Key Highlights

• Volatility in commodities continues as silver and platinum drop 5% and 10% from intraday highs.
• China launches an anti-dumping investigation into semiconductor-making material imported from Japan.
• Despite tensions over Greenland, Europe and the U.S. make progress towards a security guarantee for Ukraine.

Chart of the Day

BRL selling, M-Bonos buying are first reactions to weekend events

^{Source: BNY}

Events over the weekend and the current surge in metals prices have put Latin America at the forefront of asset allocation decisions at the beginning of the year. Commentary from Washington has injected potential volatility into the region, and markets may assume that flows and asset performance will likely be influenced by political alignment between national governments and the U.S. This was already the case in 2025, when Argentina benefited strongly from U.S. support, but these trends could come into sharper focus.

There was a strong outflow out of BRL on Monday, but otherwise FX flows were generally flat in the region. Despite being on the receiving end of some sharp rhetoric, we can see that flows into Mexico were solid on Monday, hitting nearly 3.0 on a daily scored flow basis. That is the third-biggest inflow over the last three years and comes even after a period of very good flows throughout December. In contrast, flows into Brazil have been mixed but generally the country has also seen a good start to the year. It is another sign that size offers some protection but policy credibility is far more important, as high real rates can limit currency weakness. Brazil also stands to benefit from the recent commodity surge, as terms of trade improve for economies with strong exposure to industrial metals.

What's Changed?

The key focus is on momentum in risk taking and today’s pause, which looks different to yesterday. Gold is lower, USD is higher, bonds are bid and stocks are mixed. Hopes for another big year in technology continue to dominate trading, but pullbacks in APAC and EMEA have left U.S. futures lagging. Bonds remain bid in Europe with CPI a factor along with oil, as Ukraine peace talks and Venezuela crude shipments to the U.S. will be key drivers. USD has rallied, highlighting hedging and positioning risks, with ZAR, MYR and CNY weaker vs. INR, JPY and MXN.

• Three stories matter in Venezuela; oil remains the barometer: 1) The 30-50 million barrels of oil being shipped to the U.S. refineries and that the money from that sale will be controlled by the White House. The implications of control by oil money leaves the focus on WTI, with the $55/barrel mark key heading into inventory reports following the API crude draw. 2) The focus on the split between new President Delcy Rodríguez and Interior Minister Diosdado Cabello poses a potential coup threat that the U.S. is clearly watching, putting the risk of another military operation in play. 3) The U.S. is pushing Venezuela to dismiss all intelligence agents from China, Russia, Cuba and Iran. Meanwhile, Russia has sent a submarine to help escort an empty tanker home.
• Economics matters – bonds have rallied in Australia and Europe after CPI reports. The need for more action from the RBA or ECB in Q1 to help stem inflation or growth has been pushed back by data. A focus on peace hopes and technology has left Germany and Sweden bourses leading. U.S. data today will be significant, with jobs squarely in focus; the curve steepening trade will be key if surprise weakness is seen in hiring.
• Technology focus is continuing – Nvidia has said that upbeat revenue forecasts made in October have only improved, thanks to strong demand. Baidu has hired bankers for an IPO of its AI chip unit, with an estimated deal value of $2bn.

Bottom line: U.S. markets face a heavy set of economic reports, with risks that ADP, JOLTS and ISM services numbers could upturn views on FOMC easing and growth momentum. There also is a keen focus on political risks, ranging from health care, potential for a government shutdown, the Supreme Court ruling on tariffs, Fed reactions to financial conditions and data, and President Trump’s pick as the next FOMC chair. USD continues to be important as a barometer for risk, with a focus on JPY and CHF safe havens today alongside commodity FX and EM carry positioning. 

What You Need to Know

The Trump administration has told Venezuela’s interim president Delcy Rodríguez that the regime must meet the White House’s demands before being allowed to pump more oil, according to three people familiar with the administration’s plan. First, the country must kick out China, Russia, Iran and Cuba and sever economic ties. Second, Venezuela must agree to partner exclusively with the U.S. on oil production and favor America when selling heavy crude oil. In an exclusive interview with ABC News, Senate Armed Services Committee Chairman Roger Wicker confirmed that the U.S. plan hinges on controlling Venezuela’s oil. He said he did not believe it will require the deployment of U.S. troops. IBVC 50.01% to 3896.77, USDVES +3.897% to 311.132510y VGIB +0.9bp to 43.717%.

European leaders welcomed what they described as a diplomatic breakthrough after talks in Paris brought the U.S. and its allies closer to a framework for securing Ukraine in the event of a postwar settlement. U.S. representatives said security protocols were largely completed, offering a long-sought American backstop to deter and defend against future Russian aggression. France and the U.K. pledged troops for a possible reassurance force, while allies proposed a U.S.-led mechanism to monitor and verify any ceasefire. The discussions also reaffirmed commitments to long-term military support for Ukraine. Despite the momentum, officials stressed that a deal ultimately depends on Russia’s willingness to negotiate and compromise. PFTS 0% to 461.21, USDUAH +0.345% to 42.6925,10y UGB -32.5bp to 13.737%.

Iron ore prices climbed to their highest level since February, supported by expectations of additional macroeconomic policy support and pre-holiday restocking ahead of the Lunar New Year. Futures rose for a fourth consecutive session, with Singapore prices gaining up to 1.7% to US$108.40/t and trading near US$108.35 at midday, while Dalian contracts advanced by 2.8%. Sentiment was underpinned by signals from the People’s Bank of China that it would deploy multiple policy tools, including interest rate cuts, though without a specified timetable. Restocking demand also lifted prices despite robust supply conditions and elevated port inventories, which remain at their highest since late 2024, alongside concerns about seasonal supply disruptions. Aluminum (LME) +1.526% to 3115.31, iron ore (SGX) +2.471% to 109.1, copper (CMX) -1.271% to 598.55.

China’s commerce ministry has launched an anti-dumping investigation into dichlorosilane imported from Japan, a chemical used in semiconductor chip production, following a request from domestic producers. The probe comes just one day after China imposed a ban on exports of dual-use items to Japan for military end-uses, in response to recent remarks by Japanese Prime Minister Sanae Takaichi about potential military action if China were to attempt to take Taiwan. The investigation aims to determine whether Japanese imports of dichlorosilane are harming China’s domestic industry, reflecting escalating trade and geopolitical tensions between the two countries, particularly in the high-tech and semiconductor sectors. CSI 300 -0.293% to 4776.67, USDCNY -0.101% to 6.9909, 10y CGB +1.5bp to 1.897%.

What We're Watching

U.S. December ADP employment change is seen improving to 50k vs. -32k in November.

U.S. December ISM services forecast to ease from 52.6 to 52.2.

U.S. November JOLTS jobs openings are seen at 7,600k vs. 7,670k in October.

U.S. October factory orders forecast to decline -1.2% m/m vs. 0.2% in September, while final durable goods orders are expected at -2.2% vs. a flash estimate of -2.2% and 0.7% in September.

U.S. Treasury sells $69bn in 17-week bills.

What iFlow is Showing Us

Mood: iFlow Mood has stabilized at 0.187, with a slowing in equity buying against a pickup in core sovereign bond outflows.

FX: Mixed and light flows, with better inflows in PLN, CZK, GBP, IDR and TWD against outflows for NZD, ILS, HUF, THB and BRL. USD’s scored holdings stand at -0.95.

FI: Good buying in Mexican, Peruvian and Indian government bonds and U.K. gilts, against better selling in Turkish government bonds. Cross-borders investors lightly bought U.S. Treasurys across maturity sectors.

Equities: Equities were broadly sold, especially in Europe, followed by the U.K., Japan and Hong Kong. Chinese equities posted light buying interest. 

Quotes of the Day

“Economics is a very difficult subject. I’ve compared it to trying to learn how to repair a car when the engine is running.” – Ben Bernanke

“History reminds us that dictators and despots arise during times of severe economic crisis.” – Robert Kiyosaki

Economic Details

Eurozone annual inflation is estimated at 2.0% in December 2025, down from 2.1% in November, according to Eurostat’s flash estimate. The main driver of inflation remains services, with an annual rate of 3.4%, followed by food, alcohol and tobacco at 2.6%. Non-energy industrial goods saw a modest increase of 0.4%, while energy prices declined by 1.9%. Among member states, inflation rates varied, with Germany at 2.0%, France at 0.7%, and Spain at 3.0%. Eurostat also highlighted that methodological changes to the Harmonized Index of Consumer Prices (HICP) will take effect from February 2026, including updates to classification and reference periods. Euro Stoxx 50 -0.026% to 5930.25, EURUSD -0.035% to 1.1685, BBG AGG Euro Government High Grade EUR -2.6bp to 2.997%.

Eurozone construction PMI for December rose to 47.4, indicating a softer contraction in activity and marking the slowest decline since February 2023, though the sector has now shrunk for 44 consecutive months. The improvement was largely driven by renewed growth in Germany, while France and Italy saw sharper declines. Housing and commercial activity contracted at a slower pace, but civil engineering fell slightly faster than in November. New orders dropped at an accelerated rate, especially in France, and business confidence weakened to a three-month low. Employment was broadly stable, with job gains in Germany and Italy offset by continued cuts in France. Input cost inflation surged to a six-month high, and supplier delivery times lengthened for the fifth straight month. Euro Stoxx 50 -0.026% to 5930.25, EURUSD -0.035% to 1.1685, BBG AGG Euro Government High Grade EUR -2.6bp to 2.997%.

Germany’s November retail sales fell m/m, with real turnover down 0.6% and nominal sales declining by 1.1%, while y/y growth remained positive at 1.1% in real terms and 1.9% nominally. October retail sales were revised higher, showing a real increase of 0.3% m/m and nominal growth of 0.6%, alongside y/y gains of 1.6% and 3.1% in real and nominal terms, respectively. For full-year 2025, retail turnover is estimated to have risen by 2.4% y/y in real terms and 3.6% y/y nominally, with stronger growth in the first half of the year. In November, food retail sales declined by 1.9% m/m in real terms, while non-food and online sales recorded modest m/m real increases. DAX +0.513% to 25019.83, EURUSD -0.035% to 1.1685, 10y Bund -3.6bp to 2.806%.

Germany’s November employment was broadly stable, with around 46.0 million people in work. Seasonally adjusted employment was flat m/m, falling by 1,000 people, following a 3,000 m/m increase in October. On a non-seasonally adjusted basis, employment edged up by 7,000 m/m, below the November average of recent years. On a y/y basis, employment declined by 51,000, equivalent to -0.1% y/y, matching the contraction seen from August to October and extending the negative y/y trend observed since July. The unemployment count rose to 1.64 million, up 11.6% y/y, lifting the unemployment rate to 3.7%. Seasonally adjusted unemployment increased by 7,000 m/m to 1.67 million, leaving the adjusted unemployment rate unchanged at 3.8%.

German construction PMI for December rose to 50.3, marking the first expansion in total industry activity since March 2022 and ending a contraction that had lasted nearly four years. This upturn was driven by robust growth in civil engineering, which saw its fastest increase since 2011, while declines in residential construction eased and commercial activity remained weak. Employment in the sector ticked up for the second consecutive month, though business confidence stayed subdued amid ongoing concerns about economic growth and a lack of new orders. Input price inflation accelerated to a three-month high but remained muted by historical standards, partly due to lower demand for materials, while subcontractor rates surged at the fastest pace in over two years. Supplier delivery times lengthened for the third straight month, reflecting modest vendor performance deterioration.

France’s December household confidence edged up, with the composite indicator rising by one point to 90, remaining below its long-term average of 100. The improvement reflected stronger sentiment on the appropriateness of making major purchases, with the corresponding measure increasing by three points, while the figure for the opportunity to save rose by one point to a new historical high. By contrast, expectations for households’ future personal financial situation deteriorated slightly, while views on past financial conditions were stable. Perceptions of past living standards in France picked up, but expectations for future living standards weakened marginally. Unemployment fears eased further, with the measure dropping by two points, although remaining above its long-term average. Perceived past price increases increased sharply, while inflation expectations rose slightly. CAC 40 -0.123% to 8227.3, EURUSD -0.035% to 1.1685, 10y OAT -3.9bp to 3.515%.

Italy’s national consumer price index (NIC), including tobacco, rose by 0.2% m/m and 1.2% y/y in December 2025 (up from +1.1% in November), based on preliminary estimates. For the full year, consumer prices increased by 1.5% (compared with +1.0% in 2024). Core inflation (excluding energy and fresh food) averaged 1.9%, and inflation excluding only energy averaged 2.0%. December’s slight acceleration was mainly driven by higher prices for transport services and unprocessed and processed foods, partially offset by lower regulated energy prices and slower growth in recreational and personal care services. The harmonized index (IPCA) also rose 0.2% m/m and 1.2% y/y, with an average increase for 2025 of 1.7%. Overall, inflation picked up in December, returning to October’s level, with annual trends influenced by regulated energy (+16.2%) and unprocessed food (+3.4%), while core inflation slowed to 1.9% for the year. FTSE MIB +0.43% to 45949.95, EURUSD -0.035% to 1.1685, 10y BTP -3.9bp to 3.496%.

Italy’s public administration net borrowing reached -3.4% of GDP in Q3, worsening from -2.3% a year earlier. The primary balance was positive at 0.4% of GDP, but lower than in the previous year, while the current balance was also positive at 1.3%. The tax burden fell to 40.0%, down 0.8 percentage points y/y. Household disposable income rose 2.0% q/q, with consumption up 0.3%. The household saving rate climbed to 11.4%, its highest since 2009 (excluding the COVID period), reflecting weak consumption growth relative to income. Purchasing power increased by 1.8%. The non-financial corporate profit share fell to 42.3%, while these firms’ investment rate edged up to 22.8%. Overall, public spending and revenues both increased, but the deficit widened. The report highlights rising household savings and purchasing power, subdued consumption and a continued decline in corporate profitability, alongside a slight rise in investment.

The Netherland’s December flash estimate of inflation eased to 2.8% y/y from 2.9% in November. The EU Harmonized CPI came in at 0.2% m/m, 2.5% y/y from -1.4% m/m, 2.6% y/y in November. Key contributors included food, beverages and tobacco (3.1% y/y) and services (4.1% y/y), while energy prices declined by -0.4% y/y. Non-energy industrial goods inflation rose to 0.9% y/y from 0.5%. For 2025, consumer goods and services prices increased by 3.3% y/y. AEX -0.746% to 984.27, EURUSD -0.035% to 1.1685, 10y NGB -3.5bp to 2.917%.

U.K. construction PMI in December came in at 40.1, indicating a continued sharp downturn in business activity and new work, though the pace of contraction eased from November’s five-and-a-half-year record. All major segments – housing, commercial and civil engineering – saw significant declines, with civil engineering performing worst. Despite subdued demand and fragile client confidence, business optimism rebounded to a five-month high, supported by expectations of rising infrastructure spending and lower interest rates. Job cuts and reductions in input buying persisted but moderated, while supplier performance improved for the fifth consecutive month due to lower purchasing activity. Input cost inflation eased to a 14-month low, and subcontractor rates increased at their slowest pace in over a year. FTSE 100 -0.417% to 10080.49, GBPUSD -0.06% to 1.3493, 10y gilt -4.7bp to 4.433%.

Sweden’s December services PMI fell m/m to 56.7 from 59.2, marking the largest monthly decline since July, though remaining above its historical average of 55.6 for a fourth consecutive month. The slowdown followed strong performance earlier in the fourth quarter, with three out of four sub-indices dropping from elevated levels. Business activity contributed most to the fall, alongside weaker delivery times and employment, while the new orders index increased, recording its third-highest reading of the year. Price pressures intensified, as the input prices index rose to 59.2 from 57.5, the highest level in 11 months. The PMI Composite also eased to 56.3 from 57.9 but stayed above its long-run average, signaling continued expansion in overall private sector activity. OMX +1.981% to 2959.277, EURSEK -0.1% to 10.745, 10y Swedish GB -4.6bp to 2.892%.

Hungary’s November industrial producer prices fell 2.7% y/y and 0.3% m/m, reflecting lower price levels across both domestic and non-domestic markets. Domestic output prices were down 1.8% y/y, driven by a 1.1% fall in manufacturing prices and a 2.8% decline in energy prices, while food industry prices increased by 4.1% y/y. Non-domestic output prices dropped 3.1% y/y, with manufacturing prices down 2.2% and energy prices down 11.7%. On a m/m basis, domestic output prices rose 0.3%, while non-domestic prices fell 0.5%. Over January-November, producer prices increased by 4.8% y/y overall, with domestic prices up 2.7% and non-domestic prices up 5.8%. Budapest SI -0.094% to 116316.8, EURHUF +0.065% to 384.92, 10y HGB -2bp to 6.76%.

Hungary’s November employment showed 4.637 million people aged 15-74 in work, while the unemployment rate stood at 4.4% and the number of unemployed totaled 213k. Over the September-November period, average employment was 4.656 million, down by 36k y/y, reflecting a drop of 35k among men to 2.453 million, while female employment was flat at 2.202 million. Domestic primary labor market employment fell by 43k y/y to 4.474 million, alongside 75k public workers and 106k working abroad. The employment rate for the 15-64 age bracket was unchanged at 75.0%. Unemployment averaged 216k, down 15k y/y, with the rate steady at 4.4%.

Czechia’s December flash CPI fell 0.3% m/m while rising 2.1% y/y, unchanged from November’s y/y rate. Core measures showed mixed dynamics, with CPI excluding energy increasing 2.9% y/y and falling 0.3% m/m, while CPI excluding energy and unprocessed food rose 2.9% y/y and declined by 0.2% m/m. Services inflation accelerated to 4.8% y/y and increased by 0.2% m/m, whereas goods inflation eased to 0.4% y/y and fell 0.6% m/m. Energy prices remained a drag, falling 4.2% y/y and 0.6% m/m. Food, alcohol and tobacco inflation slowed to 2.5% y/y, with a sharp 1.1% m/m decrease. Prague SE +0.085% to 2745.67, EURCZK +0.253% to 24.229, 10y CZGB -4.4bp to 4.513%.

Japan’s December services PMI signaled slower growth momentum, with the Business Activity Index easing to 51.6 from 53.2, marking the softest expansion since May while remaining above the 50-point threshold. Business activity extended its expansion streak to nine months, though at a modest pace, led primarily by finance and insurance firms. New orders continued to rise but at a weaker and only mild rate, despite a marginal rebound in new export business that marked the first increase since June. Employment rose at the fastest pace since May 2023, reflecting higher sales and vacancy filling. Input cost inflation intensified to the sharpest rate since May, driving another solid increase in output charges, while business confidence remained historically strong. Nikkei -1.059% to 51961.98, USDJPY -0.071% to 156.56, 10y JGB -1.4bp to 2.122%.

Australia’s November headline and trimmed mean CPI slowed to 3.4% y/y (October: 3.8% y/y) and 3.2% y/y (October: 3.3% y/y). Key contributors to annual inflation were housing (1.1% m/m, +5.2% y/y), food and non-alcoholic beverages (0.4% m/m, +3.3% y/y) and transport (0.3% m/m, +2.7% y/y). Food inflation rose 0.4% m/m, 3.3% y/y, driven by meat, snacks and beverages. Transport inflation held at 2.7% y/y, with automotive fuel up 3.5%. Electricity inflation eased to 19.7% y/y from 37.1%, reflecting reduced government rebates. Annual goods inflation was 3.3% y/y, down from 3.8% in October, driven by the easing in electricity component, which rose 19.7% y/y compared with 37.1% in October. Annual services inflation was 3.6% y/y vs. 3.9% in October, in part due to a cooling in domestic holiday travel from high demand in October, when there were school holidays in all states and territories and major sporting events.  The main contributors to annual services inflation to November were rents (+4.0% y/y) and medical and hospital services (+4.6% y/y). ASX -0.274% to 5435.09, AUDUSD +0.328% to 0.6739, 10y ACGB -3.5bp to 4.758%.

Australia’s total dwelling approvals rose 15.2% m/m, 20.2% y/y in November to 18,406 units (after falling 6.1% in October). Private sector dwellings excluding houses were up 34.1% m/m, 55.3% y/y to 8,463 units, and private sector houses were up 1.3% m/m, 3.2% y/y to 9,458 units. The value of total residential building approvals increased by 26.3% m/m to $11.34bn, driven by a 30.4% m/m rise in new residential building to $10.14bn. Non-residential building value fell -3.9% m/m to $7.04bn.

The Philippines’ November labor force participation rate (LFPR) rose to 64.0% from 63.6%, with the unemployment rate falling to 4.4% from 5.0% in October. The five sub-sectors that saw the biggest increases in the number of employed people in November 2025 were public administration and defense; compulsory social security (185k); education (176k); administrative and support service activities (99k); construction (86k); and information and communication (82k). The five sub-sectors posting the biggest y/y decreases in the number of employed people were accommodation and food service activities (-309k); wholesale and retail trade; repair of motor vehicles and motorcycles (-258k); other service activities (-250k); manufacturing (-150k); and fishing and aquaculture (-56k). PSEi -0.409% to 6292.09, USDPHP -0.278% to 59.365, 10y PHGB -1.8bp to 5.893%.

Thai December headline inflation was -0.28% y/y from -0.49% y/y in November. Core CPI, which excludes volatile energy and fresh food prices, rose 0.59% y/y in December. Headline CPI was -0.14% y/y over 2025, dragged down by lower fuel and electricity prices. The trade ministry expects headline inflation to be in a range of -0.5% to 1% in the first quarter of 2026 and at 0.0% to 1.0% for the year as a whole. SET +0.251% to 1277.95, USDTHB -0.112% to 31.28, 10y TGN +0.3bp to 1.626%.

Taiwanese December headline and core inflation came in higher at 1.31% y/y and 1.83% y/y from 1.22% y/y and 1.71% y/y, respectively. The higher y/y gain in inflation was led by eggs (+11.15% y/y), meats (+4.99% y/y), household operations (+5.07% y/y), vehicle parts and maintenance (+4.85% y/y), food away from home (+3.27% y/y) and residential rents (+1.99% y/y). Offsetting forces included vegetables (-18.20% y/y), due to a high baseline, vehicles (-3.16% y/y), after a commodity tax reduction, and declines in communication equipment (-8.46% y/y), fuels and lubricants (-5.72% y/y) and communication fees (-2.58% y/y). For the year, CPI was +1.66% y/y, with the core rate at +1.66%. Taiwan’s December PPI rose +0.44% m/m but fell -2.57% y/y, driven by declines in farm products (-16.35% y/y), petroleum and coal products (-8.20% y/y), chemical materials/products and pharmaceuticals (-7.85% y/y) and electronic parts and components (-1.84% y/y), partly offset by computers/electronic and optical products (+2.21% y/y). Taiwan’s average PPI for 2025 was -1.84% y/y. TAIEX -0.461% to 30435.47, USDTWD -0.016% to 31.521, 10y TGB -1.6bp to 1.395%.

Hong Kong December official foreign currency reserve assets totaled $427.9bn, from $429.4bn in November 2025 and $421.5bn in December 2024. The total foreign currency reserve assets of $427.9bn represent more than five times the currency in circulation or about 38% of Hong Kong dollar M3. Hang Seng -0.942% to 26458.95, USDHKD -0.013% to 7.7886, 10y HKGB -1.2bp to 1.417%.