U.K. Economy Unexpectedly Contracted in October; GDP Dropped 0.1%

A High-Priced Path to Citizenship for the Global Elite

Legal Ambiguities Undermine Policy Certainty

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High-Profile Rollout, Unclear Impact

Source: Reuters

The RBA's decision to leave the cash rate unchanged came as no surprise to the market, but the focus was always going to be on the RBA's take on the recent dataflow.

In the event, the Monetary Policy Board conceded that part of the recent lift in underlying inflation "may be persistent", but also that some was due to "temporary factors". On activity, "private demand has strengthened, driven by both consumption and investment", and, if it were to persist, would "likely add to capacity pressures". Though the "risks to inflation have tilted to the upside" in the RBA's view, they do not appear to be in any rush to pre-emptively react to these risks, noting that "it will take a little longer to assess the persistence of inflationary pressures."

Underlying the RBA's assessment on the balance of risks is a somewhat more pessimistic view on supply capacity which, in the context of an economic upswing, begets a more hawkish tone around the inflation outlook. Our view on productivity, population and participation is more constructive, implying that the economy can handle a higher rate of growth without sparking excessive inflation. As temporary factors wash out, inflation should resume its trajectory toward the mid-point of the target range, providing scope to deliver two more rate cuts next year. If inflation dynamics take longer to normalise, the risk is that the cash rate could remain on hold for longer than our current base case.

Developments around the labour market will also be key for policy hence. The data continues to speak to a gradual softening as jobs growth across broad industry segments normalises. The November update revealed a decline in employment (–21.3k) which was 'cushioned' by an unexpected fall in the participation rate, resulting in the unemployment rate holding steady at 4.3%. We expect a bit more slack to open up over the next year, putting a lid on any upside risks to inflation stemming from the labour market.

Before moving offshore, a final note on business. The latest NAB business survey indicated that business conditions remained positive and generally steady around long-run average levels in November, notwithstanding a small decline. Business confidence was a little shakier in the month, but a more constructive picture around forward orders has allowed businesses to remain cautiously optimistic. As evidence of a sustained recovery continues to build, businesses will be able to expand capacity with a greater degree of confidence.

In the US, the FOMC cut the fed funds rate by 25bps to 3.625% at their December meeting but maintained its projection of only one further cut in 2026 and another in 2027, reaching a broadly neutral rate of 3.125% by end-2027. This cautious approach reflects expectations of above-trend growth through 2028, supported by real income gains and AI-driven infrastructure investment, seeing the unemployment rate ease back to 4.2%.

Inflation is only forecast to decline gradually from 3.0% in 2025 to 2.0% by 2028, implying moderately restrictive policy will achieve the dual mandate, eventually. We anticipate capacity constraints and persistent inflation risks will limit further easing by the FOMC to just one more cut, which is most likely to be seen in Q1 2026 before inflation proves more persistent than the Committee currently expects. The fed funds rate on hold at 3.375% with persistent inflation risks is likely to bias up long-term yields, particularly amid elevated fiscal uncertainty.

The Bank of Canada subsequently kept rates steady at 2.25%, maintaining an accommodative stance to support the economy as it navigates excess capacity and trade uncertainty. The Governing Council remain confident inflation will remain at target with the inflation rate having held close to their target of 2.0% for over a year and excess capacity and softer wage growth likely to offset any upside risk to consumer prices from trade. The labour market has strengthened in recent months but still remains weak compared to where it was prior to the pandemic.

In China meanwhile, consumer inflation accelerated to 0.7%yr in November as producer prices deflation became more even entrenched, with prices down 2.2%yr. The rise in consumer prices reflects increases in the cost of food and gold jewellery versus demand-led inflation which there is little-to-no evidence of. Further support centred on household consumption should broaden consumer inflation through 2026.

Producer prices are unlikely to sustainably grow until capacity tightens, however. This could be a long way off. 'Anti-involution' policies champion profitability, but this does not preclude new more productive supply being invested in to replace old ineffective capacity or to meet demand for new goods and services. Price declines and profitability can therefore co-exist sustainably.

Source: Westpac Banking Corporation

Leaders Reconnect as Trade Negotiations Regain Momentum

Diplomatic Activity Intensifies Ahead of Deal Deadline

Strategic Interests and External Pressures Complicate Progress

Trade Accord Within Reach, But Fragility Persists

Source: Bloomberg

Economists predict the next shift in European Central Bank interest rates will be up, aligning with the views of investors and influential Executive Board member Isabel Schnabel as inflation settles around 2%.

More than 60% of respondents in a Bloomberg survey say officials are more likely to raise borrowing costs than lower them — a meaningful change from October, when only a third shared that outlook.

It's not something they expect to happen anytime soon, however: The deposit rate is seen remaining at 2% on Dec. 18 and throughout the next two years.

Analysts are revising their forecasts after inflation stabilized and the euro zone's economy weathered global trade stress and geopolitical upheaval surprisingly well.

In an interview, Schnabel cited such resilience — and rosier prospects, helped by a glut of government spending — among reasons why she's "rather comfortable" with wagers for rates to rise next. One gauge points to a first increase in the latter half of 2027.

Most Governing Council members say simply that rates are in a "good place" for the time being. For President Christine Lagarde, the task will be to reflect their confidence that dangers to the economy are waning without encouraging the idea that hikes are getting close, according to Jan von Gerich, chief strategist at Nordea. That's an opinion shared by others.

"The biggest challenge is one of communication, particularly against a backdrop of rapidly-evolving market expectations," said Paul Hollingsworth, chief European economist at BNP Paribas.

Hollingsworth and von Gerich both forecast quarter-point hikes in September and December 2027. Were traders to bet on more rapid action, tighter financing conditions would pose a headwind for the economy — just as it's expected to pick up.

Indeed, survey respondents reckon next week's new quarterly projections from the ECB will paint a brighter picture for growth — something Lagarde herself has also suggested.

On inflation, concerns linger about 2027, when a holdup in the European Union's new carbon-pricing system could weigh. Most economists, though, expect a September forecast for prices to rise 1.9% that year to be maintained.

Eyes will then shift to 2028 — the first time it will feature in the outlook. The poll indicates a figure just above the ECB's 2% goal, leaving almost two-thirds of analysts more worried about an overshoot of the medium-term target than an undershoot.

Even those who think price pressures will be materially weaker in three years don't consider them soft enough alone to trigger another decrease in borrowing costs.

"The ECB should feel rates are properly set at present as inflation risks are comparatively balanced," Scope economist Dennis Shen said. "We don't expect any rate reductions in 2026, but the ECB will keep its options open."

One reason to remain flexible, according to Shen, is the potential for more US cuts next year. The Federal Reserve eased for a third straight meeting this week and may lower once more in 2026. Kevin Hassett, the frontrunner to replace Chair Jerome Powell, sees "plenty of room" for more substantial moves, however.

US policy — monetary as well as trade — is still deemed the most acute threat to the euro area, with the war in Ukraine remaining a big concern.

Against that backdrop, Swedbank's Chief Economist Nerijus Maciulis foresees one more cut by the ECB in March, arguing that bullishness on the region's growth prospects "rests on flimsy foundations."

"Unless we are talking about hiking down the well-trodden scenic Alpine paths, Governing Council members are unlikely to hike any time soon," he said.

About 45% of respondents, though, say economic growth is predominantly restrained by structural forces beyond the ECB's control. These include sluggish manufacturing amid stiffer competition from China, costly energy and excessive bureaucracy.

Nearly half say those hurdles are just as strong as cyclical drags, illustrating why policymakers are expected to show patience before considering more rate cuts — even if growth and inflation disappoint.

"Monetary policy can't solve structural growth problems," said ING's Carsten Brzeski, who sees officials standing pat at least through 2027. "A 25 basis-point rate cut by the ECB won't make the German automotive industry more competitive vis-a-vis China."

Source: Bloomberg Europe

Heightened Oversight of Proxy Advisory Industry

A Political Campaign Against ESG Influence

Institutional Resistance and Legal Complications

Strategic Shifts Within Proxy Firms

A Turning Point for Proxy Governance in the U.S.

Source: Reuters

Former Prime Minister Theresa May suggested the threat to her Conservative Party posed by the poll-leading Reform UK is over-egged, saying that while Nigel Farage's outfit "makes a lot of noise," plenty can change before the next election.

Speaking on Bloomberg's Leaders with Francine Lacqua show, May pointed to Reform only having five of the 650 Members of Parliament, and said the party's economic policies are "all over the place."

"The only poll that ever counts is the general election," said May, who served as prime minister from 2016 to 2019. "It's all very well doing well in opinion polls this far out from a general election, but when it comes to it, people want to ask who should be in government? Critical to that will be the economy."

May's remarks will be seen as a call for the Conservatives to avoid the pull of Reform's populism and instead stake out the center ground of UK politics at a time when Labour Prime Minister Keir Starmer is tacking to the left with higher taxes and public spending.

"They are forgetting some of the fundamentals of growth," May said in the wider interview, pointing to the current government's move last year to hike payroll taxes for employers. "I think they don't understand business."

The Tories may take May's views on electoral strategy with a pinch of salt, given her decision to call a snap election in 2017 backfired spectacularly. She had hoped to increase her slim majority to strengthen her hand as she negotiated a Brexit deal, but ended up losing her Parliamentary advantage altogether and being forced to rely on the support of Northern Ireland's Democratic Unionist Party in order to govern.

Still, the former premier — who's now a member of the House of Lords — said "there's always a role for a center, center-right party" such as the Conservatives, and gave words of encouragement for the current Tory leader, Kemi Badenoch, who after a rocky start delivered a well-received speech at the party's annual conference in October.

"She's doing well in what is the most difficult job in politics," May said, referring to the role of leader of the opposition.

Asked about the Tory prime ministers that followed her, May appeared to take a swipe at her immediate successor, Boris Johnson, and the premier who replaced him, Liz Truss. Johnson was eventually forced out of his office by his own party following the Partygate scandal involving lockdown-breaking gatherings during the pandemic, while Truss lasted just 7 weeks in power after the financial markets rejected her disastrous so-called mini-budget.

"Unfortunately as a Conservative Party we seem to have lost our value of integrity and our economic competence," May said.

May's own premiership was defined by her struggle to find a path to Brexit which pleased the Eurosceptic and remain elements of her party. She said that her biggest regret was not getting a deal passed — before reflecting that the need to devote time to other foreign affairs issues may have hampered her efforts.

"You do have to spend quite a bit of time on foreign policy" as prime minister, May said. "It perhaps doesn't leave as much time for being with your colleagues in Parliament," she said, adding that "I wonder whether if I'd been able to spend more time with them, we would've had a different result."

While she didn't mention Starmer, those words could be applied to the current premier, who's been dubbed "Never Here Keir" by British media for the amount of time he spends abroad, having racked up dozens of overseas visits since coming to power in July 2024.

Starmer on Wednesday batted away implicit criticism of his travels from a Tory lawmaker as a "load of nonsense," pointing out that his engagement with foreign leaders had yielded progress on trade with the US, India and EU and was necessary at a "critical stage" of talks to end the conflict in Ukraine.

May said that ultimately, the issue that's likely to determine the next general election, due in mid-2029, is the economy. Reform has led the national polls since April, with Labour and the Tories — the two parties that have dominated British politics for a century — around 10 points adrift and struggling to close the gap.

May said she worries that in this increasingly "polarized world" politicians are losing the ability to compromise which she sees as central to government. She attributed the rise of populist parties such as Farage's in part to social media, which she said made politicians "feel they've got to be talking about what they're doing the whole time, putting it out there."

"The trouble with that is it means it focuses it much more on them rather than on what the overall good is, what they're trying to achieve," she said. "In government, you don't just deliver by snapping your fingers."

Source: Bloomberg Europe