Key Highlights

• Copper rallies past $13,000/ton on fears of tightening supply.
• Chinese equities hit four-year high amid optimism over AI investments and growth.
• Ukraine’s allies will meet in Paris today to accelerate peace efforts.

Chart of the Day

LME Base Metals Index hits record highs

^{Source: BNY}

Industrial metals have continued to post solid gains. Copper’s latest rally above $13,000/ton has helped push the London Metal Exchange Index (LMEX) to a record high. This surpasses the 2021 high, set at a time when global supply constraints were acute amid the first re-openings after the pandemic. The index tracks the prices of aluminum, copper, zinc, lead, nickel and tin traded on the LME, and over the past quarter its total return has surpassed that of gold.

The prospect of renewed U.S. tariffs to support domestic production remains a core price driver, with U.S. copper inventories continuing to surge at the expense of the LME ahead of a Department of Commerce report on U.S. copper markets. However, the demand drivers are mixed: industrial needs for base metals remains strong, but with China also under pressure to cut overcapacity and production amid a general slowdown in investment growth, the sustainability of current prices will remain in doubt. Meanwhile, directly exposed currencies such as CLP and ZAR have performed very strongly over the past six months but will also be subject to the same price sensitivities. We expect some hedging demand to arise as EM central banks continue to look for openings to cut rates, while the Fed is not expected to be overtly dovish for now.

What's Changed?

Equity rallies have extended in Asia, with new records printed for the Nikkei, Kospi and others. By contrast, momentum has stalled in EMEA, and U.S. futures are negative. Gold and silver are still bid, but USD less so, while bonds are mixed and most commodity prices continue to move higher. The supply side of markets is competing with demand to find the clearing price, as is highlighted by the example of copper.

• Policy and asset allocation. There has been a notable shift from bonds to stocks in China linked to policy plans, with 10y yields up 3bp at over 2%. The Japanese prime minister has promised to increase tax revenues without hiking taxes, pushing more public/private investments. The split between China and Japan over Taiwan continues, with export controls placed on Japan’s military. EU bonds have rallied on lower CPI in France and German states, while U.K. PMI shows a steep rise in input prices to a 7-month high. Bonds are down in EMEA on economic data releases and up in the U.S., where IG supply is the driving force.
• Venezuela clarifications. After 2+ hours of briefing, Congress remains split on Trump’s actions in Venezuela. The CIA has advised that keeping loyalists in power following Maduro’s removal is the best path for governing the nation. Venezuela’s new leader, Delcy Rodríguez, is cracking down on dissent – ordering journalists to be arrested and armed patrols in the streets – and on internal fighting. Oil companies in the U.S. are set to meet with Energy Secretary Chris Wright, but there is also a global interest: ENI and Repsol are pushing for $6bn in gas payments due, while others want clarity on investments. Overall, oil is bid as supply issues beat demand doubts.
• CES and Nvidia self-driving chip – The Las Vegas CES convention is driving the tech focus this week, with new chips and new robots on display. Nvidia is debuting a new AI tool for autonomous vehicles and sees 5X computing power with its new chip. The event and its mood remain critical for tech sector momentum.
• Tariff and inflation study. The macro focus in the U.S. this week revolves around jobs; however, next week’s CPI will matter just as much, and the role of tariffs on prices continues to drive expectations. The latest San Francisco Fed Economic Letter argues that “a large tariff increase raises uncertainty, which can depress overall demand and lead to lower inflation.” The FOMC’s view on the data this week will be important, with just one Fed speaker today after the PMI announcement.

Bottom line: There is a sense that momentum has stalled today. This is still just day three of the new year, making it early days for chasing trends. However, equity market returns in the first five days have a 73% correlation to how the entire year performs, making a turnaround Tuesday important to mood and positioning. The focus today is on supply as much as demand from investors: IG issuance is one factor, while service PMI is another as growth and supply of labor remain central to policy. The noise of AI investments is mixing with demand for chips and data centers as today’s third factor. Markets will be looking for clearing prices that balance supply against demand, with USD serving as the shock absorber between bonds and stocks. Watch the U.S. index at 97.90 or 98.80 for a breakout and reversal risk. 

What You Need to Know

Japanese Prime Minister Sanae Takaichi has stated she will not place all responsibility for wage growth on companies, emphasizing the government’s role in boosting predictability for businesses through tax reforms and support for capital investment. In a speech to business leaders in Tokyo, Takaichi outlined plans for multi-year budgets and bold tax reforms aimed at creating an internationally competitive business environment and promoting investment. Her goal is to foster an economic climate where tax revenues rise without increasing tax rates, achieved through significant investment to boost jobs, consumption and corporate earnings. Notably, delegates from the Chinese embassy in Japan were present at the event. Nikkei +1.322% to 52518.08, USDJPY -0.045% to 156.31, 10y JGB +1.1bp to 2.136%.

China has imposed export controls on dual-use items to Japan. In a circular issued by the Ministry of Commerce, Beijing has banned “the export of all dual-use items to Japanese military users, for military purposes, or for any end-use that could enhance Japan’s military capabilities.” It continued, “the ban applies not only to direct exports but also to any organizations or individuals from any country or region who transfer or provide Chinese-origin dual-use items to Japanese entities or individuals in violation of these rules.” The ban comes amid ongoing tensions between China and Japan over Taiwan, though Japanese Prime Minister Takaichi reiterated her call for dialogue today, stressing that Japan “is open to various opportunities for dialogue with China and has never closed the door,” according to Kyodo News Agency.

Ukraine’s allies will hold talks in Paris today, aiming to determine the country’s security arrangements after a potential ceasefire with Russia. However, progress is uncertain, given that the U.S. focus has shifted to Venezuela, leading to changes in the American delegation and casting doubt on the summit’s outcomes. Key priorities for today’s meeting include monitoring a ceasefire, supporting Ukraine’s military, deploying multinational forces and ensuring long-term defense cooperation. Ukraine is seeking firm U.S. guarantees to secure broader allied support, but important details such as European troop deployments remain unresolved, and coalition unity depends on members’ willingness to commit tangible support. PFTS 0% to 461.21, USDUAH +0.256% to 42.5231,10y UGB -0.2bp to 14.033%.

Copper’s latest rally saw prices surge past $13,000 a ton for the first time, reaching a record $13,387 in London as investors bet on tightening supply. Inventories have been drawn into the U.S. amid concerns the Trump administration may impose tariffs on refined copper, leaving global markets potentially short and removing the usual inventory buffer. This, combined with copper’s critical role in sectors like renewables and data centers, has fueled bullish sentiment and a more than 20% price gain since late November. U.S. copper imports have spiked and warehouse stocks in the U.S. have ballooned, while global supply faces pressure from mine disruptions and low smelter fees. Market backwardation and a weaker dollar are further supporting the rally. Aluminum (LME) +2.306% to 3068.49, iron ore (SGX) +0.691% to 106.5, copper (CMX) +1.523% to 606.65.

Chinese stocks have surged to four-year highs, driven by optimism over the country’s AI advancements and early signs of economic recovery. The CSI 300 Index climbed 1.6% and the Shanghai Composite rose 1.5%, with materials and technology shares leading gains. Positive manufacturing data, President Xi Jinping’s upbeat economic outlook and strong momentum in AI-related stocks fueled the rally, supported by Beijing’s backing for key sectors and property market measures. Turnover has hit its highest level since September, and margin loans remain near record levels. While technical indicators suggest the market is overbought, investor confidence remains strong, bolstered by a robust pipeline of AI company listings and breakthroughs in Chinese AI technology. CSI 300 +1.546% to 4790.69, USDCNY -0.109% to 6.981, 10y CGB +2.1bp to 1.877%.

What We're Watching

German December preliminary CPI is expected to recover to 0.3% m/m, 2.1% y/y, from -0.2% m/m and 2.3% y/y in November.

U.S. December final services PMI is expected come in at 52.9 vs. flash of 52.9 and 54.1 in November.

Central bank speakers: Richmond Fed President Tom Barkin speaks on his economic outlook and monetary policy.

U.S. Treasury sells $75bn in 6-week bills.

What iFlow is Showing Us

Mood: iFlow Mood rose slightly to 0.187, led by reduced demand for equities against a pick-up in selling of core sovereign bonds.

FX: Mixed and light flows at the turn of the year. NZD and DKK were most sold followed by USD, EUR and JPY, against inflows in GBP, ZAR, PLN and CZK.

FI: Light buying in LatAm and Indian government bonds and U.K. gilts, while U.S. Treasurys were sold.

Equities: Light flows with a bias toward selling in the G10 complex. The financials, industrials and health care sectors were most sold in developed markets, while the materials and industrials sectors posted the best demand in emerging markets. 

Quotes of the Day

“Supply always comes on the heels of demand.” – Robert Collier

“The price of ability does not depend on merit, but on supply and demand.” – George Bernard Shaw

Economic Details

The Eurozone’s private sector continued to grow for the 12th straight month in December, rounding off the strongest quarterly performance since Q2 2023, though momentum slowed to a three-month low. The HCOB Eurozone Composite PMI fell to 51.5 and the Services PMI to 52.4, both indicating expansion but at a softer pace. Demand for goods and services rose more slowly, with new business growth at its weakest since September and export orders declining sharply. Employment growth ticked up and backlogs were cleared faster, but input cost inflation accelerated to a nine-month high, driven by broad-based price pressures. Output charge inflation remained steady. National data showed Spain leading growth, while France stagnated and Italy and Germany saw slower expansions. Business confidence dipped, especially in services, but manufacturers were more optimistic for 2026. Euro Stoxx 50 +0.045% to 5926.35, EURUSD +0.077% to 1.1731, BBG AGG Euro Government High Grade EUR -2.1bp to 3.023%.

Germany’s service sector growth remained solid but eased for the second consecutive month in December, with the HCOB Germany Services PMI falling to 52.7 from November’s 53.1. The pace of expansion slowed due to a more modest rise in new business, though employment continued to grow for the third month. Input costs and output charges rose at a faster rate, driven by above-average wage increases and persistent labor shortages. Business expectations dropped to their lowest since last April, reflecting concerns about industry competitiveness, geopolitical uncertainty and dissatisfaction with government reforms. The composite PMI showed private sector growth at a four-month low, as new manufacturing orders shrank and export sales fell for the fifth month in succession. Despite these headwinds, demand remained strong enough for services firms to pass on some cost increases to customers. DAX +0.087% to 24890.32, EURUSD +0.077% to 1.1731, 10y Bund +1.3bp to 2.883%.

France’s December provisional Consumer Price Index (CPI) rose by 0.8% y/y, down from 0.9% in November. This slowdown in inflation was mainly due to a sharper decrease in energy prices, especially petroleum products, while food prices – particularly for fresh products – accelerated. Prices of manufactured goods fell at a slower pace than in the previous month, and service and tobacco prices remained stable. On a m/m basis, consumer prices rebounded slightly (+0.1%), driven by seasonal increases in services prices, especially for transport, and a modest rise in food prices, while energy and manufactured goods prices fell. The Harmonized Index of Consumer Prices (HICP) increased by 0.7% y/y. These figures are provisional and subject to revision. CAC 40 0% to 8211.49, EURUSD +0.077% to 1.1731, 10y OAT +2.1bp to 3.594%.

Italy’s December services sector growth softened, with the HCOB Italy Services PMI falling to 51.5 from November’s 55.0. This signals continued but slower expansion. The sector saw the strongest rise in new business inflows in 20 months, mainly driven by domestic demand and successful marketing, though export orders slipped slightly. Employment growth remained slight as firms balanced capacity with workloads, and confidence in the outlook faded further below trend. Inflationary pressures eased, with input cost inflation and price increases both softer than in November, though wage and operating expenses persisted. The composite PMI showed the private sector expanding at its slowest pace in 11 months, with services offsetting a fresh decline in manufacturing. Looking ahead, optimism for 2026 is supported by marketing investment and the upcoming Winter Olympics, but overall sentiment remains cautious. FTSE MIB +0.739% to 46185.92, EURUSD +0.077% to 1.1731, 10y BTP +1.5bp to 3.584%.

Spain’s December services sector growth reached a 12-month high, with the HCOB Spain Services PMI rising to 57.1, driven by a marked increase in new business and improved sales volumes. Firms expanded staffing at a faster pace, with many new hires on permanent contracts, and business confidence climbed to its highest level since March. Operating expenses rose at the fastest rate in three months due to higher supplier charges, energy costs and wage pressures, prompting service providers to raise selling prices, though inflation remained below the levels reached earlier in 2025. The composite PMI showed private sector growth for the 25th consecutive month, masking a divergence: services expanded robustly while manufacturing output contracted for the first time since April. Despite external headwinds for industry, domestic demand and a strong labor market underpinned services, supporting a positive outlook for 2026. IBEX 35 +0.547% to 17672, EURUSD +0.077% to 1.1731, 10y Bono +1.3bp to 3.313%.

U.K. December shop price inflation rose to 0.7% y/y, up from 0.6% in November and in line with the three-month average, reported the British Retail Consortium. Non-food inflation remained unchanged at -0.6% y/y, matching both November’s reading and the three-month average. Food inflation increased to 3.3% y/y from 3.0% previously, aligning with the three-month average, while fresh food inflation edged up to 3.8% y/y from 3.6%, slightly below its three-month average. Ambient food inflation rose to 2.5% y/y from 2.4%, also below the three-month average. The BRC noted faster food price growth but highlighted widespread promotions and value across Christmas essentials, while NielsenIQ said shoppers prioritized affordability and retailers kept supply chain price increases to a minimum despite subdued sentiment heading into 2026. FTSE 100 +0.499% to 10054.5, GBPUSD +0.111% to 1.3557, 10y gilt +2.1bp to 4.527%.

U.K. service sector growth remained subdued in December, with the S&P Global U.K. Services PMI rising only marginally to 51.4 from 51.3 in November, well below its long-run trend. Business activity expanded for the eighth consecutive month, but firms continued to face challenging conditions, including weak economic prospects, political uncertainty and constrained client spending. There was a modest rebound in new orders, supported by improved demand from both domestic and export markets, particularly the U.S., though EU demand stayed weak. Employment declined for the 15th consecutive month, as firms cited elevated pay pressures and squeezed margins. Input cost inflation accelerated to a seven-month high, driven by wage and fuel costs, leading to the fastest rise in output charges in four months. Despite these headwinds, business confidence improved, with over half of firms expecting output to rise in 2026.

Norwegian house prices fell by 1% in December 2025, but were unchanged after seasonal adjustment. For the full year, prices rose 5%, with significant regional differences: Stavanger saw the strongest growth at 14%, while Bodø/Fauske declined by 0.2%. The average home price at year-end was NOK 4,420,795. The used home market was very active, with 108,657 homes sold in 2025, up 9.4% from 2024, marking a record year for transactions. December sales were also up 1.4% y/y. The fastest sales were in Bergen and Stavanger, while Tønsberg had the slowest. For 2026, a 6% nationwide price increase is expected, with cities like Stavanger, Bergen and Tromsø likely to outperform. Key drivers include interest rates, wage growth and low new housing supply. OSE +0.801% to 1700.49, EURNOK -0.176% to 11.7404, 10y NGB +0.8bp to 4.189%.

Hungary’s recorded an external trade in goods deficit of €121mn in November, with exports decreasing by 8.6% and imports rising by 3.8% y/y. The trade balance worsened by €765mn y/y. The value of exports was €12.4bn, while imports reached €12.6bn. Machinery and transport equipment exports fell by 7.5% but imports grew by 7.4%; manufactured goods exports dropped by 7.0% and imports by 4.0%. Fuels and electric energy exports declined by 15%, while imports surged by 22%. Trade with EU-27 countries saw exports decrease by 8.4% and imports stagnate, while non-EU exports fell by 6.4% and imports rose by 12%. For January-November 2025, exports totaled €136bn and imports €128bn, producing a surplus of €7.8bn. Budapest SI +0.439% to 113678.7, EURHUF +0.037% to 383.97, 10y HGB -1bp to 6.78%.

The Czech trade balance for November in goods posted a surplus of CZK 16.2bn, down CZK 5.0bn y/y. The fall was mainly due to lower surpluses in motor vehicles (down CZK 6.2bn), electrical equipment (down CZK 3.9bn) and other transport equipment (down CZK 2.2bn). Positive contributions came from a reduced deficit in chemicals and chemical products (up CZK 2.4bn), a higher surplus in fabricated metal products (up CZK 1.5bn), and a smaller deficit in crude petroleum and natural gas (down CZK 1.4bn). Exports fell 4.6% and imports 3.6% y/y, partly due to two fewer working days. From January to November, the trade surplus reached CZK 207.7bn, a CZK 5.0bn decrease from the previous year. Prague SE +0.617% to 2730.81, EURCZK -0.017% to 24.198, 10y CZGB -0.3bp to 4.573%.

South Africa’s December PMI fell to 47.7 from 49.0 in November, signaling a faster deterioration in private sector operating conditions and marking the weakest reading in 11 months. The survey showed a sharp contraction in business activity, the most pronounced since last January, amid weaker client demand. New orders declined for a third consecutive month, with the downturn the steepest since March 2024, while export orders also fell m/m. Firms reduced purchasing activity and input inventories, contributing to faster depletion of backlogs, although employment rose marginally for the third month in a row. Input cost inflation eased vs. November, partly reflecting exchange rate improvements, and output price inflation softened. Despite current weakness, business confidence for the year ahead remained above the long-run average. JSE TOP 40 +0.722% to 109566.9, USDZAR -0.361% to 16.3117, 10y SAGB -3.3bp to 8.175%.

Australia’s final December services PMI came in at 51.1 vs. a flash estimate of 51.0 and 52.8 in November. Incoming new business surged, supported by continued expansion of new export sales. Firms raised their staffing levels at a solid rate, which supported a fresh fall in outstanding workloads. Meanwhile, business sentiment improved at the end of the year. On prices, cost pressures intensified, which led a quicker uptick in average output charges. ASX +0.567% to 5388.52, AUDUSD +0.704% to 0.6732, 10y ACGB -0.5bp to 4.793%.

South Korean official foreign reserves fell to $428.1bn December from $430.6bn in November and $415.6bn in 2024. The country’s official foreign reserves consisted of securities valued at $371.1bn (86.7%), deposits of $31.9bn (7.4%), SDRs of $15.9bn (3.7%), gold of $4.8bn (1.1%) and the IMF position of $4.4bn (1.0%). KOSPI +1.525% to 4525.48, USDKRW -0.004% to 1445.5, 10y KTB +1bp to 3.395%.

Singapore’s December manufacturing PMI fell to 54.1 from 55.4. Both new orders and output rose at slower but still healthy rates in December. This led to another rapid accumulation of backlogged work, which was further aggravated by a shrinking workforce. Inventory levels also increased, while business confidence improved. Meanwhile, selling prices rose on higher input costs. STI +1.199% to 4736.61, USDSGD +0.579% to 1.2796, 10y SGB +0.7bp to 2.133%.

Hong Kong’s December PMI eased from 52.9 to 51.9. Growth in both output and new orders was sustained in December, with the respective rates of expansion remaining solid despite easing vs. November. Notably, the improvement in demand was broad-based, with firms signaling greater sales across domestic and international markets. At the same time, the amount of unfinished work increased for the first time in a year. Price data meanwhile signaled a further marked increase in input costs, which in turn led to the fastest rise in selling prices for over two years. Hang Seng +1.405% to 26717.42, USDHKD +0.026% to 7.7865, 10y HKGB -1.2bp to 1.417%.

India’s December final PMI services fell to 58.0 vs. a flash estimate of 59.1 and 59.8 in November. Rates of expansion in incoming new work and output eased to the slowest level in 11 months, with companies refraining from recruiting additional staff. Firms remained upbeat regarding growth prospects, but overall sentiment fell to its lowest level in nearly three-and-a-half years. Input costs and output charges rose more rapidly than in the previous month, though rates of inflation remained below their respective long-run averages. SENSEX -0.478% to 85031.3, USDINR +0.06% to 90.2312, 10y INGB -0.8bp to 6.625%.

Philippines December inflation surged 0.9% m/m, 1.8% y/y from 0.2% m/m, 1.5% y/y in November. The pick-up was mainly driven by food and non-alcoholic beverage inflation, which accelerated to 1.4% y/y from 0.1%, alongside a faster increase in clothing and footwear (2.2% from 1.8%). Offsetting pressures came from softer inflation in transport (0.3% y/y vs. 1.7%), housing and utilities (2.5% y/y vs. 2.9%) and restaurants and accommodation (2.4% y/y vs. 2.6%). The largest contributors to December headline inflation were food and non-alcoholic beverages (0.6 percentage points), housing and utilities (0.5 percentage points) and restaurants and accommodation (0.2 percentage points). Food inflation rallied to 1.2% y/y from -0.3% in November, led by a smaller fall for rice (-12.3% vs. -15.4%) and a sharp acceleration for vegetables (11.6% vs. 4.0%). Fish and seafood (9.0%) and fruits (2.1%) also saw firmer price gains. Core inflation was unchanged at 2.4% y/y (December 2024: 2.8%). For 2025 as a whole, average inflation eased to 1.7%, down from 3.2% in 2024, reflecting markedly lower food inflation (1.0% vs. 4.5%). PSEi +2.488% to 6317.91, USDPHP -0.124% to 59.185, 10y PHGB -0.7bp to 5.911%.

The Philippines’ November Producer Price Index (PPI) for manufacturing rose 0.2% m/m, 0.1% y/y from 0.6% m/m, 0.5% y/y in October 2025. The manufacture of transport equipment was the main drag, shifting to a -0.1% y/y decline from +1.0% y/y in October and accounting for 25.8% of the deceleration. Food products inflation slowed to +0.1% y/y (from +0.5%), while computer, electronic and optical products fell faster (-0.5% y/y from -0.01%). Offsetting contributors to overall y/y growth were coke and refined petroleum products, tobacco and basic metals.