Key Highlights

• Japanese Finance Minister Katayama says the country has a “free hand” to act in the FX markets.
• President Trump says it would be “smart” for Venezuelan President Maduro to step down.
• Indonesia hopes a trade deal with the U.S. can be wrapped up by the end of January.

Chart of the Day

South Africa not benefiting from latest gold price move

^{Source: BNY}

South African assets have performed well across the board this year due to structural improvements and high real rates. Domestic reform impetus has been rewarded, but the economy’s terms of trade have been uniquely boosted by gold prices this year. The metals and mining industry globally has been strong, with a surge in flows into the industry within emerging markets heavily favoring South Africa, given the country’s exposures to precious metals mining. This stands in strong contrast to the softer performance of economies that depend on industrial and base metal prices, which continue to suffer from sluggish demand from China and beyond. The surge in gold prices to a new record high this week, however, has not translated into additional gains for South African equities. The metals and mining sector globally continues to attract solid inflows, which mark a departure from prior trends. We note that the ZAR has also struggled of late, pointing to a more comprehensive reduction in asset exposure in the South African economy. Year-end seasonal factors could be playing a role. However, gains in the ZAR this year and relatively high asset positioning suggest that the market believes much of the good news is already reflected in holding levels, and that the recent gain in gold prices is insufficient to justify an already very large overweight position. Nonetheless, year-end rebalancing is helpful in this respect, and given current fundamentals for the country’s terms of trade and real rates, we expect renewed interest in South African assets in 2026.

What's Changed?

Investors have a flurry of last-minute economic data to consider ahead of their dash to the Christmas holidays. Flat is the new up, as traders ascend new peaks for gold, attempting the same for the S&P 500, but remaining more cautious on the USD, which extends its fall. Global bonds rallied back, led by Japan and Europe.

• Venezuela becomes a key focus beyond oil, as markets monitor broader U.S. actions in the region. Russia’s Deputy Foreign Minister Sergei Ryabkov commented on the situation, while President Trump warned Venezuelan President Maduro not to play “tough.” The growing connection between U.S. actions in Venezuela and broader talks with China and Russia has helped drive gold prices higher.

• M&A gets personal. Larry Ellison pledged a $40bn personal guarantee to back Paramount’s bid for Warner Brothers. The Oracle founder has a history of taking on personal debt backed by his equity stake, with 30% of Oracle shares currently pledged as collateral. This latest move adds complexity to credit conditions in the technology sector, which are already challenged by data center spending and uneven AI-related growth.

• Volatility isn’t on holiday. The calm of current markets has led to gains in carry trades, again led by Mexico and Colombia, but this will be tested by the key U.S. economic data ahead, from GDP to durable goods. The U.S. bond and bill supply will also matter, making liquidity in thin markets more ice for price slippage. Bond yields remain key to trading into Christmas.

• The USD weakness isn’t seasonal. The JPY moves lead the G10 on intervention rhetoric. Australia gains on the RBA minutes. The CAD gains on commodities and housing market opening plans. The dollar is at a breakout level for the EUR, testing 1.18 again.

Bottom line: How 2026 starts hinges on today’s market outcome. With holidays for most of the world beginning tomorrow, U.S. data on growth, inflation and jobs will set the tone for FOMC expectations. Dollar weakness and equity strength leave bonds as the key tiebreaker, stuck in a tight range ahead of more supply, with yields eyed at 4.0% or 4.25%. Expectations that AI spending and other investment trends will continue unabated require lower rates and more borrowing into the new year. 

What You Need to Know

Japan’s finance minister Satsuki Katayama said authorities have a “free hand” take bold action against yen movements that are not aligned with economic fundamentals, warning that the recent depreciation reflected speculative activity. Speaking in an interview, she cited the Japan–U.S. finance ministers’ joint statement as providing scope for intervention during periods of excessive volatility, implying Washington’s tacit approval. Her comments briefly supported the yen after it weakened despite a widely anticipated rate hike by the Bank of Japan, with markets disappointed by the lack of clearer guidance on further tightening. Katayama declined to specify intervention thresholds, stressing flexibility and preparedness. She also acknowledged near-term fiscal strains from aggressive growth-oriented budgets and rising bond yields, while arguing these pressures would be temporary as investment and tax revenues improve. In separate comments made overnight, she also said that some FX moves were “not in line with fundamentals.” Nikkei +0.021% to 50412.87, USDJPY –0.771% to 155.84, 10y JGB –5.1bp to 2.034%.

Trump said it would be “smart” for Venezuelan President Nicolás Maduro to step down, as he reiterated threats against the Maduro government while the U.S. continued efforts to seize an oil tanker off Venezuela’s coast. Speaking in Florida, Trump declined to define Washington’s endgame, but again raised the prospect of force, saying the U.S. had a “massive armada” in the region. He confirmed authorities remain in active pursuit of the Bella 1 tanker, which U.S. officials view as part of a shadow fleet transporting sanctioned Venezuelan oil. The operation follows earlier interdictions of other vessels this month and coincides with an expanded U.S. naval presence in the Caribbean. Trump also said the U.S. would keep any seized oil, potentially adding it to strategic reserves, as pressure on Venezuela’s oil revenues intensifies. IBVC –1.054% to 1548.78, USDVES +6.117% to 288.0004, 10y VGIB +0.3bp to 32.108%.

Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto said follow-up negotiations on trade tariffs between the U.S. and Indonesia were progressing well, following talks in Washington, with U.S. Trade Representative Jamieson Greer. Speaking at a press conference on Tuesday, Airlangga said the meeting produced several agreements, including a commitment to accelerate work on a draft tariff agreement targeted for completion ahead of 2026. Both sides agreed on a framework timetable under which Indonesian and U.S. technical teams will resume discussions in the second week of January. Airlangga said the aim is to finalize the relevant documentation within one week after the technical process concludes, with the entire process expected to be completed before the end of January. JCI –0.706% to 8584.782, USDIDR +0.024% to 16780, 10y IDGB –0.7bp to 6.151%.

Thailand’s finance ministry said it is considering measures to curb gold trading activity, including a possible tax on online gold transactions and limits on trading volumes, amid a sharp appreciation of the baht. The currency has risen about 10% against the dollar this year, making it Asia’s best performer and pushing it to a more than four-year high. Officials said the baht’s strength has been driven by “huge” gold trading volumes rather than economic fundamentals. Central bank governor Vitai Ratanakorn said authorities would manage unusually large baht-denominated gold transactions and set maximum trading volumes for major gold traders. The central bank has already tightened scrutiny of foreign exchange flows linked to gold trading, while the finance minister has warned that an overly strong baht is weighing on the economy. SET +0.038% to 1270.16, USDTHB –0.177% to 31.125, 10y TGN –2.1bp to 1.678%.

The Hungarian forint weakened after Economy Minister Marton Nagy renewed criticism of the central bank, calling for lower interest rates and questioning policies that have supported the currency. In an interview, Nagy argued that slowing inflation has created scope for rate cuts and said an easing cycle would help maintain budget stability, reviving rhetoric that has previously pressured the forint. The currency fell as much as 0.7% to 391.42 per euro, its weakest intraday level since October, before recovering some losses. Nagy also criticized carry trades, saying they artificially inflated the forint and were driven by short-term flows rather than durable confidence. The comments came despite the central bank holding rates steady for over a year, while signaling it could consider a policy pivot next year if data allow. Budapest SI –0.239% to 110626.1, EURHUF +0.461% to 390.51, 10y HGB –2bp to 6.78%.

Taiwan’s Financial Supervisory Commission is set to ease accounting treatment for exchange rate valuation in the life insurance industry starting in 2026, allowing insurers to amortize unrealized foreign exchange gains and losses over the remaining period of certain debt investments measured at amortized cost. Life insurers currently hold about NT$18tn in assets classified under amortized cost. These assets will be eligible for reclassification when the industry transitions to the new accounting standards next year, meaning the scale is subject to change. The FSC will ask insurers to use savings from reduced hedging costs to increase FX reserves and strengthen capital. TAIEX +0.571% to 28310.47, USDTWD –0.035% to 31.525, 10y TGB +2.1bp to 1.36%.

What We're Watching

U.S. ADP weekly employment change is expected to be up by 12,000 after increasing to 16,250 last week.

U.S. Q3 GDP is forecast to slow to 3.2% y/y from 3.8% in Q2; core PCE is expected to tick higher to 2.9% y/y from 2.6% y/y in Q2 2025.

U.S. October durable goods orders are forecast to decline by 15% m/m (September: 0.5%) while orders ex-transportation are expected to rise +0.3% m/m (September: 0.6%). Capital goods orders for non-defense ex-aircraft and parts are expected to slow to 0.3% m/m from 0.9% m/m.

U.S. November industrial production and manufacturing production are both expected at 0.1% m/m (October: 0.1% and 0%, respectively). November capacity utilization is expected to remain unchanged at 75.9%.

U.S. December Richmond Fed Manufacturing Index is forecast to improve by five points, from –15 to –10.

U.S. December Conference Board Consumer Confidence is expected to improve from 88.7 to 91. Key interest remains on perceptions of jobs availability – “easy” vs. “hard” to get.

The U.S. Treasury will sell $75bn in 6-week bills, $50bn 52-week bills, a $28bn reopening of 2y floating rate notes (FRN), and $70bn of new 5y notes. 

What iFlow is Showing Us

Mood: iFlow Mood continues to ease at a fast pace, led by equities selling and a pickup in demand for core sovereign bonds. iFlow Mood at 0.207.

FX: DKK, PLN, COP and KRW posted the strongest inflows, while outflows were dominated by HUF, AUD and IDR. USD was bought, with scored holdings at –1.19 against light outflows in EUR, GBP, JPY and CNY.

FI: There was strong demand for government bonds in the Eurozone, Japan, Colombia and Mexico and light selling in Peru, Turkey, Australia and Sweden.

Equities: Equities were broadly sold, except for selected buying in Brazil, Türkiye, New Zealand, China and Indonesia. U.S, Europe, U.K. Canada, Mexico and South Korea equities were significantly sold. 

Quotes of the Day

“If it weren’t for the last minute, nothing would get done.” – Rita Mae Brown

“Last-minute effort does not make up for years of neglect.” – Frank Sonnenberg

Economic Details

Germany’s November import prices fell 1.9% y/y, marking the steepest annual decline since March, while rising 0.5% m/m, according to Destatis. The drop was driven mainly by energy prices, which declined 15.7% y/y despite a 3.1% m/m increase, with all major energy components cheaper than a year earlier. Excluding energy, import prices fell 0.3% y/y and rose 0.3% m/m. Prices for agricultural goods, investment goods and consumer goods were lower on the year, while intermediate goods prices edged higher. Export prices increased 0.3% y/y and 0.2% m/m, supported mainly by higher prices for intermediate and capital goods. Energy export prices were down 6.2% y/y but rose m/m, while food-related price movements remained mixed. DAX +0.03% to 24291.22, EURUSD +0.196% to 1.1785, 10y Bund –2.6bp to 2.871%.

Germany’s October construction orders fell 11.8% m/m in real, seasonally and calendar-adjusted terms, reflecting a sharp correction after September recorded the highest level since March 2022 due to large-scale contracts. The decline was driven by a 5.8% drop in building construction and a 16.9% fall in civil engineering. In three-month terms, however, orders were 3.5% higher than in the previous period, supported by strength in building construction. On a y/y basis, real construction orders rose 2.4%, with building construction up 8.1% and civil engineering down 2.5%, while nominal orders increased 4.4%. Construction turnover rose 4.5% y/y in real terms and 7.0% nominally, with employment in the sector up 1.3% y/y.

Germany’s Q3 residential property prices rose 3.3% y/y, marking the fourth consecutive annual increase, while prices increased 1.0% q/q, according to provisional data from Destatis. Price gains were recorded across all regions compared with a year earlier. Single- and two-family house prices rose most in urban districts and independent cities, while apartment prices saw particularly strong increases in urban areas and densely populated rural districts. In the seven largest cities, prices for houses and apartments both increased by around 3% y/y. On a q/q basis, price developments were more mixed, with the strongest gains seen for apartments in densely populated rural areas, while declines were recorded for houses in densely populated rural districts and apartments in sparsely populated rural regions.

Germany’s November tax revenues fell 1.3% y/y to €60.2bn, according to the finance ministry, marking a monthly decline despite weaker economic conditions. Over the January–November period, total federal and state tax revenues increased 5.2% y/y to €786.44bn. The data come as Germany’s economy remains under pressure after contracting for a second consecutive year in 2024, with stagnation expected this year. Looking ahead, tax experts forecast revenues of €903.77bn in 2025, representing a 5.0% increase from the previous year, suggesting a continued rise in fiscal receipts despite subdued growth prospects.

Spain’s Q3 GDP grew 0.6% q/q, a slight slowdown from the previous quarter, while y/y growth eased to 2.8% from 2.9%, according to national accounts data. Domestic demand remained the main driver, contributing 3.8 percentage points to y/y growth, while net external demand subtracted a 1.0 percentage point as imports outpaced exports. Household consumption rose 1.1% q/q and 3.2% y/y, public consumption increased 1.3% q/q, and gross capital formation expanded strongly, up 2.1% q/q and 8.0% y/y. On the supply side, services, construction and industry all posted positive growth, while primary sectors contracted. Employment continued to rise, with hours worked up 2.5% y/y and full-time equivalent jobs increasing 3.3% y/y, though productivity remained weak. IBEX 35 –0.452% to 17066, EURUSD +0.196% to 1.1785, 10y Bono –3.5bp to 3.298%.

Spain’s November industrial producer prices fell further into deflation, with the Industrial Price Index down 2.5% y/y, a sharp deterioration from October, while prices declined 0.4% m/m. The annual fall was driven mainly by energy, where prices dropped 9.1% y/y, as electricity and gas prices fell compared with last year, offsetting rises in oil refining. Excluding energy, industrial prices rose 0.5% y/y, highlighting a widening divergence between energy and core industrial prices. On a monthly basis, declines in electricity and gas prices weighed most on the index, partially offset by higher prices for petroleum refining and non-ferrous metals. Regionally, producer prices fell in all autonomous communities except Cantabria, with the steepest declines in the Canary Islands, Asturias and the Balearic Islands.

The U.K.’s December business confidence improved as firms became more optimistic about the economic outlook following the late-November Budget, according to Lloyds. The bank’s business barometer rose five points to a net balance of 47%, its highest level since October and around 10 points above levels seen at the start of the year. Lloyds said the improvement was driven by an 11-point rise in optimism about the wider economy, with confidence in the construction sector increasing to its highest level of the year. The pickup followed relief that businesses avoided significant new tax burdens in the Budget, despite £26bn in tax rises overall. The improvement came even as official data confirmed U.K. growth slowed sharply in the second half of the year. FTSE 100 +0.11% to 9876.84, GBPUSD +0.335% to 1.3506, 10y gilt –2.5bp to 4.511%.

Sweden’s November producer prices remained in deflationary territory, with the Producer Price Index down 1.4% y/y, while prices rose 1.2% m/m, according to Statistics Sweden. Monthly gains were broad-based, with prices up 1.8% on the domestic market, 0.6% on the export market and 0.4% on the import market, driven mainly by higher electricity trade services and refined petroleum products. Despite this, annual rates on both export and import markets stayed negative at -4.9% y/y and -4.4% y/y, respectively. Energy-related producer prices increased 2.8% y/y, while consumer and capital goods prices declined. Excluding energy, producer prices fell 2.0% y/y, indicating persistent underlying price weakness despite near-term cost pressures. OMX +0.2% to 2850.746, EURSEK –0.148% to 10.8485, 10y Swedish GB –4.2bp to 2.876%.

Norway’s November household debt growth accelerated, with the 12-month growth rate rising to 4.5%, up from 4.4% in October, reaching its highest level so far this year, according to Statistics Norway. Total household debt amounted to NOK 4,649bn at the end of November. The increase followed two months of stable growth and reflects a gradual pickup since January. By contrast, overall domestic credit growth was unchanged at 3.9% y/y, as stronger household borrowing was offset by weaker trends elsewhere. Debt growth among non-financial corporations remained subdued at 1.8% y/y, while municipal debt growth slowed to 6.7% from 7.4% previously. Statistics Norway noted that expectations of future interest rate cuts could support further increases in household debt growth in the months ahead. OSE –0.056% to 1661.5, EURNOK –0.143% to 11.8711, 10y NGB –1.4bp to 4.175%.

Poland’s July employment rate remained at 5.6%y/y, with the number of employed persons in the national economy standing at 15.08mn, down 0.1% y/y and 0.4% m/m, according to Statistics Poland. Men accounted for 52.7% of total employment, with male employment declining y/y, while female employment rose slightly. The workforce continued to age, with both mean and median ages reaching 43. Employment remained most concentrated in manufacturing, which accounted for 18.2% of total jobs, followed by trade and vehicle repair at 14.4%, though both sectors recorded y/y declines. The sharpest employment fall was in agriculture, forestry and fishing, while education, public administration and construction saw increases. Employees made up nearly four-fifths of total employment, with little change in employment structure.

Poland’s November industrial production data showed a mixed picture across major products, with output increases recorded for a minority of items amid broad-based weakness. Manufactured production was higher than a year earlier for 192 products, while declines were recorded for 274, reflecting continued pressure across several industrial segments. Sharp y/y falls were seen in selected textiles, pharmaceuticals, beverages and household appliances, while notable increases were recorded in food processing, selected chemicals and textiles. On a m/m basis, production fell for the majority of products, indicating weak short-term momentum. From January through November, production increased for 239 products, including optical fiber cables, prepared meals and public transport vehicles, but declined for 229 items, notably machinery, clothing and refined food oils. Sold production followed a similar pattern, highlighting uneven and fragile industrial conditions. WIG –0.335% to 116180.9, EURPLN +0.178% to 4.2244, 10y PGB –2.9bp to 5.164%.

Hungary’s Q3 balance of payments showed a current account surplus of €932mn, while the combined current and capital account surplus reached €1.23bn on a seasonally adjusted basis, equivalent to 2.2% of quarterly GDP, according to the central bank. The goods balance remained in deficit as both exports and imports declined q/q, but a larger surplus in services partly offset this, led by travel and other services. The primary income deficit narrowed, while the secondary income balance deteriorated. Net foreign direct investment recorded a €2.0bn net inflow during the quarter. Hungary’s net international investment position stood at –€84.0bn, or –39.7% of GDP, while international reserves rose to €47.7bn by end-September, supported by valuation effects and transactions. Budapest SI –0.239% to 110626.1, EURHUF +0.461% to 390.51, 10y HGB –2bp to 6.78%.

Czech business cycle surveys for December showed a m/m decline in overall confidence toward year end, reflecting weaker sentiment across most sectors. Business confidence increased only in construction, rising 3.5 points, while it fell in selected service sectors by 2.5 points, in industry by 2.0 points and marginally in trade by 0.6 points. Consumer confidence also edged lower, with the indicator down 0.6 points to 111.1. Most consumers expected the overall economic situation to deteriorate over the next 12 months, while expectations for household financial improvement were broadly unchanged. Assessments of current household finances remained stable, and the share of respondents planning no major purchases declined slightly for a second consecutive month. Prague SE –0.023% to 2665.48, EURCZK –0.021% to 24.332, 10y CZGB –1.1bp to 4.65%.

Japan’s November machine tool orders rose 14.8% y/y, reversing a decline in June and extending a clear recovery trend driven by foreign demand. Overseas orders increased a strong 23.6% y/y, while domestic orders fell 6.8% y/y, highlighting an uneven recovery. By sector, shipbuilding and transport equipment surged 204.3% y/y and aircraft orders jumped 97.9% y/y, while autos rose 20.9% y/y. In contrast, orders for steel and non-ferrous metals, precision machinery and industrial machinery declined sharply on a y/y basis. On a m/m basis, total orders fell 4.5%, reflecting renewed weakness in domestic demand, while foreign orders declined 2.5%. In value terms, total orders stood at ¥137.0bn, with foreign orders accounting for the majority. Nikkei +0.021% to 50412.87, USDJPY –0.771% to 155.84, 10y JGB –5.1bp to 2.034%.

The minutes from the December RBA decision showed monetary policy board members were attentive to global financial conditions, noting a brief deterioration in equity market sentiment amid valuation concerns, followed by a rebound in many advanced economies, while Australian equities underperformed as markets repriced the domestic policy rate outlook. Investors were judged to be pricing a benign global outlook, with low-risk premia across equity and credit markets. In Australia, market expectations shifted from a prospective rate cut to a possible increase by the end of 2026, reflecting stronger inflation, labor market and GDP data, and RBA communication. Financial conditions were assessed as having eased overall, though indicators were mixed. On the economy, members identified upside risks to inflation from recent CPI and cost data, while stressing uncertainty around persistence. Labor market conditions were seen as still a little tight, with excess demand likely positive, supporting the decision to hold the cash rate steady. ASX +0.104% to 5321.13, AUDUSD +0.481% to 0.6689, 10y ACGB –4bp to 4.754%.

South Korea’s December export review showed exports in January–November rose 2.9% y/y to USD 640.1bn, marking the highest level on record for the period, according to the Ministry of Trade, Industry and Energy. Five product categories – semiconductors, automobiles, ships, biohealth and computers – led overall growth. Semiconductor exports were boosted by strong AI data center demand and rising memory prices, setting multiple new monthly records during the year. Automobile exports reached a cumulative record despite weaker shipments to the U.S., supported by strong growth to the EU and CIS markets. Officials noted exports have remained positive for six consecutive months since June, and that cumulative shipments by December 22 had already surpassed the previous full-year record. The government said it would continue to support market and product diversification and strengthen trade support measures. KOSPI +0.277% to 4117.32, USDKRW +0.054% to 1481.5, 10y KTB +1bp to 3.365%.

South Korea’s November retail sales rose 4.2% y/y, supported by a rebound in domestic consumption and improved consumer sentiment, government data showed. Sales at major offline retailers increased 2.9% y/y, while major online platforms recorded a stronger 5.3% gain, according to the Ministry of Trade, Industry and Resources. The ministry cited a rise in the consumer sentiment index to 112.4, the highest level in seven years. Department store sales jumped 12.3% on stronger demand for winter clothing, foreign brands and food, while convenience store sales edged up 0.7%. By contrast, supermarket sales fell 9.1% y/y amid weak food sales. Online food and cosmetics sales rose sharply, while sports and fashion categories declined. Online channels accounted for 54.1% of total retail sales.

Singapore’s November CPI rose 1.2% y/y, with prices up 0.2% m/m, while MAS core inflation was 1.2% y/y and fell 0.1% m/m. Inflation was driven by health costs, which rose 4.4% y/y, reflecting higher health insurance premiums and transport prices, which increased 3.2% y/y despite a m/m decline. Food inflation stood at 1.2% y/y, with limited monthly pressure. Housing and utilities prices rose 0.2% y/y, while clothing and footwear prices fell 0.5% y/y. Measures excluding accommodation and excluding imputed rentals both rose 1.5% y/y, indicating that underlying inflation pressures remained contained overall. STI +0.587% to 4637.36, USDSGD –0.257% to 1.2855, 10y SGB –0.1bp to 2.201%.

The Philippines’ November budget swung back into deficit at ₱157.6bn, reversing an October surplus, as revenue growth lagged spending cuts. Revenues rose 0.7% y/y to ₱340.7bn, supported by modest gains at the Bureau of Internal Revenue and Bureau of Customs, but were down sharply m/m. Spending fell 9.6% y/y to ₱498.3bn, reflecting a decline in primary expenditure despite higher interest payments. From January through November, the cumulative deficit narrowed to ₱1.26tn, compared with ₱1.18tn a year earlier, as revenues increased 1.1% y/y while expenditure rose 2.5%. Interest costs continued to grow at a double-digit pace y/y, underscoring ongoing fiscal pressures despite efforts to restrain overall outlays. PSEi +0.011% to 6041.91, USDPHP +0.218% to 58.845, 10y PHGB +0.8bp to 5.882%.

Taiwan’s November export orders rose 39.5% y/y to US$72.9bn, while increasing 5.1% m/m, driven by strong demand for AI, high-performance computing and cloud-related applications. Orders for information and communications products surged 69.4% y/y and electronic products rose 47.9% y/y, reflecting robust demand for servers, networking equipment, IC manufacturing and memory. By contrast, traditional sectors remained under pressure, with plastics and rubber products down 15.8% y/y, chemicals down 12.5% y/y and basic metals down 0.5% y/y, partly offset by a 6.9% rise in machinery orders linked to semiconductor equipment. By region, orders from the U.S. increased 56.1% y/y, Europe rose 26.0% y/y and ASEAN gained 60.2% y/y. Cumulative export orders for January–November rose 24.2% y/y. TAIEX +0.571% to 28310.47, USDTWD –0.035% to 31.525, 10y TGB +2.1bp to 1.36%.