With consumer confidence collapsing and doves assisting, the probability of an interest rate cut in December rises to 70%!

Asian Market Trends

Last Friday, despite the dovish speech of the Federal Reserve's "third leader" which led to a rebound in expectations for a December interest rate cut, the U.S. dollar index remained strong, hitting a new high in nearly 6 months during the session. As of now, the U.S. dollar is quoted at 100.13.

Russian-Ukrainian Conflict - ① The U.S.-Ukrainian representative said that the Geneva talks "made progress", Rubio said that Trump was satisfied with the report of the talks provided to him; Zelensky issued a statement: The U.S. peace plan is expected to incorporate Ukraine's core interests and concerns. ② Europe is reported to have put forward a counter-proposal in response to Article 28. The core contents include: the United States provides NATO Article 5-style protection, Ukraine will not use military means to recover occupied territories, and territorial negotiations are based on the current military contact line and Ukraine is allowed to join if NATO reaches a consensus. ③ Source: The United States and Ukraine are discussing Ukrainian President Zelensky’s visit to the United States this week. ④ U.S. Treasury Secretary Bessent: Trump is putting pressure on Russia to end the conflict; he is confident that the Russia-Ukraine peace process is moving forward. ⑤Trump believes that 11.27 is an appropriate deadline for Ukraine to accept the terms of the peace agreement.

The United States reported a human death case from H5N5 avian influenza, believed to be the first in the world.

Canada and India agreed to launch negotiations on the www.xmxmxm.cnprehensive Economic Partnership Agreement.

Federal Reserve officials have spoken intensively - ①Williams: Still believe there is room for interest rate cuts in the near future. ②Collins: Still believes there are reasons to be cautious about cutting interest rates in December, and expects that there will be morefurther interest rate cuts. ③Milan: If my vote becomes a crucial vote, I will support an interest rate cut of 25 basis points. ④Logan: With inflation still high and the labor market generally balanced, the Fed needs to "keep interest rates unchanged for the time being."

Data - ① The final value of the University of Michigan's current situation index in the United States hit a record low in November, the initial value of the S&P Global Manufacturing PMI was a four-month low, and the initial value of the services PMI was a four-month high. ②The release of the U.S. CPI report for October was canceled and the November report was released on December 18. ③The white-collar unemployment rate in the United States has reached a record high, with college graduates accounting for 25% of the total unemployed population.

U.S. Treasury Secretary Bessent: The government shutdown will cause a permanent hit of $11 billion to U.S. GDP.

In response to the U.S. Supreme Court’s ruling, the Trump administration is preparing a backup plan for tariffs.

U.S. officials said the United States will launch new operations in Venezuela and consider options including trying to overthrow the Maduro regime. The U.S. Federal Aviation Administration issued a safety warning for Venezuelan airspace.

The Japanese cabinet approved an economic stimulus package of more than 21 trillion yen. Japanese Prime Minister Takaichi Sanae: New bonds may be issued to finance economic plans, but the total amount of Japanese bond issuance will be lower than last year.

Lebanon Hezbollah confirmed that its senior leader was killed in an Israeli air strike.

Summary of institutional views

Mitsubishi UFJ: The Kaohsiung City government wants to promote a "high-pressure economy," and the Japanese bond market is now "long-term and short-term."

Last week, key words surrounding the Kaohsiung City administration's economic and fiscal policy stance, such as "high-pressure economy," "responsible and proactive fiscal policy," and "multi-year policy to achieve a basic fiscal surplus," attracted the attention of the Japanese government bond market. These policy orientations have been reflected in changes in the interest rate spreads of Japanese government bond asset swaps (ASW). Amid market expectations that government bond issuance may increase, the fiscal policy stance is exerting upward pressure on interest rate spreads, especially short-term varieties. "High-pressure economy" specifically refers to the policy orientation of stimulating growth by maintaining overheated demand. Under the Bank of Japan's monetary policy framework, this can be achieved by maintaining an accommodative stance (maintaining the policy rate below the natural rate) over the long term.

At the same time, the direction of monetary policy is also affecting the trend of short-term/medium-term forward interest rates. From the past week to the beginning of this week, forward interest rates with maturities within 2.5 years have generally declined. This trend is in line with the potential impact of a "high-pressure economy", that is, deliberately maintaining a loose stance for a long time, leading to weakening market expectations for recent interest rate hikes. However, longer-term forward rates rose instead of falling, suggesting that the market believes that the probability of an interest rate hike after 2.5 years has increased.

This divergent structure of interest rate expectations may stem from a cautious attitude towards the outlook for inflation. The market seems to be forming a new consensus that the continuation of the "high-pressure economy" may lead to higher-than-expected inflation, eventually forcing the Bank of Japan to raise policy interest rates to a level higher than currently expected. The current 10-year break-even inflation rate is about 1.6%. Although it is still below the 2% policy target, it has shown upward potential.

Rabobank: Global liquidity alert, market worries that the Bank of Japan is facing the "darkest moment" of the UK in the 1990s

Nvidia's third-quarter financial report released on Wednesday was strong, and its results exceeded market expectations. In the three months to October, the www.xmxmxm.cnpany's revenue reached $57 billion, a year-on-year increase of 62%. At the same time, its revenue forecast of $65 billion for the current quarter was also higher than analysts’ consensus estimate of $62 billion. This positive data has stabilized market sentiment to a certain extent, provided buffer space for traders and passive funds, and promoted asset valuations to continue to rise before a major adjustment may occur.

Despite the short-term boost from Nvidia's results, signs of tighter market liquidity still pose near-term risks. The current 10-year U.S. Treasury yield has remained above 4% for four consecutive weeks, and the minutes of the latest Federal Reserve meeting pointed out that money market activities show that liquidity conditions are tightening, which provides a basis for stopping the reduction of the balance sheet.

As the Federal Reserve prepares to end its balance sheet reduction, Japan may be becoming a key variable in the evolution of global liquidity. The yen has continued to fall despite attempts by the Bank of Japan to support the yen through verbal intervention, even as long-term JGB yields have climbed to multi-decade highs. Current market dynamics in Japan are reminiscent of the Bank of England's "darkest hour" in the 1990s. The most reliable source of cheap liquidity in global markets over the past three decades is under pressure, stemming primarily from the removal of yield curve control policies and Prime Minister Takayama's attempts to reinstate Abenomics-style policies.

In this context, the Japanese government is expected to finally approve a fiscal stimulus plan of up to US$1.1 trillion or more this week. Although this huge amount of funds will undoubtedly inject new liquidity into global financial markets, the actual feasibility of the plan remains in question in an environment where Japan's CPI continues to be higher than policy targets, the debt/GDP ratio remains high, and bond yields have reflected market concerns.

Mizuho Bank: Inflation trends still provide support for the Bank of Japan’s interest rate normalization

Japan’s national CPI data released on November 21 showed that inflation accelerated slightly in various indicators: the overall CPI annual rate rose to 3.0% from 2.9% in September, and the core CPI rose from 2.9% to 3.0%. Food inflation is likely to cool more slowly than expected, while services inflation is relatively benign, especially as the second half of Japan's fiscal year begins, when normal price increases should be more www.xmxmxm.cnmon. The Bank of Japan still tends to maintain a cautious stance. Before considering further raising interest rates, they hope to have more opportunities to observe the downside risks of the U.S. economy. They are also paying attention to the "initial momentum" before the spring war in 2026. However, if we only look at the price situation itself, we expect that inflation will remain above the 2% target at least throughout the rest of fiscal year 2025, which means that the overall price trend is still on what the Bank of Japan considers to be "on track," thus providing the basis for a positive policy rate.Provide support for the continued advancement of normalization.

Barclays: The U.S. dollar will continue to strengthen until 2026

Barclays Research predicts that risk assets will receive more solid support and the U.S. dollar will continue to strengthen until 2026. The U.S. dollar remains resilient despite market volatility over uncertainty over artificial intelligence valuations, investment returns and earnings growth. Barclays stated in the report: "Our positive view on the US dollar is mainly based on the large-scale artificial intelligence capital expenditure plans in the United States, which may bring transformative effects at the economic, geopolitical and www.xmxmxm.cnpetitive levels." In addition, as concerns about the independence of the Federal Reserve weaken, tariff risks ease, and fiscal stimulus measures advance, the US dollar momentum is expected to remain positive until 2026. Barclays added: "Even if risk sentiment further deteriorates, there is still room for further gains against the US dollar against the yen, and emerging market currencies with high beta values ​​may face vulnerabilities."

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