Reality Check

The global wave of euphoria surrounding Trump's win is beginning to fade. And, as ever, it's financial things that make reality clear. This week was full of reality

• Swiss National Bank cuts a bigger than expected 50bps, rates now approaching zero
• Canada cuts 50bps and for the fifth meeting in a row
• European Central Bank cuts 25bps and for the fourth time in 5 meetings
• US PPI came in much hotter than expected, YoY rising to 3%
• US CPI didn't go down further with core YoY at 3.3%
• US Treasury yields back up to danger levels
• US dollar in bull market
• China's continual stimulus isn't working
• China 30 year bond yield below 2%
• Even the Reserve Bank of Australia pivoted to dovish

So the bifurcation of the global economy continues. US versus the rest of the world.

SNB cuts interest rate 50 basis points, biggest reduction in nearly a decade [Reuters]

Fiscal Debt Binge Is World’s Biggest Stability Threat, BIS Says [Bloomberg]

The chart of truth (US 10 year)

Since Janet Yellen puked (forced to change auction) as the 10 year yield hit 5% in October 2023, we've had a good bull run in price with yields putting in lower lows and lower highs. The first FED cut in September 2024 may have marked the end of the rally in prices. Yields increased steadily as the FED cut again until Trump got elected.

Since then we've had a rally in pretty much everything, not Gold, but now the euphoria seems to be wearing off.

As the US debt burden increases so the rate at which treasuries go illiquid decreases.

The debt ceiling resurfaces on 1st Jan at the current debt number. And Trump won't be inaugurated til 20 Jan so there may be some fun and games coming in the new year.

US stock markets are at very high levels if evaluated by company performance metrics but not as a function of money supply. Maybe capital into the US is driving the dollar higher but more likely de-dollarisation from the eurodollar market is a continual driver of USD higher. Refinancing offshore dollar bonds / loans requires buying USD to pay back principal and interest.

Breaking

Russian media has said that Moscow had given Assad’s family asylum {FT]

Gold Rises After PBOC Resumes Buying and Syria Aids Haven Demand [Bloomberg]

Nvidia stock slides as China opens antitrust probe against AI chip heavyweight [Yahoo! Finance]

Rumors Swirl About The West Planning To 'Exile' Zelenskyy [Zerohedge]

Trump calls for Ukraine ceasefire, says US could 'absolutely' leave NATO [9 News]

South Korea police try to raid Yoon's office over martial law [Reuters]?

Trump Invites China’s Xi Jinping to Inauguration, CBS Says [Bloomberg]

Xi’s RSVP is a snub to Trump, but the inauguration invite is still a big deal [CNN]

In Focus

Europe

Contrary to Ms Lagarde's previous warning that inflation might rises for a bit, it hasn't and they have lost a few months when they could have cut further. Now some action.

The ECB cuts rates 25bps with a backdrop of the Bundesbank panicking about growth and trade wars

• Deposit rate to 3.00%,
• Main rate to 3.15%.
• Disinflation process well on track.
• Not pre-committing to a particular rate path.
• Says determined to ensure that inflation stabilizes sustainably at Its 2% medium-term target.
• Drops reference to keeping rates sufficiently ‘Restrictive’ from statement.

Bundesbank slashes growth forecast and sounds alarm over trade war [FT]

Yield-Curve Control at ECB a Possibility to Cap Surge, ING Says [Bloomberg]

US

CPI didn't go down so no further progress against inflation, then PPI came in a lot hotter than anticipated.

Janet Yellen warns Donald Trump’s sweeping tariffs could ‘derail’ inflation progress [FT]

Janet Yellen "Sorry" After Presiding Over $15 Trillion Increase In US Debt [Zerohedge]

Japan

The BoJ is desperate for some hot numbers to excuse hiking rates but just can't get them or at least enough of them for the hike to make sense. PPI higher but GDP anaemic spells stagflation.

BOJ Plans a Rare January Speech That May Lift Rate Hike Views [Bloomberg]

China

Disinflation continues and exporters rush product out before Trump ruins the game.

What was very interesting was the M2 much less than anticipated given the sheer amount of stimulus going on.?

Chinese stock markets have been basically flat to lower in the last 6 weeks since the first stimulus announcement and the Chinese 30 year bond yield is now the lowest ever at 2%.

As stimulus is not working the government has to talk big about the future to buy time now.

China will adopt an "appropriately loose" monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth, the Politburo was quoted as saying on Monday.

China vows to ramp up policy stimulus to spur growth in 2025 [Reuters]

China Signals Bolder Stimulus for Next Year as Trump Returns [Bloomberg]

Exclusive: Chinese authorities are considering a weaker yuan as Trump trade risks loom [Reuters]?

China's central bank conducts reverse repos Friday [english.gov.cn]

Bitcoin (& Crypto)

El Salvador to scale back bitcoin dreams to seal $1.3bn IMF deal [FT]

In The Background

CRE / Banks / CLOs

Recommended YouTube video on how real estate financing works.

The Hidden Debt Crisis About to Wipe Out Real Estate [YouTube]

Canada

Canada cuts rates 50bps,? the 5th cut since June,? citing unemployment at 6.8%, reduced immigration and therefore less GDP, as well as tariff uncertainty.

United Kingdom

Everything in the red in the UK as the Reform party gains further support.

Former Tory donor Nick Candy becomes Reform UK treasurer [The Times]

Identities of Shadow Banks That Use New BOE Tool to Be Secret [Bloomberg]

Reeves Tells Ministers to Find Savings in Tight Spending Review Bloomberg]

Demand for staff sinks to four-year low in UK, survey shows [FT]?

Australia

Reserve Bank of Australia holds rates at 4.35%, setting up for cuts next year and the AUD dropped further. No surprise in the decision but a decidedly dovish statement from the board and presser by Ms Bullock. Statement here [RBA]

• Wage pressures have eased
• Growth has been weak
• Employment normalising from previously tight
• "Taking account of recent data, the Board’s assessment is that monetary policy remains restrictive and is working as anticipated."
• Setting up to cut rates next year, assuming the new board is up for it.

Last week we showed the AUD / USD chart with the Aussie falling to almost unknown levels in the last 20 years. And here is the nail in the Aussie dollar's coffin

China’s ‘explosive’ ironmaking breakthrough achieves 3,600-fold productivity boost [South China Morning Post]

The RBA obviously knew unemployment would fall back to 3.9% at the meeting and couldn't cut.

Whereas the FED not cutting would drive capital to America and the USD higher, RBA not cutting will be AUD negative as being perceived as a policy mistake.

Bond traders eye back-to-back rate cuts [AFR]

Bullock opens door to February rate cut as RBA pivots [AFR]

What's Next ?

FED, Old Lady and BoJ this week and then everyone out for Xmas.

Does that mean everything will be quiet? Maybe.

It's be fireworks on the first day of the year as Biden has to face the debt ceiling yet again?

Will he find a way to spike Trump's gun?

This Week's Important Economic Indicators [London time]