Market Report.

🏦 The Federal Reserve is expected to deliver today a third consecutive interest rate cut on Wednesday, but the streak may end there. Several officials believe the Fed is already at a neutral level that neither spurs nor constrains growth.

📉 Yesterday at ATFX we released a special report on this topic. In it, I stated explicitly that two of the three macro indicators used by the Federal Reserve to guide this decision do not justify rate cuts, and the remaining indicator only partially supports them.

📈 The US economy is growing at an annualised rate of 2.8%, with the latest quarter at 3.8%, which hardly suggests a need for monetary stimulus.

🔥 Meanwhile, PCE inflation has remained near 3% since 2024, well above the Fed’s 2% ceiling, which in principle should explicitly prevent any rate cuts.

👷‍♂️ The only area showing weakness is the labour market, with unemployment rising to 4.4%. However, as economics textbooks clearly note, the natural rate of unemployment in a healthy economy typically ranges between 4% and 6%. Therefore, this is not a dramatic situation that demands urgent intervention.

🧩 In short, the US economy could comfortably remain at current interest‑rate levels without experiencing significant stress.

🗳️ The FOMC is divided between members who favor more cuts to support the labor market and those who think easing has gone far enough and risks fueling inflation. There are likely to be dissenting votes, from those who think the Fed should hold steady, officials like Kansas City’s Jeff Schmid, St. Louis’s Alberto Musalem, and potentially Fed Governor Stephen Miran.

🦅 This has led to the term “hawkish cut” – the Fed will cut, but signal that further reductions may be on hold for now. The Fed may also signal plans to resume bond purchases to address pressures in the overnight funding markets, though not at a pace indicating a return to quantitative easing.

💼 But it is not only us — nor the Federal Reserve members — who are expressing doubts. Fixed‑income traders have also shown behaviour that points in the same direction.

📉 Long‑term bond yields are signalling clearly that the market does not believe in future rate cuts. Both the US 10‑year and 30‑year Treasury yields have seen an increase in risk premiums, a movement that is fundamentally incompatible with an environment of upcoming rate cuts.

🌍 But this pattern does not seem to be unique to the US. Global bond yields have risen to levels not seen since 2009, signaling concerns that interest rate cutting cycles may be coming to an end in major economies. Money market bets indicate traders are pricing in virtually no more rate cuts from the European Central Bank going forward.

🇯🇵 Traders are betting on an almost certain interest rate hike this month in Japan, as well as two 0.25% increases next year in Australia.

🔚 This suggests the era of monetary policy easing, with central banks cutting rates to stimulate their economies, may be drawing to a close in these regions.

💱 In USD/JPY, the dollar briefly pushed toward 157, a move likely driven by positioning ahead of next week’s BOJ meeting rather than any fresh catalyst. Markets have almost fully priced in a 25 bp BOJ hike, but with Japan’s weak growth and fiscal concerns, there’s little justification for further tightening after December.

💤 If the expected hike is followed by another long pause, the yen’s outlook won’t improve much, leaving continued downside risk. Even with rates at 0.75%, Japan would still have some of the lowest interest rates globally.

🌱 China has resumed buying U.S. soybeans, but is still lagging the goals set by the trade agreement with President Trump. Under the trade deal, China promised to buy at least 12 million metric tons of U.S. soybeans during the last two months of 2025.

📊 However, China has only bought 2.85 million metric tons of U.S. soybeans since October 30th, according to USDA data. Treasury Secretary Scott Bessent said China is on track to purchase 12 million metric tons by the end of February, but the Trump administration had said China would buy at least 25 million tons in the next three years.

🚜 To help American farmers affected by the trade war, Trump announced a $12 billion aid package that will come from U.S. tariff revenues.

🏛️ According to the Politburo, a top decision-making body of China’s Communist Party, China will take the following actions in 2026: Beijing has signaled a shift toward supporting household consumption and rebalancing the economy over the next five years to tackle structural imbalances, though such measures may take time to deliver results. Expand domestic demand and support the broader economy with more proactive fiscal and appropriately loose monetary policies.

📅 Aim for a growth target likely to remain around 5% by making efforts to “stabilise jobs, firms, markets and expectations” to achieve a good start for the next five-year plan.

💻 Nvidia has received approval from the U.S. government to sell its more advanced H200 AI chips to China, but it’s unclear whether Beijing will actually allow Chinese companies to purchase them. The U.S. is allowing Nvidia to sell the H200 chips to “approved customers” in China, provided the U.S. government gets a 25% cut of those sales.

🤖 Chinese tech giants like Huawei, Alibaba, and Baidu have been developing their own advanced AI chips that are comparable or even superior to Nvidia’s H200. However, the H200 could still be an attractive option for Chinese firms due to ongoing semiconductor shortages and the performance gap between Nvidia’s chips and domestic Chinese alternatives.

🔍 We had already pointed this out weeks ago during my intervention on the panel at FMLS 2025: China had begun taking concrete steps to prioritise domestically produced microprocessors over US‑made chips in data centres receiving public funding, and authorities were signalling that Nvidia chips could eventually be banned. Once again, we anticipated the scenario that is now unfolding.

🧭 China’s long-term strategy of technological self-sufficiency is unlikely to change, and Nvidia may only have a limited window of opportunity to sell the H200 chips in China. This would explain Trump’s change of stance, authorizing sales when yesterday he was prohibiting them.

🪨 The EU was planning a mission to Brazil to negotiate access to the output of a rare earth or critical minerals project. Just before the trip, the EU officials were told that the US had already flown in, offered financing or offtake guarantees, and secured all production until 2030.

💼 This signals that prior understandings or MOUs between the EU and Brazil were not fully locked in contractually, and the US was willing to improve the terms to outbid or pre-empt Europe.

Geopolitics.

🗳️ Trump has suggested that Ukraine should hold elections, as part of a potential path to ending the conflict with Russia. “They’re using war not to hold an election. I would think the Ukrainian people should have that choice,” Trump told Politico. “They talk about having a democracy but it gets to the point where it’s not a democracy anymore.”

⚡ Ukrainian President Volodymyr Zelenskiy has been under political pressure in recent weeks following a corruption scandal involving senior Ukrainian officials. After the country’s watchdog concluded that $100 million had been stolen from the energy sector through bribes by entrepreneurs, Mr. Zelenskyy fired two executives and imposed sanctions on his top aides.

🏛️ Zelenskiy has not been accused of any wrongdoing, but his chief of staff, Andriy Yermak, resigned after last month’s anti-corruption raid on his home.

💣 According to the Wall Street Journal, Europe is reportedly considering the “nuclear option” of dumping U.S. Treasuries if the Ukraine deal collapses.

💵 European and UK investors collectively hold around $2 trillion in US Treasuries, making them a more important creditor to the US than China. For Europe, using Treasuries as a weapon would be very risky, as it would likely raise borrowing costs for European governments and corporates, and potentially destabilize markets, harming European growth.

📉 The probability of a sudden, coordinated $2+ trillion dump is extremely low due to the self-harm involved. A more likely scenario is a gradual policy shift, with Europe diversifying its reserves and modestly reducing its official dollar/Treasury allocations over time.

⚖️ The Trump administration is amassing evidence to open a lawsuit against former Spanish president José Luis Rodríguez Zapatero for his alleged connection with international support for Nicolás Maduro’s regime in Venezuela.

🌐 The US intelligence services describe Zapatero as the main international reference of a network of influence promoted from Venezuela to project a democratic image of the Maduro regime.

Market View.

📉 S&P 500 futures remain in wait‑and‑see mode ahead of the Federal Reserve’s decision, trading around 6,855 points, virtually unchanged so far this week. Nasdaq 100 futures are in a similar position, holding near 25,725 points.

💲 The US Dollar Index (DXY) has continued to strengthen — somewhat paradoxically — reaching 99.30 yesterday before pulling back to 99.10. This has weighed on EUR/USD, which last Thursday approached 1.1675 but now trades near 1.1645.

📊 In Europe, DAX 40 futures are rising slowly but steadily, currently at 24,155 points. Euro Stoxx 50 futures saw a strong rally yesterday, nearing 5,760 points, but have since pulled back to around 5,718.

🛢️ Crude oil continues to decline, with Brent trading near $62 per barrel. As discussed in yesterday’s report, there are fundamental drivers behind this downward move.

🥇 Gold futures remain firm but range‑bound, trading around $4,232 per ounce.

🪙 Finally, Bitcoin managed to break above $92,000 yesterday, reaching as high as $94,650, before pulling back to the current $92,680.