1. A LONG TIME IS COMING
European Union leaders are meeting Thursday to strike a deal to use frozen Russian money on the continent to pay Ukraine.
The stakes are high: Frozen assets are Europe’s biggest ticket to gaining a say in talks, especially between Washington and Moscow, as they negotiate a settlement to the war in Ukraine.
The idea is to tap about 210 billion euros ($245 billion) of Russian assets in Europe, the lion’s share of which is now cash and mainly tied up in Belgium, which has stepped up its opposition to the plan.
It is a test of Europe’s courage. Can the country overcome its divisions to confront the first major armed conflict in decades? There could be consequences for Western investors, who still own tens of billions in assets stranded in Russia, from factories to cash. But with Ukraine running out of money and the continent’s security at stake, European leaders have few alternatives.
2. BETTER LATE THAN NEVER
The shutdown-delayed U.S. jobs report for November will shed light on the extent of the labor market weakening, which could help determine the Federal Reserve’s next interest rate hike.Tuesday’s November nonfarm payrolls report is expected to show a tepid 35,000 jobs, according to a Reuters poll.
One of the key critical data reports postponed due to the 43-day federal government shutdown comes after the Fed cut interest rates by a quarter point on Wednesday for a third straight meeting. However, the prospects for further easing remain unclear.
And more lagged data will be released, including October retail sales figures, also on Tuesday, while the November Consumer Price Index will reflect inflation trends on Thursday.
3. HOW MANY WALKS?
For market participants, a rate hike by the Bank of Japan on December 19 is all but certain, as evidenced by the rise in two-year Japanese government bond yields to 18-year highs this month.
What happens next is less special. Some economists generally agree that there will need to be at least one additional quarter point increase to 1% next year. They say this could be the end rate for this cycle.
Hawks argue that the policy rate must rise to 1.5% to offset inflationary pressures from the new government’s stimulus plan, the largest since the pandemic.
The policy path and messaging surrounding it will be critical for the yen, which continues to slide despite historic highs in bond yields. With more and more G10 countries such as Canada and Australia turning aggressive lately, it appears that the momentum behind the currency-depressing yen carry trades is likely to increase in 2026.
4. NO CHRISTMAS SLEEP
Thursday’s European Central Bank meeting was meant to be a pre-Christmas snoozefest.
But things got much more interesting after investors started betting on the likelihood of an ECB rate hike, rather than a cut next year, after policymaker Isabel Schnabel said the next step could be higher.
Her words weren’t too surprising coming from the bank’s top policy hawk, and she even said there wouldn’t be a rate hike anytime soon. But stronger-than-expected growth and inflation figures had already eroded expectations of further cuts since the ECB last met in October.
So while policymakers are likely to keep rates at 2% again, markets are ready to respond to what ECB chief Christine Lagarde says about the outlook.
The central banks of Sweden and Norway are also expected to leave interest rates unchanged on Thursday.
5. MAYBE A NOT-SO-DONE DEAL
A Bank of England rate cut in December appears all but certain, according to a Reuters poll, but questions are likely to remain about the 2026 trajectory after Thursday’s announcement.
Financial markets are currently pricing in about a 90% chance of a rate cut from 4.0% to 3.75%, although bad inflation on Wednesday could still change the course.
The Monetary Policy Committee voted last month to maintain the policy rate by a margin of 5-4. Whatever the outcome on Thursday, divisions will persist into 2026, based on comments from Deputy Governors Clare Lombardelli and Dave Ramsden.
While Lombardelli floated the idea of reaching the end of the BoE’s easing cycle, Ramsden said gradual rate cuts remained appropriate.
#global #market #themes #coming #week