Key Highlights

• China to impose up to 42.7% preliminary import duties on EU dairy, starting December 23
• India–New Zealand free-trade agreement makes 95% of New Zealand’s exports tariff-free
• Japan’s currency chief warns on “sudden” JPY weakness, signals action on excessive moves 

Chart of the Day

Chinese equities materially outperforming APAC peers

^{Source: BNY}

The flurry of Chinese onshore initial public offerings (IPOs) has offset a more difficult global risk environment. Despite a run of weak domestic data and seasonal challenges, Chinese equity flows have recovered to their strongest weekly levels since mid-Q1 this year. Normally, strong Chinese equity inflows would support the region. However, on an aggregate basis, EM APAC has shifted back into net selling, albeit marginally.

This divergence also came through in Q1. On a sectoral basis, Industrials and Materials, not Tech, have been performing strongly in EM APAC. China’s dominance in these segments suggests that cross-border interest in local stocks is likely concentrated in these names. These flows may be targeting exposures to potential fiscal stimulus in Q1 2026. This now appears more urgent given weaker domestic spending and industrial production.

If China and EM APAC flows continues to diverge, it may be a sign markets are increasingly concerned about Beijing’s export capabilities. The surge in Chinese exports has adversely impacted regional economies aiming to move up the manufacturing value chain but finding it difficult to compete with China’s industrial prowess. Despite talk of China’s anti-involution policies and capacity management, the market remains skeptical. Economies facing intense competition are unlikely to improve their position soon, and equity performance may continue to struggle. 

What's Changed?

A winter holiday market with a Santa Claus rally lifts APAC equities, though not yet EMEA. U.S. futures are higher, with markets eyeing the S&P 500 testing 6,900. AI investments in data centers continue to surge, supporting global tech shares. Overnight focus included the China Vanke deal, where bondholders extended a repayment grace period to January 27, not one year. EU defense shares also rose on optimism around peace talks.

• Russia–Ukraine peace talks send mixed signals. Miami talks between Russia, Ukraine and U.S. envoy Steve Witkoff were described as productive and constructive, but TASS reported that Foreign Policy Aide Yuri Ushakov called most proposals “rather unconstructive.” U.S. intelligence also reports Putin’s goal of taking Ukraine remains unchanged.

• Gold hits a new record high, up 1.7% to $4,412 per ounce after touching $4,420, while silver also climbs to a record $69.44. Gold is having its best year since 1979, up 69% y/y. Momentum from December’s 4% rise and currency concerns – USD down 1.6% this month – are key drivers.

• Oil bounces, with WTI up 0.9% to $57 per barrel, after the U.S. seized another oil tanker near Venezuela and chased a third. Fallout from the oil embargo is visible in Cuba, where the economy is suffering from energy shortages. Ukraine’s drone attack on a Russian tanker adds to supply disruption and inflation outlooks.

• U.S. bond markets remain focused on supply, tariffs and Fed policy. Weekend commentary from Cleveland Fed’s Beth Hammack suggests holding rates steady until March, while NEC’s Kevin Hassett warns of market havoc if the Supreme Court rules against tariffs, both adding to rate volatility. Big moves in Japanese and Australian rates also matter. The $69bn U.S. 2y auction is balanced by strong cash demand. The FT notes Apollo Global is building cash reserves and cutting leverage. Focus remains on the 10y, stuck in a tight 4.10–4.20% range.

• For FX, USD is weaker, as NZD gains on the India trade deal and ZAR rises on carry trades. GBP and AUD also advance, supported by steady U.K. GDP as expected. Keep an eye on CAD today, as PM Mark Carney builds toward a majority by playing his Alberta card against Tories. C$ watching 1.3750 for a potential USD breakdown.

Bottom line: We are watching this winter holiday market with trepidation, not joy – despite gains in Asia. Europe remains mixed, and the U.S. still faces doubts around rates, the dollar and policy pronouncements.

The upheavals of 2025 have delivered macro trading success but broader economic gains remain elusive. If uncertainty takes a holiday, risk appetite could return in 2026. 

What You Need to Know

China kept its Loan Prime Rates (LPR) unchanged in December 2025. The People’s Bank of China (PBoC) announced the 1y LPR at 3.00% and the 5y and above LPR at 3.50%, unchanged from November 2025. This marks the sixth consecutive month of no adjustment since June. Despite the steady policy rates, effective borrowing costs continued to ease. In November 2025, the weighted average interest rate on newly issued corporate loans (RMB and FX) fell to 3.1%, around 30 bp lower y/y. For new personal housing loans, the weighted average rate was also 3.1%, about 3 bp lower y/y. The divergence highlights ongoing transmission through pricing competition and targeted measures rather than benchmark rate cuts, suggesting policymakers remain cautious on headline easing while allowing market-driven declines in lending rates to support growth, particularly in the property and corporate sectors. CSI 300 +0.951% to 4611.62, USDCNY +0.049% to 7.0376, 10y CGB +1.2bp to 1.84%.

The PBoC implements a one-time credit restoration policy to support individuals with damaged credit actively repaying their debts. If the individual fully repaid the overdue debt by November 30, 2025, the financial credit information database will not display the relevant overdue information from January 1, 2026.

New Zealand and India have concluded a landmark Free Trade Agreement (FTA) after nine months of negotiations. The FTA eliminates or reduces tariffs on 95% of New Zealand’s exports, with 57% duty free from day one, rising to 82% upon full implementation, and the remaining 13% subject to sharp tariff cuts. Key sectors benefiting include sheep meat, wool, forestry, seafood, dairy, apples, kiwifruit, and mānuka honey. The agreement also covers services, skilled work visas and protections for geographical indications. New Zealand has committed to facilitate investments of USD 20bn into India over the next fifteen years, thereby supporting manufacturing, infrastructure, services, innovation and employment under India’s Make in India vision.  The FTA is expected to boost exports by billions and create thousands of jobs, with signing anticipated in H1 2026. NZX 50 +1.312% to 13508.3, NZDUSD +0.435% to 0.5782, 10y NZGB +7.5bp to 4.475%.

Indian banks and NBFCs have begun tightening lending limits on gold loans after the Reserve Bank of India (RBI) flagged concerns over rising volatility in gold prices. Sources said the regulator has advised lenders to exercise caution in the gold loan segment. Institutions that earlier extended loans at higher loan-to-value (LTV) ratios of 70-72% have now scaled back to 60-65%, reflecting a more conservative stance. SENSEX +0.649% to 85480.39, USDINR +0.121% to 89.545, 10y INGB +4.6bp to 6.648%.

U.K. Q3 2025 real GDP grew by 0.1% q/q, 1.3% y/y in Q3 2025 (July–Sept), down from 0.2% q/q, 1.2% y/y in Q2 2025. Output growth was driven by services +0.2% q/q and construction +0.2% q/q, offset by production –0.3% q/q. Within services, financial & insurance +1.0% q/q and real estate +0.4% q/q led, while professional /scientific/technical –0.6% weighed. On expenditure, GDP growth was supported by household consumption +0.3% q/q and government consumption +0.4% q/q, plus GFCF +1.3% q/q (but revised down); business investment +1.5% q/q (revised up). Trade: deficit 0.6% of nominal GDP, excluding non-monetary gold. Real GDP per head flat q/q; Real Household Disposable Income (RHDI) per head –0.8% q/q; saving ratio 9.5% (Q2: 10.2%). FTSE 100 -0.281% to 9869.59, GBPUSD +0.329% to 1.3423, 10y gilt +0.5bp to 4.529%.

The Hong Kong Insurance Authority is proposing a slate of new rules to channel insurance capital into assets, including cryptocurrencies and infrastructure. The insurance regulator would impose a 100% risk charge on crypto assets, according to a presentation on December 4 seen by Bloomberg News. Stablecoin investments would attract risk charges based on the fiat currency the Hong Kong-regulated stablecoin is pegged to, the document showed. The regulator’s proposal, which could still change, will be open for public consultation from February through April, followed by legislative submissions. Hang Seng +0.433% to 25801.77, USDHKD +0.025% to 7.7792, 10y HKGB –1.2bp to 1.417%.

What We're Watching

U.S. September Chicago Fed National Activity Index forecast at –0.17, after –0.12, with the ongoing weakness highlighting a Q4 slowdown.

U.S. Treasury sells $86bn in 13-week bills, $77bn 26-week bills and $69bn new 2y notes.

Mexico’s October economic activity forecast is up 0.5%, after –0.6% m/m. This matters for rates, as the pace of Banxico easing is in doubt, similar to the Fed. 

What iFlow is Showing Us

Mood: iFlow Mood is drifting lower at 0.247, from 0.30 early last week, driven by a shift from equities inflows to selling and rising demand for core sovereign bonds.

FX: COP, PLN, CHF, DKK and KRW posted the inflows, while HUF, CZK, AUD and IDR saw the largest outflows within the iFlow Universe. A continued trend of USD inflows trend has further narrowed USD-scored holdings to –1.18.

FI: Broad demand for sovereign bonds was observe across iFlow Universe, led by Eurozone, Japan, Colombia and Mexico. There was limited selling in Turkey, Thailand and Australia.

Equities: APAC equities saw outflows, with significant selling in Taiwan and South Korea, while demand for Chinese equities continued. Elsewhere, the bias was toward selling, led by Europe, U.S., Canada, U.K. and Mexico, except for buying in Brazil and Turkey. Within EM APAC, information technology, communication services and consumer staples sectors were sold against strong buying in materials and industrials sectors.

Quotes of the Day

“To appreciate the beauty of a snowflake, it is necessary to stand out in the cold.” – Aristotle

“Advice, like snow, the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge

Economic Details

The Netherlands November House price rose 0.3% m/m, 6.1% y/y from 0.5% m/m, 6.6% y/y in October. This marks a continued upward trend since June 2023, with prices 14.9% above their July 2022 peak. The price index for existing owner-occupied homes reached 152.8 (2020=100). Housing transactions increased by over 1% y/y to 18,224 in November, with 211,541 homes sold in the first eleven months (+16% y/y). The average transaction price was €477,531. AEX +0.06% to 945.16, EURUSD +0.214% to 1.1735, 10y NGB –0.8bp to 3.005%.

The investment in tangible fixed assets in the Netherlands declined by 0.4% y/y vs. 2.7% y/y in September, mainly due to reduced spending on other road transport (lorries, trailers, vans). However, investments increased in machinery (including defense equipment), infrastructure, and passenger cars (September 2025: +2.7% y/y). The CBS Investment Radar for December indicates a less unfavorable investment climate compared to October, driven by higher goods exports and rising share prices. These figures are provisional and unadjusted for calendar effects.

Poland’s November retail sales slowed to 3.1% y/y from 5.4% y/y in October. Breakdowns showed that significant y/y increases were seen in furniture, radio, TV, household appliances (+16.6%), motor vehicles and parts (+12.9%), and textiles, clothing, footwear (+12.2%). Sales of food, beverages, and tobacco fell by 2.9% y/y. Internet retail sales rose 6.6% y/y, with online share increasing to 11.0%. WIG +0.497% to 116122.2, EURPLN +0.112% to 4.2065, 10y PGB –0.4bp to 5.207%.

Italy’s November industrial producer prices rose by 1.0% m/m, driven by +1.3% m/m in the domestic market and +0.3% m/m in the foreign market. However, prices declined by 0.2% y/y (–0.3% y/y domestic, +0.6% y/y foreign). Over the past three months, industrial prices rose by 0.2% q/q (+0.1% q/q domestic, +0.4% q/q foreign). Construction producer prices for residential and non-residential buildings increased 0.3% m/m and 2.1% y/y, while prices for roads and railways rose 0.5% m/m and 1.0% y/y, respectively. Over the past three months, residential and non-residential construction prices rose 0.3% q/q, while prices for roads and railways remained flat. FTSEMIB +0.046% to 44778.12, EURUSD +0.214% to 1.1735, 10y BTP –1.5bp to 3.57%.

South Korea’s exports in the first 20 days of December rose 6.8% y/y to $43bn, while imports increased 0.7% y/y to $39.2bn leaving a trade surplus of $3.815bn. Chip exports remained strong, up 41.8% y/y to $11.65bn, accounting for 27.1% of total exports. Car shipments dropped 12.7% y/y to $3.25bn, and petroleum exports declined 1% y/y to $2.63bn. Exports to China rose 6.5% y/y to $8.58bn while exports to the U.S. and European Union fell –1.7% y/y to $7.87bn and –14% y/y to $3.71bn, respectively. KOSPI +2.124% to 4105.93, USDKRW –0.173% to 1480.6, 10y KTB +4.5bp to 3.355%.

Malaysia’s November CPI rose to 0% m/m, 1.4% y/y from -0.1% m/m, 1.3% y/y in October. Core inflation stood unchanged at 2.2% y/y. Key inflation drivers included Education (+2.6%), Alcoholic Beverages & Tobacco (+2.4%) and Transport (+0.2%). Slower increases were seen in Personal Care & Social Protection (+5.6%), Housing & Utilities (+0.7%) and Furnishings (+0.2%). KLCI +0.187% to 1669.02, USDMYR –0.037% to 4.0775, 10y MGB –1.2bp to 3.551%.

Malaysia’s December international reserves amounted to $124.3bn. The reserves position is sufficient to finance 4.8 months of imports of goods and services and is 0.9 times the total short-term external debt.

Taiwan’s November employment reached 11.639mn, up 0.04% from October. Unemployment fell 0.86% to 401,000, with a rate of 3.33% (down 0.03 percentage points), while the seasonally adjusted rate rose slightly to 3.35% (+0.02 percentage points). Labor force participation increased marginally to 59.57% (+0.03 percentage points). Underemployment indicators showed slight monthly declines. Four-week unemployment fell to 3.37% (-0.02 percentage points), while other labor utilization rates also decreased. The labor force outside employment decreased by 7,000 (–0.09%). Overall, labor market conditions showed modest improvement in November. TAIEX +1.637% to 28149.64, USDTWD +0.01% to 31.523, 10y TGB +0.8bp to 1.34%.

Hong Kong’s Q3 2025 balance of payments showed a deficit of HK$136.5bn (16.0% of GDP), reversing a HK$105.5bn surplus in Q2. The current account surplus narrowed to HK$98.2bn (11.5% of GDP) from HK$113.2bn a year earlier, due to lower net primary income inflows despite a higher services surplus. Goods surplus rose to HK$1.5bn. Financial non-reserve assets increased by HK$271.0bn (31.7% of GDP). The International Investment Position recorded net external financial assets of HK$19,649.9bn, equivalent to six times GDP). External debt rose to HK$15,746.1bn (4.8 times GDP), with 52.3% held by the banking sector. Hang Seng +0.433% to 25801.77, USDHKD +0.025% to 7.7792, 10y HKGB –1.2bp to 1.417%.

Hong Kong’s November CPI held steady at 1.2% y/y. Underlying inflation, excluding government one-off relief measures, remained at 1.0% y/y. Key contributors to inflation included transport (+3.5% y/y), alcoholic drinks and tobacco (+2.1% y/y), housing (+1.6% y/y), and meals out (+1.3% y/y). Deflation was seen in clothing and footwear (–4.1% y/y), durable goods (–3.3% y/y), and utilities (–0.5% y/y). Seasonally adjusted monthly inflation averaged 0.1% over the past three months. The government expects inflation to remain modest, with cost pressures seen as contained.