U.S. Stocks Hit New Highs as Investors Rotate Out of Tech Amid AI Uncertainty

Economic

Stocks

Summary:

The S&P 500 and Dow Jones closed at record highs as market participants shifted away from tech stocks following disappointing earnings and guidance from Oracle and Broadcom...

Stock Market Soars While Tech Sector Shows Cracks

U.S. equities rallied on Thursday, with the S&P 500 and Dow Jones Industrial Average reaching fresh record highs. The Russell 2000 also climbed to a new peak, signaling renewed optimism across small-cap stocks following the Federal Reserve’s decision to cut interest rates by 25 basis points on Wednesday. This rate adjustment is expected to support broader economic activity into year-end.

Yet, the Nasdaq Composite failed to join the rally, declining 0.26% due to weakness in high-profile tech names. Oracle led the losses, with shares tumbling nearly 11% after the company posted weak quarterly revenue and disclosed rising capital expenditures and lease obligations. This triggered broader skepticism around the AI growth narrative, dragging down other key players like Nvidia and Micron.

Broadcom Beats But Market Reacts to Strategic Uncertainty

Chipmaker Broadcom also reported fourth-quarter earnings and revenue that surpassed analyst estimates, along with confirmation that AI firm Anthropic is now a $10 billion customer. Despite strong financials and a doubling in net income from a year ago, Broadcom's stock dropped 4.5% in extended trading. Investors were unsettled by comments from CEO Hock Tan, who failed to ease concerns over Google’s potential pivot to in-house chip design and the uncertain terms of Broadcom’s AI-related contract with OpenAI.

Rising memory prices also surfaced as a margin threat for the company, compounding worries about profitability in the next fiscal year. These developments underline a growing trend where top-line growth in the AI space is being met with skepticism about sustainability and earnings leverage.

Sector Rotation Signals Broader Market Strength

While the tech sector faltered, investors poured into other industries. The S&P 500 financials sector, for instance, reached a new high, driven by strong performance in Visa and Mastercard. This reflects a healthy rotation into value and cyclical stocks, supported by the perception that the U.S. economy remains resilient under a lower rate regime.

The Fed’s dovish move has helped boost investor sentiment, providing momentum for risk-on positioning across various asset classes. Despite concerns about the AI sector, the broader market appears poised for a bullish end to the year assuming no major economic or geopolitical shocks intervene.

Corporate Headlines: Disney, Reddit, and Oracle

Disney announced a $1 billion investment in OpenAI and will license its iconic characters to Sora, OpenAI’s video generation platform. CEO Bob Iger framed the deal as a forward-looking play on content innovation, marking a major convergence between entertainment and generative AI.

Meanwhile, Reddit has launched a legal challenge against Australia’s recent social media ban for users under 16, arguing that the law infringes on freedom of political communication. The challenge could set a precedent for how digital rights are interpreted in age-restricted internet access laws.

Finally, Oracle’s future remains in question after its latest earnings report sparked a sell-off. Analysts are re-evaluating their price targets, citing concerns about its long-term AI strategy and high operational costs. The company’s recent investments have yet to translate into the kind of growth or clarity seen from AI peers like Microsoft or Nvidia.

Diverging Paths Define Year-End Market Narrative

The contrasting performances of traditional and tech stocks highlight an important inflection point. While AI and big tech have led markets for most of 2025, recent earnings disappointments are prompting a reassessment. Investors are increasingly seeking value in sectors with clearer profitability profiles as economic data stabilizes and monetary policy shifts to support.

With the Fed’s support now firmly in place and economic indicators showing resilience, market rotation rather than retreat appears to be the prevailing strategy heading into the holiday season. However, the future of AI-linked valuations and the ability of tech firms to meet elevated expectations will remain key themes into early 2026.

Source: CNBC

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Gerik

Economic

Economic Contraction Undermines Growth Optimism Before Budget

New data from the UK’s Office for National Statistics revealed that GDP contracted by 0.1% between August and October 2025, reversing the modest 0.1% growth recorded in the previous quarter. Economists had forecast flat growth, but the contraction suggests deeper underlying weaknesses in the UK economy as it entered the critical budget season.

The drop was driven by stagnating services output normally a core driver of the UK economy along with declines in construction and production. Output in construction fell 0.3%, while production shrank 0.5%, largely due to a steep drop in vehicle manufacturing. These figures reinforce the challenges facing the Chancellor as she introduced her budget last month, seeking to boost growth while addressing fiscal pressures.

Reeves’ Budget Amid Economic Slump and Structural Pressures

Chancellor Rachel Reeves’ Budget, unveiled in November, included a series of tax hikes aimed at addressing a looming fiscal shortfall. The government is attempting to rein in public debt while stimulating growth a policy balancing act made more difficult by the latest GDP figures.

Lindsay James, investment strategist at Quilter, described the GDP contraction as evidence of the “difficulty the UK economy is going through as the government searches for some sort of growth.” She warned that October’s figures fall short of already modest expectations, casting doubt on near-term economic momentum.

This contraction also comes amid continued uncertainty over policy direction and questions over the economy’s resilience in the face of global supply chain pressures, high interest rates, and weak consumer confidence.

Monetary Policy Outlook: Pressure Mounts for Rate Cut

The data adds urgency to the Bank of England’s upcoming monetary policy decision. The central bank’s Monetary Policy Committee is set to meet on December 18, and financial markets now widely anticipate a quarter-point rate cut to 3.75%, following months of elevated rates to combat inflation.

While inflation has been cooling, the persistence of price pressures may constrain the Bank’s ability to lower rates aggressively. As Quilter’s James notes, “The pace at which subsequent cuts can be delivered remains questionable.” The contraction may tip the scales toward a more dovish stance, but policymakers must tread carefully to avoid rekindling inflation.

Yael Selfin, chief economist at KPMG UK, echoed these sentiments, predicting weak growth through the end of 2025. She warned that continued uncertainty over government policy and lingering Budget aftershocks could suppress business and consumer activity into the final quarter. As a result, flat GDP growth is expected for Q4, reinforcing the view that the UK economy is stagnating rather than recovering.

Weak Growth, Policy Dilemmas, and Rising Risks

The UK's unexpected GDP contraction highlights the fragility of its recovery and the complexity of the government’s fiscal and monetary balancing act. As Chancellor Reeves rolls out a Budget focused on stability and long-term investment, the immediate data underscores just how little momentum the economy has to build upon.

With structural challenges ranging from industrial output weakness to services stagnation still unresolved, and with political and fiscal credibility on the line, the coming months will be pivotal. The Bank of England’s rate decision will be closely watched for signs of flexibility in response to a deteriorating outlook. Yet any policy support will need to be weighed carefully against the risk of derailing inflation progress, leaving the UK economy in a precarious position as 2025 draws to a close.

Source: CNBC

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Gerik

Economic

Dissolution of Parliament Marks Escalation in Political and Regional Tensions

Thailand’s King Maha Vajiralongkorn has approved Prime Minister Anutin Charnvirakul’s request to dissolve parliament, triggering snap elections within 45 to 60 days. The move follows a failed negotiation between Anutin’s minority government and the opposition People’s Party over constitutional reforms. In a statement, Anutin said the government would “return power to the people,” though critics suggest the move is as much a strategic reset for his Bhumjaithai Party as it is a concession to political gridlock.

The dissolution comes at a critical moment as border hostilities with Cambodia have intensified. Clashes have reportedly killed at least 20 people and injured many more, collapsing a ceasefire initially brokered by the Trump administration in July. While Anutin has insisted the military's operations at the border will continue unaffected, the timing of the election and deteriorating diplomatic ties may complicate both military and political strategies going forward.

U.S. Diplomacy at Risk Amid Strategic Ceasefire Collapse

The breakdown of the Thailand-Cambodia ceasefire carries reputational risks for President Donald Trump, who has taken personal credit for brokering the truce. A scheduled call between Trump and the leaders of both countries aims to defuse tensions and salvage the agreement, with Trump expected to pressure both sides to restore dialogue or risk trade consequences.

Senior economists warn that any perception of Thai non-compliance could result in U.S. retaliation. Gareth Leather of Capital Economics emphasized that Washington may reintroduce punitive tariffs if Thailand is seen as undermining a truce that Trump has touted as a foreign policy success. Given the U.S.’s leverage over regional trade and investment talks, Thailand’s diplomatic stance could directly impact its economic outlook.

Economic Fallout: Weak Growth and Trade Disruption Loom

Thailand’s political turbulence comes as the economy grapples with stagnation. The nation recorded just 1.2% GDP growth in Q3 2025, with economists already revising 2026 forecasts downward to as low as 1.6%, citing political instability, border disruptions, and uncertainty around U.S. trade policy.

A key concern is the economic fallout from severed trade ties with Cambodia. Cambodia was Thailand’s 11th-largest export market in 2024, contributing approximately 3% of total exports, largely in petroleum products. In October 2025, Thai exports to Cambodia fell a staggering 67% year-over-year due to border closures. While some exports, like oil, can be redirected to other markets, the broader collapse of bilateral trade poses medium-term risks.

Oxford Economics’ Alexandra Hermann warned that the economic hit could be compounded by a mass exodus of Cambodian migrant workers estimated between 500,000 and 1.5 million who are critical to sectors such as construction, agriculture, and services in Thailand. With a domestic labor force of around 40 million, such a loss could cause notable productivity declines in 2026.

Anutin’s Strategy: Nationalism and Military Posturing Ahead of Elections

Anutin, who came to power in September after former PM Paetongtarn Shinawatra was removed for ethical violations tied to the Cambodian dispute, has adopted a more confrontational approach at the border. Analysts suggest this may be aimed at bolstering nationalist sentiment ahead of early elections. His tougher stance could rally conservative voters, but also risks prolonging the conflict with Cambodia and further straining regional diplomacy.

While Anutin has positioned the dissolution as democratic, critics argue it reflects a calculated effort to shift blame for legislative stagnation and consolidate power under the guise of electoral legitimacy. Nonetheless, it may also expose his administration to new opposition attacks, especially if the economic and security situation continues to deteriorate.

Rising Political and Geopolitical Volatility Threatens Thailand’s Near-Term Outlook

The convergence of internal political fragmentation and external military tensions is placing Thailand in a precarious position. With parliament dissolved and border fighting reignited, the country faces the dual burden of governance paralysis and regional conflict. For President Trump, the situation poses both a diplomatic challenge and a test of his administration’s influence in Southeast Asia. For Thailand, the risks are more immediate: eroding investor confidence, deteriorating trade, labor disruptions, and a weakened macroeconomic trajectory heading into 2026.

Unless both domestic and regional conflicts are de-escalated quickly, Thailand’s economic and political outlook may face worsening instability well into the next year.

Source: CNBC

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Blue River

Forex

Economic

The EUR/USD pair rallied sharply to 1.1735 on Friday, propelled by a sustained sell-off in the US dollar. The move followed a widely anticipated Federal Reserve rate cut, which was accompanied by guidance that proved more accommodative than markets had expected.

Chair Jerome Powell explicitly ruled out further rate hikes, and the Fed's updated "dot plot" projections now indicate only one additional cut for 2026 – a more measured path of easing than previously anticipated.

Adding to dollar weakness, the Fed announced it would begin purchasing short-term Treasury bills to bolster banking system liquidity – a measure that pushed Treasury yields lower. This was compounded by economic data showing initial jobless claims rose last week at their fastest pace in nearly four and a half years, reinforcing the case for a more supportive policy stance.

The broader external environment is turning increasingly unfavourable for the greenback. While the Fed signals a slower pace of easing, markets are concurrently pricing in a relatively tighter policy trajectory for central banks in Australia, Canada, and the Eurozone. This divergence has driven the dollar lower against most major currencies this week, with its most pronounced decline coming against the euro.

Technical Analysis: EUR/USD

H4 Chart:

On the H4 chart, EUR/USD exhibits a robust bullish trend, trading near a key resistance zone at 1.1760–1.1780. The pair is holding firmly above the middle Bollinger Band, confirming buyer dominance. The upward slope and gradual widening of the upper band signal rising volatility and sustained momentum following a breakout to new highs.

Provided the price remains above the 1.1709 support, the market retains strong potential to challenge the 1.1780 ceiling. A decisive breakout and close above this zone would open a clear path towards 1.1850. Should a pullback materialise, the nearest significant support lies at 1.1650, the previous breakout point. A break below 1.1547 would be required to signal a deeper correction towards the lower Bollinger Band.

H1 Chart:

On the H1 chart, the pair is consolidating after a powerful impulse wave that targeted the 1.1760–1.1780 resistance area. The current correction is finding initial support at 1.1709, a level from which the latest acceleration originated.

The Stochastic oscillator is declining from overbought territory, increasing the probability of a near-term pause or shallow pullback. Nevertheless, the underlying structure remains bullish, with the price trading above the middle Bollinger Band, which now serves as dynamic support.

A confirmed breakout above 1.1780 would signal a continuation of the uptrend, with subsequent targets at 1.1820 and 1.1850. Conversely, a sustained move below 1.1709 would provide the first technical indication of fading bullish momentum, potentially triggering a correction towards the next demand zone in the 1.1650–1.1620 range.

Conclusion

EUR/USD has broken out decisively on the back of a dovish Fed pivot and a shifting global rate differential. The technical picture is firmly bullish, with the pair now testing a major resistance cluster near 1.1780. A successful breakout above this level would likely accelerate gains towards 1.1850. In the near term, the 1.1709 support is critical; holding above it keeps the immediate upward bias intact, while a break below would suggest a period of consolidation is needed before the next directional move.

Source: ACTIONFOREX

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Gerik

Economic

Record Consolidation Push Meets Mounting Financial Stress

In 2025, China accelerated its unprecedented drive to consolidate its fragmented small banking sector, with over 350 banking licenses revoked by November up sharply from 198 the year prior. This wave of mergers primarily targets the country’s 3,600-plus rural banks and credit cooperatives, which account for about 14% of China’s $58 trillion banking industry. Despite these aggressive moves, newly formed entities appear financially strained, as a Reuters review of 20 regional banks involved in 2024 mergers revealed that 13 saw declining profits or outright losses by mid-2025. Additionally, 14 of these lenders reported deterioration in their capital adequacy ratios.

The results signal that consolidation, while aimed at reducing systemic risk, may be exposing deeper structural issues within China’s small-bank landscape particularly in regions burdened by overleveraged local governments and lingering fallout from the country’s property sector crisis.

Asset Quality Concerns Persist Despite Mergers

At the heart of Beijing’s financial stability concerns lies the vulnerability of rural and city commercial banks, which are disproportionately reliant on short-term interbank borrowing and often lack robust governance or diversified revenue streams. In many cases, regional governments pressured relatively healthier city lenders to absorb “high-risk” rural banks, hoping that scale and integration would stabilize the system. However, data shows the opposite has often occurred: banks that acquired distressed peers are now seeing their own balance sheets weaken.

For instance, Shanxi Bank, backed by the Shanxi provincial government, reported a dramatic 90% profit plunge in 2024 after absorbing four rural banks, alongside a spike in its non-performing loan (NPL) ratio from 1.74% to 2.5%. Similarly, Bank of Dongguan’s profit fell 8.2% after its own acquisitions, and its NPL ratio rose from 0.93% to 1.01%. These figures suggest that the integration process not only failed to restore profitability but may have transferred risk from smaller institutions to mid-sized regional banks.

Structural Fragility and Moral Hazard Undermine Reform Goals

Financial analysts warn that unless underlying bad debts are properly recognized and written off, mergers merely spread risk rather than eliminate it. Xiaoxi Zhang of Gavekal Dragonomics emphasizes that bad loans must be resolved transparently, as bundling troubled assets without restructuring does not strengthen the system’s foundations.

Moreover, local governments who often control or support these banks may be forced to intervene repeatedly, leading to a vicious cycle of public bailouts. Such interventions risk creating moral hazard, with weak institutions relying on state rescues while stronger banks are dragged into distressed asset pools. As one state-owned bank executive noted, many smaller lenders are “just lying down waiting to be rescued.”

The risk is compounded by the fact that rural and city commercial banks remain far more fragile than their national peers. By September 2025, rural banks reported an average NPL ratio of 2.82%, city commercial banks at 1.84%, both substantially higher than the 1.22% reported by national state-owned banks and joint-stock banks.

Policy Ambiguity and Political Tension Cloud Long-Term Impact

While China’s top financial regulator, NFRA chief Li Yunze, has reaffirmed Beijing’s intent to continue systematic restructuring of small and medium-sized financial institutions, clear success metrics remain absent. Despite large-scale consolidations in 2024, including the merger of 290 rural lenders into regional banks, asset quality issues persist. Political pressure for rapid stabilization may have led to premature integrations without adequate risk pricing or restructuring mechanisms.

Additionally, anecdotal evidence suggests that acquiring banks were often given limited discretion, being “guided” to acquire specific troubled banks from local government-approved lists. A loan officer from Jiangsu confirmed that many acquirers discovered significantly worse asset conditions than originally disclosed, undermining the credibility of regulatory risk assessments.

A Costly Band-Aid for a Systemic Wound

China’s sweeping bank consolidation campaign was designed to eliminate fragmentation and mitigate systemic risk. Yet, early evidence indicates that while the quantity of banks has decreased, the quality of financial health has not proportionally improved. The mergers, rather than curing the sector’s ailments, may have merely delayed them pushing distressed assets further up the institutional ladder without resolving their root causes.

The correlation between forced consolidations and worsening balance sheets points to a structural mismatch: cosmetic changes in the number of institutions cannot substitute for deeper capital reform, debt resolution, and governance overhaul. Until Beijing confronts these core vulnerabilities particularly in rural and underdeveloped regions the threat of financial instability will remain, regardless of how many banking licenses are revoked.

Source: Reuters

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ING

Forex

Economic

Some price pressures begin to moderate

Food inflation was marginally below what we had expected, non-food inflation was roughly in line with expectations, while services inflation was slightly higher than we had expected. That said, on the latter in particular, pressures appear to be less broad-based across the category, likely a sign that slower demand and diminishing wage pressures are starting to act on arguably the stickiest part of the consumer basket.

Today's data also offered a fresh look at wage growth evolution, which has shown some minor improvements (4.3% year-on-year in October versus 4.1% in September) but remained visibly below inflation, continuing to be a drag on consumption.

The outlook: marginal upward shift amid mixed risks

The small upside divergences from the past two months led to an upward adjustment in our year-end 2025 forecast from 9.6% to 9.8%. This also means minor upward changes in next year's inflation path. At this stage, our average inflation forecast for 2026 has inched up from 7.1% to 7.2%, with a year-end value of 4.5%, above the National Bank of Romania's 3.7% projection.

Risks to this outlook remain two-sided. On the upside, renewed energy price pressures, particularly gas bills from April 2026, could push inflation higher. On the downside, soft demand and moderating wages are likely to dominate the near-term picture, reducing the risk of second-round effects from the current inflationary upswing. Our commodities team also expects oil and natural gas prices to ease in 2026.

Overall, this inflation episode looks far less intense than the surge that followed the Covid pandemic, as key drivers such as fiscal stimulus, commodity shocks and strong wage growth are absent. This should, in principle, allow the National Bank of Romania to begin reducing interest rates even before inflation starts to print meaningfully lower in 2026, shifting its attention more towards the downside pressures in economic activity. Our base case remains for a first rate cut in May 2026, with a total of 100bp in cuts next year.

Source: ING

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Danske Bank

Stocks

Economic

In focus today

In Sweden, the Swedish labour force survey (LFS) for November is set to be released. We anticipate the unemployment rate to come in at 7.90% (8.80% seasonally adjusted). Recent indicators, including the Sweden's Public Employment Servies (SPES), has continued to show an improvement of the Swedish labour market. As SPES typically serves as a leading indicator for the LFS, we might see some improvement today. However, it could well be too early for significant changes to appear.

In Germany, we receive the final inflation data for November. While CPI was unchanged at 2.3% y/y there was a large upside surprise in the HICP index which rose to 2.6% y/y. HICP services inflation was the culprit behind the surprise as it rose to 4.2% y/y (prior: 3.6%) and the final print will shed more light on the drivers.

In the UK, October GDP data is released. After a couple of weak prints, job losses becoming more prominent, and inflation edging somewhat lower, the Bank of England looks ready to cut rates again next week.

In Japan, the Bank of Japan (BoJ) releases its extensive quarterly Tankan business survey on Sunday night. This will be scrutinised by the BoJ ahead of its rate decision Friday next week. Business sentiment is strong in Japan, particularly in the service sector, where tourism is contributing to solid demand.

Also, early Monday, China brings the release of the monthly batch of data for retail sales, industrial production, housing and investments. We expect it to show more of the same, i.e. still weak consumer spending, low home sales, further declines in home prices but decent increase in industrial production supported by robust exports. China is a two-speed economy with strong exports and tech development but weak demand in domestic demand.

Economic and market news

What happened yesterday

In the US, the Federal Reserve has unanimously reappointed its 11 regional presidents in a vote held every five years. While this process typically attracts little attention, scrutiny from the Trump administration and debates about central bank independence raised concerns that some terms could have been blocked.

In Norway, Norges Bank Regional Survey showed that the aggregated production index for next quarter (Q1/26) dropped to 0.3, marginally lower than Norges Bank's expected growth in the September MPR. More importantly, capacity utilization fell from 35% to 33% and the indicator for labour shortage dropped from 25% to 22%. Combined with lower inflation and higher unemployment, this points to a lower rate path in the MPR published next week. Lastly, wage growth this year fell from 4.5% to 4.4%, a bit lower than Norges Bank expected in September.

In Sweden, final inflation figures aligned closely with the flash estimate. November CPI was 0.3% y/y and -0.4% m/m, while CPIF came in at 2.3% y/y and -0.2% m/m, slightly above the flash estimate by 0.1 percentage point. Core inflation was 2.4% y/y and -0.6% m/m. The larger-than-usual monthly decline was driven by a sharper drop in recreation and hotels. Goods prices also fell, including clothing and furniture, with clothing declining slightly more than anticipated, likely driven by earlier and more Black Friday sales. Core inflation was 0.4 percentage points below our forecast, with 0.3 percentage points explained by the unexpected dip in recreation, primarily from package holidays.

In Switzerland, The SNB kept the policy rate at 0%, as widely expected, and maintained its stance on FX intervention. Inflation forecasts were lowered due to recent weaker-than-expected inflation, and the SNB signalled continued monitoring and readiness to adjust policy if needed.

In Turkey, the Central Bank of Turkey surprised markets by lowering its key policy rate by 150 bp to 38%.

In geopolitics, Ukraine has presented its revised 20-point framework to the US, with territorial concessions remaining a key hurdle. The US proposed a 'free economic zone' in part of Donbas and potential joint governance of the Zaporizhzhia Nuclear Power Plant. The broader plan includes security guarantees, rebuilding efforts, and maintaining a strong Ukrainian military. While Washington seeks clarity by Christmas, Zelenskiy insists on a referendum for any territorial concessions.

Equities: Equities were generally higher yesterday despite some emerging weakness in the tech sector. The S&P 500 gained 0.2% but equal-weight S&P 500 0.8%, and the Stoxx 600 advanced 0.6%. The tech pullback was driven by a disappointing report from Oracle, which showed slowing revenue growth and a notable increase in spending. Had this occurred three weeks ago, the market reaction would likely have been pronounced. However, yesterday the weakness remained contained within tech. In fact, materials, financials, and industrials extended their post-Fed-meeting gains, rising another 1-2%. So, the rotation was notable. Futures are little changed this morning.

FI and FX: Norges Bank will publish their funding outlook for 2026, whereas the Riksbank is closing in on their second last nominal SGB QT-auction. The SNB left its policy rate unchanged but stands ready to act in foreign exchange markets, at the same time as they try to withstand a negative policy rate. Net movement in US and EUR rates were relatively muted during yesterday's session. EUR/USD continued to edge higher and touched 1.176 yesterday afternoon.