that Ukraine will not settle for vague promises. The country’s demand for enforceable guarantees reflects both a distrust of Russia’s intentions and a need to assure its population and armed forces that any peace deal will not expose Ukraine to future invasions.

The decision also signals a tactical shift in how Ukraine hopes to secure Western commitment over the long term focusing less on institutional inclusion and more on tailored bilateral arrangements. These may resemble mutual defense clauses found in U.S. security partnerships with non-NATO allies, a model that could offer a flexible but credible deterrent.

Peace Talks Continue Under Tight Diplomatic Pressure

Peace talks between Ukrainian and Russian delegations resumed Monday, though key issues remain unresolved. According to reports, Russia is still resisting the involvement of Ukraine’s allies in any post-war peacekeeping or stabilization roles an issue likely to complicate any agreement that includes Western security guarantees.

Zelenskyy has pledged to comment on the negotiations after the latest round concludes. Until then, the focus will be on whether Ukraine’s shift away from NATO, though significant, is enough to unlock progress in a stalled diplomatic process. What is clear, however, is that the cost of compromise for Kyiv is high but potentially necessary to end a war that has stretched into its fourth year.

Ukraine’s willingness to forgo NATO membership marks a profound shift in its security doctrine and a strategic gamble aimed at reshaping the contours of a potential peace agreement. While this pivot may reduce friction in negotiations, it introduces a new set of challenges centered around the credibility and enforceability of alternative security guarantees. The success of this strategy will depend not only on Russia’s reaction, but on the political will of Kyiv’s allies to commit to robust, long-term defense arrangements outside the traditional NATO framework. As the war enters a critical juncture, the geopolitical future of Ukraine is once again being rewritten this time, through compromise rather than confrontation.

Source: CNBC

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Michelle

Stocks

Technical Analysis

Trading on 12 December was overshadowed by a sharp decline in the S&P 500 (US SPX 500 mini on FXOpen), with the session low approaching December's previous trough.

Among the key fundamental drivers behind Friday's drop was the market reaction to Broadcom's quarterly report. Shares (AVGO) plunged more than 10%, possibly as investors aggressively took profits in tech stocks, concerned that the AI hype may be overheated.

A review of the 4-hour chart of the S&P 500 (US SPX 500 mini on FXOpen) suggests that Friday's negative sentiment may have begun to ease, as the index is now recovering. Overall, this presents an interesting picture from a price-action perspective.

Technical Analysis of the S&P 500 Chart

Five days ago, we noted that an ascending channel had formed in early December, which could be interpreted as cautious optimism ahead of key news.

However, Fed-related announcements triggered a surge in volatility (as we described, "the calm before the storm"), pushing prices beyond both boundaries of the blue channel:

→ The failure to hold above the upper boundary can be seen as bulls lacking confidence to challenge the all-time high. The false break around 6929 looks like a trader trap.

→ Conversely, bears may have been unable to suppress buying near Friday's low, as indicated by the long lower wicks on the candles (highlighted by the arrow).

The chart now shows a complex Megaphone pattern (marked A–F).

It is possible that the coming week will be characterised by consolidation following Wednesday–Friday's swings, with market sentiment increasingly influenced by the approaching holiday period.