I’ll hold off on a more comprehensive “year in review” until the delayed release of Q3 Z.1 financial flows data.
Trading at yearend and the start of a new year can be intriguing. I tend to deemphasize market action during a year’s final couple weeks of trading. There is the typical “Santa Clause rally” markup dynamic to enhance performance, bonuses, and hedge fund payouts. What’s more, tax loss selling often pressures the year’s underperforming stocks and sectors.
January trading can be fascinating. Hefty early-year inflows traditionally support stocks. But January markets can also be buffeted by significant portfolio reallocations and strategy adjustments. Early 2022 trading comes to mind. At January 24th intraday lows, the S&P500 was down 11.5% month-to-date, losses that increased to 13.7% at February 24th lows. The Nasdaq100 (NDX) lost 8.5% during January 2022. Early selling portended a tough year for stocks. At October 13th 2022 lows, the S&P500 had suffered a 27% decline (S&P500 returned negative 18.1% in ’22). The Nasdaq100 ended 2022 down 33%.
A poor 2022 was preceded by a stellar 2021. And while the NDX returned 27.5% during 2021, late-year trading dynamics flagged market vulnerability. Heightened volatility saw two pullbacks (7.3% and 5.5%) in the late-November through mid-December period. But between December 20th and 28th, a swift 7% rally locked in big 2021 returns. The year-end rally would be reversed in January’s first five trading sessions.
Year-end 2025 trading dynamics were reminiscent of 2021. A big performance year was under threat from late year market instability - by two bouts of selling in particular. Between November 3rd highs and November 21st lows, the NDX dropped 8.7%. And then between December 10th highs and lows from the 17th, the NDX was 4.6% lower. The index then rallied 4.3% from lows on the 17th to December 26th highs.
Looking back a few weeks, there were indications of developing market cracks. Bitcoin traded at an intraday low of 84,413 on December 18th – down a third from its October 6th high. Cryptocurrencies were at the cusp of breaking below November lows, which would likely trigger another wave of selling. And with the proliferation of crypto “basis trades” and myriad levered strategies, a major cryptocurrency de-risking/deleveraging would be systemically relevant.
Between December 8th and 17th, Oracle CDS surged 40 to 156 bps – the high back to financial crisis 2009 (began Q4 at 57). Over this period, CoreWeave bond yields spiked 180 bps to 12.27% (began Q4 at 8.30%).
The AI mania/arms race/Bubble began fraying at the edges. OpenAI reciprocal agreements. Massive unending financing requirements, increasingly relying on Credit market borrowings. Electricity. Accounting. Inflating data center buildout costs. Opaque and suspect returns on investment. Mounting public backlash. “Jitters Over AI Spending Set to Grow as US Tech Giants Flood Bond Market.”
Heavy leverage has undoubtedly enveloped the entire technology universe. In tech-related stock trading, combined margin debt, derivatives and hedge fund trading strategies have sector speculative leverage expanding at an unprecedented pace. Meanwhile, colossal borrowings for AI-related capex have the entire industry levering up. Importantly, the high-flying AI/technology stocks have become acutely vulnerable to de-risking/deleveraging dynamics. Crypto deleveraging made tech vulnerability a more pressing issue.
There was also the issue of festering Credit market problems. First Brands and Tricolor. Concerns for a turning Credit cycle. Private Credit and leveraged lending. Perhaps more importantly, serious concerns for “basis trades”, hedge fund leverage, and Non-Bank Financial Intermediation (NBFI) were voiced by the BIS, Bank of England, the Financial Stability Board, and others.
The Fed’s December 10th meeting – and Powell press conference - eased more immediate deleveraging concerns. As of November 19th, the market was pricing less than 50% odds of a December rate cut. Not only did they reduce rates 25 bps, the Fed restarted QE at a beefy $40 billion a month (commencing immediately!). This assuaged fears of an increasingly unstable “repo” funding market. It also further solidified confidence in the “Fed put.” Powell may have emphasized the Fed’s focus on sufficient bank reserve levels and stable funding markets, but markets are conditioned to view the resumption of QE as a predictable response to heightened general market risk (i.e., crypto, tech, equities, Credit and bonds).
Federal Reserve Credit expanded $52.6 billion during the final three weeks of the year, the largest liquidity injection since the March 2023 banking crisis. Indicative of an ongoing boom in leveraged speculation, money market fund assets (MMFA) surged $212 billion over the last five weeks of 2025. Over the past 22 weeks, MMFA ballooned $657 billion, or 21.7% annualized. Little wonder metals prices have been skyrocketing.
Ten-year Treasury yields traded to a December 10th intraday high of 4.21% - the highest yield in more than three months. Treasuries were volatile into year-end. Yields were at 4.10% early on the final trading day of the year, before closing 2025 at 4.17%.
December Treasury and global bond trading was full of intrigue. Ten-year German bund yields traded to 2.91% on December 22nd, within six bps of 14-year highs - before easing to 2.82% on December 30th. French yields traded to 3.63% on December 22nd, the highest since European bond crisis November 2011.
Leading the global yield surge, Japanese JGB yields jumped to 2.07% on December 22nd, the high back to February 1999. JGB yields surged 25 bps in December. It’s worth noting that Australian 10-year yields jumped 23 bps in December to 4.74%. Canadian yields rose 29 bps to 3.43%.
It was a close call, but global bond markets avoided year-end fireworks. Trading, however, certainly didn’t allay my fears of a surprising jump in global yields. In a highly indebted world with generally outsized deficit spending and massive speculative leverage, the potential for acute instability should not be disregarded.
More specific to Treasuries, 2026 will be yet another year of egregious deficit spending, with another $2 TN budget shortfall possible. And so long as loose conditions persist, upside inflation surprises are a good bet. I suspect there’s still ample tariff inflationary fuel to make its way through price levels. And myriad anecdotes point to ongoing elevated price pressures. The exponential growth in AI-related spending now poses significant inflationary risk.
December 31 – Financial Times (Song Jung-a): “Consumers should prepare for price increases this year, of as much as 20% for smartphones, computers and home appliances, analysts and manufacturers have warned, as artificial intelligence demand drives up the cost of memory chips used in electronics. Consumer electronics makers including Dell, Lenovo, Raspberry Pi and Xiaomi have warned that chip shortages were likely to add to cost pressures and force them to raise prices, with analysts forecasting increases of 5 to 20%. Dell’s chief operating officer Jeff Clarke said during an earnings call in November that the company had never seen ‘costs move at the rate’ they were rising now and the impact would inevitably reach consumers.”
December 30 – CNBC (Sam Meredith): “Copper is on track for its biggest annual price rise in more than a decade, driven by supply disruptions, a weakening U.S. dollar, improving expectations for Chinese economic growth — and blockbuster spending on artificial intelligence. Analysts say the red metal’s rally could continue next year, particularly amid supply fears and a rapidly expanding global data center footprint. Three-month copper prices on the London Metal Exchange, or LME, traded up 1.5% at $12,405 per metric ton on Tuesday, paring recent gains after notching a record high of $12,960 in the previous session. The benchmark contract, which is up around 41% this year, is on pace for its best year since 2009…”
January 2 – Bloomberg (Annie Lee): “Aluminum climbed above $3,000 a ton for the first time in more than three years on a tightening supply outlook and long-term demand bets, joining other base metals notching recent milestones. A cap on Chinese smelting capacity and constraints to European production due to higher electricity prices have chipped away at global inventories, while the demand outlook from the construction and renewable sectors remains robust. Futures rallied 17% last year, the most since 2021.”
The Bloomberg Commodities Index surged 13.9% in 2025, while the dollar index devalued 9.6%. While depressed crude prices help, the impact of oil prices on general inflation has waned over the years. Key prices, including electricity, healthcare and health insurance, homeowners and auto insurance, point to persistent pricing pressures.
Meanwhile, the supply of new debt hitting the market has been huge - and is poised to further test the markets’ capacity to absorb Trillions of bond issuance.
January 2 – Bloomberg (Michael Gambale): “The US investment-grade primary market is gearing up for a strong January, as syndicate desks brace for a busy 2026 after 2025 ranked as the second-most active year on record. An informal survey of debt underwriters see around $215 billion of issuance this month… up from $186.4 billion sold in January 2025. That total was about $3 billion below the 2024 record of $189 billion. Supply this month is expected to top all prior Januarys, with about $70 billion slated for the first week. Syndicate desks project $1.8 trillion to $2.25 trillion of issuance in 2026, with firms expecting even the low end to be a record. Estimates for 2025 of $1.4 trillion to $1.9 trillion proved broadly accurate, as issuance totaled $1.58 trillion, second only to 2020’s $1.75 trillion amid Covid-driven borrowing and ultra-low rates.”
December 29 – Axios (Dan Primack): “2025 has been a monster year for dealmaking, trailing only 2021 in terms of dollar value, according to preliminary data from LSEG… Global M&A value was around $4.39 billion through Dec. 18, a 45% boost over 2024. The only richer year-to-date was 2021, at $5.48 trillion, while 2015 was the only other year to surpass $4 trillion in deal value. The number of deals, however, fell 7% to a nine-year low. U.S. dealmaking followed a similar trend in 2025, with $2.23 trillion in M&A value for around 11,300 deals — up 54% and down 14% from 2024…”
One day is not of what a trend is made, though we can contemplate the possibility that it’s the start of something.
Notably underperforming to start the new year, the Bloomberg MAG7 index lost almost 1% in Friday trading (S&P500 declined 0.19%). After a strong open, technology stocks were under selling pressure for most of the session.
My interest is piqued when tech and financial stocks are simultaneously under pressure. That was not the case Friday. The KBW Bank Index surged 1.75%, while the Broker/Dealers advanced 1.59%. The broader market enjoyed a strong start to 2026. The S&P400 Midcap Index gained 1.34%, and the small cap Russell 2000 rose 1.06%.
Stocks were mixed, as sellers wasted little time in global bond markets. Ten-year yields jumped seven bps in Italy (3.67%), six in the UK (4.53%), and five in Germany (2.90%), France (3.61%), Spain (3.34%), Portugal (3.19%), and Greece (3.48%). Yields jumped 10 bps in Australia (4.83%) and rose another four bps in Canada (3.47%). In general, yields are at or near multi-year highs. Ten-year Treasury yields added two bps to a near four-month high of 4.19%. The scenario of a destabilizing backup in global yields remains in play.
Best I can tell, the U.S. economy enters 2026 with momentum. Third quarter GDP was reported at a striking 4.3%, bolstered by post-pause financial conditions loosening and market rallies. Conditions and market liquidity remained loose throughout Q4, while fears of rapid labor market weakening proved overblown. So long as conditions remain loose, overheating risks outweigh downside economic and employment risks. At least from my vantage point, egregiously over-levered Treasury and global bond markets face clear and present danger to start 2026.
For the Week:
The S&P500 declined 1.0% (2025 return 17.86%), and the Dow slipped 0.7% (14.92%). The Utilities added 0.7% (17.11%). The Banks dipped 0.8% (up 32.57%), and the Broker/Dealers fell 1.2% (29.21%). The Transports declined 0.6% (10.94%). The S&P 400 Midcaps dipped 0.7% (up 7.48%), and the small cap Russell 2000 declined 1.0% (12.79%). The Nasdaq100 slumped 1.7% (21.02%). The Semiconductors advanced 2.2% (up 43.46%). The Biotechs dropped 2.9% (24.77%). With bullion down $201, the HUI gold index sank 6.2% (up 157.49%).
Three-month Treasury bill rates ended the week at 3.5325%. Two-year government yields were unchanged at 3.48% (down 77bps in 2025). Five-year T-note yields rose five bps to 3.74% (down 66bps). Ten-year Treasury yields gained six bps to 4.19% (down 40bps). Long bond yields jumped eight bps to 4.87% (up 6bps). Benchmark Fannie Mae MBS yields increased five bps to 5.09% (down 80bps).
Italian 10-year yields rose six bps to 3.61% (up 3bps in 2025). Greek 10-year yields gained five bps to 3.49% (up 22bps). Spain's 10-year yields rose five bps to 3.34% (up 23bps). German bund yields increased four bps to 2.90% (up 49bps). French yields gained five bps to 3.61% (up 37bps). The French to German 10-year bond spread widened one to 71 bps. U.K. 10-year gilt yields added three bps to 4.54% (down 9bps). U.K.’s FTSE equities index added 0.8% (2025 gain 21.6%).
Japan’s Nikkei 225 Equities Index declined 0.8% (2025 gain 26.2%). Japan’s 10-year “JGB” yields added two more bps to 2.07% (up 97bps y-t-d). France’s CAC40 increased 1.1% (10.4%). The German DAX equities index added 0.8% (23.0%). Spain’s IBEX 35 equities index advanced 1.9% (49.3%). Italy’s FTSE MIB index rose 1.7% (31.5%). EM equities were mixed. Brazil’s Bovespa index slipped 0.2% (up 34.0%), and Mexico’s Bolsa index dropped 2.4% (30.0%). South Korea’s Kospi surged another 4.4% (75.6%). India’s Sensex equities index increased 0.8% (8.6%). China’s Shanghai Exchange Index was little changed (18.4%). Turkey’s Borsa Istanbul National 100 index gained 1.8% (14.6%).
Federal Reserve Credit expanded $19.1 billion last week to $6.543 TN, with a three-week gain of $52.6 billion. Fed Credit was down $2.347 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit expanded $2.816 TN, or 76%. Fed Credit inflated $3.732 TN, or 133%, since November 7, 2012 (686 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $18.3 billion last week to $3.038 TN – the low back to February 2012. “Custody holdings” were down $237 billion y-o-y, or 7.2%.
Total money market fund assets (MMFA) jumped $60 billion to a record $7.733 TN - with a 22-week surge of $657 billion, or 21.7% annualized. MMFA were up $886 billion, or 13.0%, y-o-y - having ballooned a historic $3.102 TN, or 67%, since October 26, 2022.
Freddie Mac 30-year fixed mortgage rates slipped three bps to 6.15% (down 76bps y-o-y). Fifteen-year rates fell six bps to 5.44% (down 69bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down three bps to 6.46% (down 86bps).
Currency Watch:
December 31 – Financial Times (Bita Ghaffari): “Iran has appointed a new central bank governor and declared a public holiday as authorities sought to contain days of protests by businesses and university students over the high cost of living and plummeting currency. Abdolnaser Hemmati was confirmed as the new governor… in the wake of the country’s biggest demonstrations in several years… Iran’s currency, the rial, has plunged to historic lows against the US dollar and inflation has surged above 40%, provoking anger over a collapse in living standards and piling pressure on the government to take action.”
For the week, the U.S. Dollar Index recovered 0.4% to 98.433 (down 9.4% in 2025). On the upside, the Brazilian real increased 2.2%, and the South African rand gained 1.0%. On the downside, the New Zealand dollar declined 1.2%, the Swedish krona 0.7%, the Norwegian krone 0.6%, the euro 0.5%, the Canadian dollar 0.4%, the Swiss franc 0.4%, the Australian dollar 0.3%, the British pound 0.3%, the Japanese yen 0.2%, the South Korean won 0.2%, and the Singapore dollar 0.1%. China's (onshore) renminbi increased 0.25% versus the dollar (up 4.45% in 2025).
For 2025, the Swedish krona increased 20.2%, the Mexican peso 15.66%, the Swiss franc 14.48%, the South African rand 13.78%, the euro 13.44%, the Norwegian krone 12.89%, the Brazilian real 12.83%, the Australian dollar 7.84%, the British pound 7.66%, the Singapore dollar 6.25%, the Canadian dollar 4.81%, the New Zealand dollar 2.93%, and the Japanese yen 0.31%.
Commodities Watch:
December 31 – Bloomberg: “Copper had its best year since 2009, fueled by near-term supply tightness and bets that demand for the metal key in electrification will outpace production. The red metal has notched a series of all-time highs in an end-of-year surge, rallying 42% on the London Metal Exchange this year. That makes it the best performer of the six industrial metals on the bourse.”
The Bloomberg Commodities Index dropped 2.6% (up 11.1% in 2025). Spot Gold fell 4.4% to $4,332 (up 64.6%). Silver sank 8.1% to $72.8181 (up 148.0%). WTI crude increased 58 cents, or 1.0%, to $57.32 (down 20%). Gasoline was little changed (down 17%), while Natural Gas slumped 6.7% to $3.618 (up 2%). Copper fell 2.5% (up 41%). Wheat dropped 2.4% (down 8%), and Corn fell 2.8% (down 4%). Bitcoin recovered $2,750, or 3.1%, to $90,070 (down 6.5%).
Market Instability Watch:
December 29 – Bloomberg (Ye Xie): “A measure of US bond-market volatility is heading for its biggest annual decline since the wake of the financial crisis with the Federal Reserve’s interest-rate cuts dampening risks of an economic downturn. The ICE BofA MOVE Index, a gauge of expected bond-market volatility, fell to about 59 Friday, the lowest level since October 2021. The index has fallen from around 99 at the end of 2024 and is on course for one of the steepest annual declines since data began in 1988, surpassed only by the 2009 slump.”
December 29 – Reuters (Davide Barbuscia): “Since President Donald Trump's 'Liberation Day' tariffs pushed the U.S. bond market into revolt in April, his administration has carefully tailored its policies and messaging to prevent another flareup. But the truce remains fragile, some investors say. A reminder of that fragility came on November 5 when the Treasury Department signaled it was considering selling more long-term debt. The same day, the Supreme Court began hearing arguments over the legality of Trump’s sweeping trade tariffs. Benchmark 10-year bond yields… spiked more than 6 bps… With the market already uneasy about the size of U.S. federal deficit, the Treasury proposal stirred fears among some investors of upward pressure on long-dated bond yields. The Supreme Court case, meanwhile, raised doubts about a major source of revenue to service the $30 trillion pile of government debt held by the market. Citigroup analyst Edward Acton called the moment ‘a reality check’ in a November 6 daily report.”
December 30 – Bloomberg (Youkyung Lee): “South Korea’s stock market renaissance in 2025 was one for the history books. Buoyed by world-beating gains in arms exporters to eye-popping surge in AI and K-beauty shares, the market just capped its strongest advance in a quarter century. The Kospi Index has soared 76% this year…”
December 29 – Bloomberg (Kentaro Tsutsumi): “Japan’s benchmark Topix index closed at a record year-end high for 2025, surpassing even the peak 36 years ago reached during the infamous bubble economy. The index closed the year’s final session at 3,408.97, higher than the 2,881.37 recorded at the end of 1989. It gained 22% in 2025, marking a third consecutive annual rise.”
U.S. Credit Trouble Watch:
December 29 – Bloomberg (Olivia Fishlow): “Business development companies are set for their worst year relative to the S&P 500 since 2020, leading some investors to question their future in the $1.7 trillion private credit market. The Cliffwater BDC Index, which tracks 41 vehicles that house direct loans, is down about 6.6% this year through Dec. 24… In 2023 and 2024, the BDC index gained about 25.4% and 14.1%, respectively. The vehicles have been pummeled by a storm of rate cuts, market blow-ups and rising signs that the market is set to experience more stress. A lack of deals this year has also forced private lenders to shrink margins on loans, diminishing how much they can earn.”
Global Credit and Financial Bubble Watch:
January 2 – Bloomberg: “BofA Securities was the top arranger of US leveraged loans in 2025 as the value of deals fell 6.7%. Companies borrowed $2.2 trillion of loans vs. $2.36 trillion in 2024.”
January 2 – Bloomberg: “JP Morgan was the top arranger of European leveraged finance in 2025 as the value of deals rose 23%. Companies borrowed 409.2 billion euros of leveraged finance vs. 333.9 billion euros in 2024…”
January 2 – Bloomberg: “US leveraged loan issuance rose 18.0% to $59.3 billion in December, compared to $50.3 billion in November… New money deals, backing mergers and LBOs, accounted for 20.9% of all launches, or $12.4 billion; they totaled $12.9 billion in November. Refinancings, excluding repricings, rose to $16.3 billion in December from $9.8 billion in the previous month… Launch volume this year totals $1.03 trillion, down 24.7% compared to the same period in 2024.”
December 29 – Bloomberg (Hannah Levitt): “The head of a giant Wall Street bank was dining with a buy-side rival when the investor casually called banks ‘utilities.’ What stung most, the CEO thought: It wasn’t meant as an insult. But at the end of 2025, that bravado is shifting. Bankers who’ve been grinding their teeth as alternative asset managers invaded their turf over the past decade are now brimming with optimism about the years ahead — saying the regulatory and market environment is swinging back their way. Shareholders are betting heavily on that: The six titans of US banking — JPMorgan..., Bank of America…, Citigroup Inc., Wells Fargo…, Goldman Sachs… and Morgan Stanley — are up by an average of more than 45% this year. Stocks of the top four public alternative asset managers — Blackstone Inc., Apollo Global Management Inc., KKR & Co. and Carlyle Group Inc. — are collectively down…”
Trump Administration Watch:
January 1 – Financial Times (Editorial Board): “There has been no year in US history quite like the first of Donald Trump’s second term. Though Trump warned Americans that he would be their ‘retribution’, he offered little idea of the scale on which he would seek to monetise his office. In one form or another, he did vow to take on the universities, regulatory agencies, the rest of the world on trade and the media. That he acted so rapidly, if haphazardly, on all these fronts in 2025 is nevertheless striking. That he encountered such little resistance is even more so. As we enter 2026, those who still believe in America’s checks and balances should bear in mind he is only a quarter of the way through. The battle to preserve the US system will only intensify.”
December 31 – Bloomberg (Kate Sullivan): “The Trump administration stepped up a pressure campaign against Venezuela’s oil exports by sanctioning companies based in Hong Kong and mainland China, along with related oil tankers it accused of evading restrictions... The US already has a list of vessels and companies under sanction for their connections to Venezuela’s oil trade. But targeting Chinese firms doing business there is rare, and could be a signal to Beijing to steer clear of the stand-off between the Trump administration and the regime of Nicolás Maduro. China is Venezuela’s biggest customer for oil exports…”
December 29 – Bloomberg: “Venezuela started shutting wells in a region that holds the world’s largest deposits of oil in the face of a blockade by the Trump administration meant to financially squeeze the nation. Petroleos de Venezuela SA began shuttering wells in the Orinoco Belt on Dec. 28 as the state-run refiner ran out of storage space and inventory swelled… PDVSA aims to reduce Orinoco Belt production by at least 25% to 500,000 barrels a day, the people said. The decrease represents a 15% cut of Venezuela’s overall output of 1.1 million barrels a day.”
January 2 – Wall Street Journal (Benoit Faucon): “President Trump threatened to intervene if Iran cracks down violently on ongoing protests, putting more pressure on Tehran as it tries to contain discontent with its spiraling economy. The warning came after demonstrations that have run for nearly a week turned deadly, with clashes between protesters and police leaving several dead. ‘If Iran shots [sic] and violently kills peaceful protesters, which is their custom, the United States of America will come to their rescue,’ the president said... ‘We are locked and loaded and ready to go’.”
December 29 – CNBC (Justin Papp): “President Donald Trump… appeared open to additional military action against Iran if the country attempts to build up its reserves of ballistic weapons and reestablish its nuclear program. However, he urged the country to negotiate. ‘Now, I hear that Iran is trying to build up again, and if they are we’re going to have to knock them down. We’ll knock them down. We’ll knock the hell out of them. But hopefully that’s not happening,’ Trump said… ‘I heard Iran wants to make a deal. If they want to make a deal that’s much smarter,’ the president continued.”
December 31 – Bloomberg (Josh Wingrove): “President Donald Trump delayed tariff increases on upholstered furniture, kitchen cabinets and vanities, easing the pace of his levies as voter frustration over price levels continues to simmer… The higher tariffs were due to take effect Thursday, but are now set to take effect Jan. 1, 2027… Under a September proclamation, Trump had originally directed that tariffs on ‘certain upholstered wooden products’ would rise to 30% on Jan. 1 from 25%, while tariffs on kitchen cabinets and vanities would rise to 50% from 25%. His… proclamation delayed that move, and existing 25% tariff remains in place…”
December 29 – New York Times (Alan Rappeport and Colby Smith): “For years, Kevin Hassett, an economist who advised the presidential campaigns of John McCain, George W. Bush and Mitt Romney, favored classic conservative economic principles. A longtime scholar at the right-leaning American Enterprise Institute, he promoted the idea that free trade was the path to national prosperity and argued that more immigration was good for the economy. But as the director of President Trump’s National Economic Council, Mr. Hassett’s policy views are barely recognizable to those who have known him for decades. These days he supports tariffs and claims they are having little impact on consumer prices. He also says deportations are healthy for a labor market that has long relied on immigrants.”
China Trade War Watch:
December 28 – Bloomberg: “For President Xi Jinping, what began as a challenging year is ending on a note of triumph. China was peerless in confronting Donald Trump’s renewed trade war, wielding its dominance over rare earths to extract concessions on tariffs and export controls. Chinese shipments found new homes outside the US, pushing its trade surplus beyond $1 trillion for the first time. Despite Washington’s curbs, the Asian country’s artificial intelligence firms pressed ahead and its chipmakers raced to the IPO market, buoyed by Xi’s call for technological self-reliance. On the diplomatic stage, Xi projected strength. Flanked by two dozen foreign leaders, he presided over a grand military parade in Beijing, showcasing China has the hard power to back up his vision for a new world order. Weeks later, Xi sat down with Trump in South Korea for what the US president called a ‘G2 meeting’ — rare language validating Beijing’s long-standing desire to be treated as an equal by the world’s preeminent superpower.”
December 31 – New York Times (Keith Bradsher): “The origin of China’s dominance of rare earths can be traced to an iron ore mine near Baotou in the country’s north… It was April 1964 and Chinese geologists had discovered that the mine also held the world’s largest deposit of rare earths, a set of 17 metals that have become essential ingredients for today’s global economy. Deng Xiaoping, then a high-ranking… official, visited the remote desert mine… to inspect the massive cache. ‘We need to develop steel, and we also need to develop rare earths,’ declared Mr. Deng, who over a decade later would emerge as China’s top leader. Rare-earth metals and the magnets made from them are widely used in a long list of civilian and military applications, from cars to fighter jets. China’s position as the leading supplier has given it enormous leverage over manufacturing and leadership in clean energy technologies like electric cars and wind turbines. Companies all over the world depend on Chinese exports of those magnets.”
Trade War Watch:
December 30 – Financial Times (Aime Williams): “Donald Trump is set to launch a wave of new tariffs based on alternative legislation if the Supreme Court rules against his current levies, diplomats and trade lawyers say. The Supreme Court is poised to rule as soon as January on the legality of the president’s use of emergency powers to hammer trading partners with tariffs, leaving the centrepiece of his economic policy hanging in the balance. Markets traders are braced for turmoil if the US’s top court rules against Trump, potentially leaving the federal government on the hook for billions of dollars in repayments of levies that have been collected. But diplomats and trade lawyers believe the administration has plans in place to shore up the levies regardless of the court’s ruling, using a combination of existing trade measures alongside alternative laws.”
December 26 – Wall Street Journal (Santiago Pérez and Anthony Harrup): “When President Trump began raising tariffs earlier this year, government officials and economists feared Mexico’s export-led economy would take a devastating hit. Instead, Mexican exports to the U.S. have grown. Because Mexico’s ultimate tariff rate ended up lower than for most other countries, the disparity has helped Mexican exports fill some of the gap left by Chinese products subject to higher levies. Producers seeking a foothold in the U.S. have said that Mexico still has all the inherent advantages it had before tariffs—proximity to the U.S., a low-cost manufacturing industry and a frayed but intact free-trade agreement.”
Constitution Watch:
December 29 – Bloomberg (Magan Crane): “President Donald Trump said the US struck a facility inside Venezuela, in what would be a significant escalation in its campaign against alleged drug trafficking operations there. ‘There was a major explosion in the dock area where they load the boats up with drugs,’ Trump told reporters… Trump’s reference to an attack within Venezuela would mark the first time the US has announced a land strike in the country. The administration has raised pressure on the government of Nicolas Maduro by bombing boats in the region and implementing a blockade to disrupt the country’s oil exports.”
U.S./Russia/China/Europe/Iran Watch:
January 1 – Bloomberg (Nectar Gan and Eric Martin): “The US State Department said China’s military drills around Taiwan had ‘unnecessarily’ raised tensions and urged Beijing to cease military pressure against the self-ruled island, after President Donald Trump initially shrugged off concerns. ‘China’s military activities and rhetoric toward Taiwan and others in the region increase tensions unnecessarily,’ State Department spokesperson Tommy Pigott said…”
December 31 – Wall Street Journal (James T. Areddy): “China intends to keep playing in the U.S. backyard, Latin America. The Trump administration took veiled swipes at China in its national-security strategy with the vow to ‘restore American pre-eminence in the Western Hemisphere’ and ‘deny non-Hemispheric competitors.’ Less than a week after the release of the U.S. strategy in December, Beijing issued a little-noticed policy paper on Latin America and the Caribbean that geopolitical analysts say foreshadows more U.S.-China jostling for regional influence. ‘China has always stood in solidarity through thick and thin with the Global South, including Latin America and the Caribbean,’ said the… policy paper, China’s first on the region in almost a decade. The paper cites how a ‘significant shift is taking place in the international balance of power,’ terminology Chinese leader Xi Jinping uses to allege that the era of U.S. global supremacy is ending.”
December 31 – Bloomberg (Catherine Wong): “China has protested ‘external interference’ following a series of statements from the UK, Germany and the European Union expressing concern over the People’s Liberation Army’s large-scale military drills around Taiwan. The UK’s Foreign, Commonwealth and Development Office… said China’s military exercises around Taiwan this week have increased cross-strait tensions and raised the risk of escalation. The Chinese embassy in the UK responded in a statement saying the remarks were ‘a misrepresentation of the facts and a manipulation of the truth’.”
New World Order Watch:
December 30 – Wall Street Journal (Editorial Board): “President Trump wants American allies to do more for their own defense, so he ought to be delighted with new Japanese Prime Minister Sanae Takaichi’s decision to press for a record defense budget next year. Japan is America’s indispensable ally in the Pacific, and it will be crucial in any attempt to defend Taiwan from a Chinese invasion. Ms. Takaichi had the temerity to say so in November, and Beijing’s mouthpieces attacked her for it… Japan’s 2022 National Security Strategy called for doubling its defense spending as a share of GDP to 2% by 2027, but Ms. Takaichi wants to get there faster. Her proposal would devote some ¥9.04 trillion (more than $58bn) to defense in fiscal 2026, a 9.4% increase over the current year.”
December 31 – Wall Street Journal (Dasl Yoon): “North Korean leader Kim Jong Un ushered in 2026 by hailing an ‘invincible alliance’ with Russia and saluting his troops deployed to Russian battlefields—invoking a partnership that has fueled his growing defiance and confidence on the global stage… Kim called 2025 an unforgettable year in which he believed in nothing but the ‘people’s patriotism and loyalty’… Kim was looking back on a year during which the alliance with Moscow provided him with an economic lifeline and a battlefield testing ground, as Pyongyang sent roughly 15,000 troops to fight alongside Russia in its Ukraine war. In a separate message, Kim praised his troops for their ‘remarkable feats’ overseas.”
Ukraine War Watch:
December 31 – Wall Street Journal (Anastasiia Malenko): “A day before President Volodymyr Zelensky made his case for more American support at President Trump’s Mar-a-Lago resort over the weekend, Russia slammed another wave of drones into a slice of Ukraine’s own prime beachfront real estate: the Black Sea port of Odesa. Throughout December, Russian strikes have homed in on Odesa, the chief hub for Ukraine’s grain exports and its economic lifeline to the rest of world. The attacks have damaged infrastructure, storage reservoirs and power grids… Analysts say they reflect how Russia is increasingly seeking out ways to degrade Ukraine’s economy. ‘They definitely want to cut off Odesa and other cities in terms of infrastructure. They are striking and killing both people and the economy by reducing our export capabilities through the maritime corridor,’ Zelensky said…”
Taiwan Watch:
December 31 – Bloomberg (Yian Lee): “Taiwanese President Lai Ching-te vowed to strengthen defense capabilities after China held its most intrusive military exercises ever around the self-run island democracy. ‘My stance has always been clear, that is to firmly safeguard national sovereignty, strengthen national defense and whole-of-society resilience,’ Lai said during a New Year address… ‘In the face of China’s severe military ambitions, Taiwan has no time to wait and no time for internal strife,’ he said, calling on opposition parties to pass defense-related budget proposals.”
December 28 – Financial Times (Edward White): “China has launched a new round of military drills around Taiwan, a move it said was a warning to ‘independence’ forces and which follows Taipei’s largest weapons procurement deal with the US. The Chinese military drills involve army, navy, air and rocket forces operating in the Taiwan Strait and around the island and will include live-fire drills on Tuesday… The ‘Justice Mission 2025’ exercises, China’s second round of big drills around Taiwan this year, would test PLA readiness for maritime and air combat and include blockades of ports and strategic areas, establishing battlefield control and deterring external forces, the command said. ‘This serves as a serious warning to Taiwan independence separatist forces and external interference forces,’ said Senior Colonel Shi Yi, a spokesperson for the command. ‘It is a necessary action to defend national sovereignty and safeguard national unity’.”
December 30 – Reuters (Yimou Lee, Joe Cash and Liz Lee): “China fired rockets into waters off Taiwan…, showcased new assault ships and dismissed prospects of U.S. and allied intervention to block any future attack by Beijing to take control of the island in its most extensive war games to date. As part of drills rehearsing a blockade, China’s Eastern Theatre Command conducted 10 hours of live-fire exercises, launching rockets into waters to the north and south of the democratically governed island. Chinese naval and air force units also simulated strikes on maritime and aerial targets and carried out anti-submarine drills around the island, while state media released images touting Beijing's technological and military superiority and its ability to take Taiwan by force if necessary.”
December 31 – Wall Street Journal (Joyu Wang): “China’s steadily expanding military forces conducted large-scale drills around Taiwan this week, dispatching jet fighters, naval ships and coast guard vessels to encircle the island and firing rockets into nearby waters… Here are five takeaways: 1. China is preparing to strangle Taiwan and fend off the U.S. Beijing said it was performing maneuvers that would be needed to isolate and seize Taiwan—demonstrating how Chinese forces would try to strangle the self-ruled island and pressure it to surrender or else embark on a painful and risky amphibious invasion. Beijing claims the self-ruled island as its own territory, to be seized by force if necessary. China warned aircraft and ships to avoid seven designated drill zones around Taiwan, an effective blockade. On Tuesday, China fired 27 rockets from its eastern coast, some landing closer to Taiwan’s main island than ever before, said Lt. Gen. Hsieh Jih-sheng, a Taiwan military intelligence official.”
December 31 – Associated Press (Ted Anthony): “China’s People’s Liberation Army said… it ‘successfully completed’ two days of military exercises in the waters off Taiwan, concluding a set of high-powered maneuvers aimed at asserting its sovereignty over the island — actions that ratcheted up tension in East Asia during 2025’s waning days. In a New Year’s Eve announcement, the PLA said that the operation it called ‘Justice Mission 2025’ had ‘fully tested the integrated joint operations capabilities of its troops.’ ‘Always on high alert, the troops of the Theater Command will keep strengthening combat readiness with arduous training, resolutely thwart the attempts of ‘Taiwan Independence’ separatists and external intervention, and firmly safeguard state sovereignty and territorial integrity,’ Senior Capt. Li Xi, spokesperson for the PLA’s Eastern Theater Command, was quoted as saying.”
December 30 – Axios (Dave Lawler and Colin Demarest): “China’s massive live-fire military exercises this week in the air and seas around Taiwan come as the calendar flips one year closer to a date that looms larger for Pentagon planners than almost any other. The U.S. military has been operating for the past five years under the assumption that the Chinese military is preparing to take Taiwan by force as soon as 2027. Tick, tock. Tick, tock. The U.S. has built out bases in the Pacific, poured billions into domestic semiconductor manufacturing, shipped arms to Taipei and shuffled its own military assets — all with an eye on a potential war over the self-governing island. But the sense of urgency has not always matched the tightening timeline — now down to just a single year.”
December 30 – Bloomberg (Cate Cadell, Simon Elegant and Rudy Lu): “China’s military continued enormous live-fire drills around Taiwan for a second day…, with the island’s forces moving onto high alert and its government condemning Beijing as the world’s ‘biggest destroyer of peace.’ More than 130 Chinese People's Liberation Army aircraft and 22 vessels were detected near the island in the 24 hours to 6 a.m. local time… That was the highest number recorded in a day this year… Taiwanese President Lai Ching-te condemned the exercises…, saying… that China’s ‘conduct is far from what would be expected of a responsible major power’.”
Middle East Watch:
December 30 – Wall Street Journal (Benoit Faucon and Saleh al-Batati): “Tensions between U.S. allies Saudi Arabia and the United Arab Emirates flared Tuesday, when the kingdom warned its Gulf rival against endangering its security and said it would take all necessary measures to counter the threat. The fast-escalating dispute was spurred by fighting in the two-thirds of Yemen controlled by forces opposed to the Iran-backed Houthi militia, which rules over the rest. U.A.E.-backed forces there have outmaneuvered rivals backed by Saudi Arabia to take control of energy-rich territory along the kingdom’s border… ‘The steps taken by the U.A.E. are considered highly dangerous,’ the ministry warned. ‘The Kingdom stresses that any threat to its national security is a red line, and the Kingdom will not hesitate to take all necessary steps and measures to confront and neutralize any such threat’.”
December 30 – Associated Press (Samy Magdy): “Saudi Arabia bombed Yemen’s port city of Mukalla…, targeting a shipment of weapons from the United Arab Emirates for separatist forces — a significant move in a country located along a key international trade route that threatens to bring new risks to the Persian Gulf region. The UAE later said it would withdraw its forces from Yemen. The secessionist Southern Transitional Council, STC, a group backed by the United Arab Emirates, this month seized most of the the provinces of Hadramout and Mahra, including oil facilities. Yemen has been mired for more than a decade in a civil war that involves a complex interplay of sectarian grievances and the involvement of regional powers.”
December 28 – Financial Times (Najmeh Bozorgmehr): “Iran’s President Masoud Pezeshkian said Tehran was engaged in an unprecedented ‘all-out war’ with the US, Europe and Israel as US President Donald Trump prepared to meet Israel’s prime minister in Washington. Pezeshkian warned that Iran’s military forces were ‘more prepared’ than ever and would respond to any new aggression, as Trump and Israeli Prime Minister Benjamin Netanyahu were expected to discuss Iran in their meeting… ‘We are in an all-out war with the US, Israel and Europe,’ Pezeshkian said. ‘They do not want our country to stand upright… and are surrounding us from all sides: economically, culturally, politically and from a security perspective,’ he told Khamenei.ir, the supreme leader’s news website…”
January 1 – Reuters (Elwely Elwelly): “Several people were killed during unrest in Iran on Thursday, an Iranian news agency and a rights group reported, as the biggest protests to hit the country for three years over soaring inflation sparked violence in several provinces. The semi-official Fars news agency cited a ‘source with knowledge’ as saying several people were killed in clashes… between police and what it said were armed protesters in Lordegan in western Iran.”
December 28 – Financial Times (Arsalan Shahla): “Iran said it sent three satellites into orbit from Russia on Sunday, a move that may intensify tensions over Tehran’s broader actions. The Paya, Zafar-2 and Kowsar satellites were propelled into space from the Vostochny Cosmodrome in Russia’s remote Far East… The devices will orbit about 500 kilometers (310 miles) above Earth and are designed for a range of environmental and agricultural purposes…”
AI Bubble/Arms Race Watch:
December 30 – Financial Times (Jonathan Vincent): “Surging artificial intelligence stocks have driven the US market to record highs this year, drawing comparisons on some metrics to infamous periods of investor mania in the past. The huge gains of 2025 — in which Nvidia’s market value has more than doubled from its April lows, making it briefly the world’s first $5tn company — have prompted warnings from central bankers and some investors that the AI sector could be in a bubble and that a stock market correction could pose a threat to financial stability. The US blue-chip S&P 500 index is now more expensive on a cyclically-adjusted 10-year price/earnings ratio… than it was before the 1929 Wall Street crash and well above where it was on the eve of the 2008 global financial crisis… In data going back to the 1840s, the only time valuations have been more stretched has been during the dotcom bubble in 1999.”
December 31 – CNBC (MacKenzie Sigalos): “West Texas dust, iron-tinged and orange-red, rides the wind and sticks like a film to everything you touch. It clings to skin and the inside of your mouth, a fine grit that turns every breath into a reminder of where you are. This is the landscape where OpenAI CEO Sam Altman is orchestrating something called Stargate — a fast-expanding constellation of data centers, backed by partners including Oracle, Nvidia, and SoftBank. Six thousand workers’ vehicles pour into the site each morning… ‘This is what it takes to deliver AI,’ Altman told CNBC on site... ‘Unlike previous technological revolutions or previous versions of the internet, there’s so much infrastructure that’s required. And this is a small sample of it’.’ At roughly $50 billion per site, OpenAI’s Stargate projects add up to about $850 billion in spending — nearly half of the $2 trillion global AI infrastructure surge HSBC now forecasts.”
December 29 – New York Times (Natallie Rocha): “The artificial intelligence boom has turned high-profile billionaires like Jensen Huang… and Sam Altman… into even richer billionaires. It has also produced a crop of new billionaires — at least on paper — from smaller start-ups… The new A.I. billionaires include Alexandr Wang and Lucy Guo, who founded Scale AI, a data-labeling start-up that received a $14.3 billion investment from Meta in June. The founders of the A.I. coding start-up Cursor — Michael Truell, Sualeh Asif, Aman Sanger and Arvid Lunnemark — entered the billionaire ranks when their company was valued at $27 billion in a funding round last month. The entrepreneurs behind Perplexity…, Mercor…, Figure AI…, Safe Superintelligence…, Harvey… and Thinking Machines Lab… are in the nine-figure club as well…”
December 29 – CNBC (April Roach): “Artificial intelligence is advancing at breakneck speed, forcing a rethink of how the power-hungry servers behind the boom can coexist with — and draw less from — the environment. Data centers form the backbone of the internet, underpinnning nearly every digital service. But the facilities require huge amounts of energy and water, and are often considered an eyesore and a burden on the communities that house them. As more AI workloads are scaled into the facilities, the pressure on power supply chains will intensify. There’s going to be a ‘tipping point,’ where the architecture of data centers will no longer be fit for purpose, Simone Larsson, head of enterprise AI at Lenovo, told CNBC.”
December 28 – Financial Times (George Hammond): “Silicon Valley’s hottest start-ups have raised $150bn in funding this year as their financial backers advise them to build ‘fortress balance sheets’ to protect them in case the artificial intelligence investment boom turns to bust in 2026. PitchBook data showed that the biggest US private companies raised a record haul in 2025, smashing the previous high of $92bn raised in 2021… Venture capitalists and industry experts said the money would help insulate founders against an investment downturn as public markets begin to fret over heavy spending on AI infrastructure — as well as fuelling growth. ‘You should make hay while the sun is shining,’ said Lucas Swisher, a partner at Coatue… ‘2026 might bring something unexpected… when the market is providing the option, build a fortress balance sheet’.”
Bubble and Mania Watch:
December 29 – Bloomberg (Alexandra Semenova and Sagarika Jaisinghani): “At the big banks and the boutique investment shops, an optimistic consensus has taken hold: the US stock market will rally in 2026 for a fourth straight year, marking the longest winning streak in nearly two decades… Not a single one of the 21 prognosticators surveyed by Bloomberg News is predicting a decline. ‘The pessimists have just been wrong for so long that people are kind of tired of that schtick,’ said veteran market strategist and longtime bull Ed Yardeni. He expects the S&P to finish next year at 7,700 — up 11% from Friday’s close…”
January 2 – Reuters (Libby George): “Sovereign wealth and public pension fund investors poured a whopping $132 billion - roughly half of their investments last year - into the United States in 2025, while big emerging markets drew in almost a third less than in 2024, an annual report showed… These huge investors together with central banks notched a record $60 trillion in assets under management last year, the report from Global SWF showed, with sovereign wealth funds accounting for two-thirds of the money invested in the U.S. during the year.”
December 31 – Financial Times (George Hammond): “The three most valuable private US tech companies are preparing for public offerings as early as this year… Elon Musk’s rocket maker SpaceX and artificial intelligence labs OpenAI and Anthropic are working on listings expected to raise tens of billions of dollars in proceeds… Those three deals alone would outstrip the total haul from about 200 US IPOs in 2025 and represent a potential gold mine for investment banks, law firms and investors. ‘I can’t recall a crop like this — three private companies which would be among the largest public market caps in the world,’ said Peter Hébert, co-founder of venture firm Lux Capital.”
December 28 – Financial Times (Ben Glickman): “Private-equity firms made progress clearing their shelves of dusty investments this year. There is still plenty more to do in 2026. Firms have been sitting on a glut of unsold companies for years, leaving many of their investors frustrated and making it harder to raise new funds. Despite a pickup in broader deal activity this year, the backlog of companies is up from last year. About 12,900 U.S. companies sat in private-equity portfolios as of Sept. 30, according to PitchBook, up slightly from the end of 2024. The average hold period—the time between buying and selling—is nearly seven years, down from the 2023 high but still elevated compared with before the pandemic.”
December 31 – Bloomberg (Alex Dooler): “Sovereign wealth funds globally amassed a record $15 trillion in assets under management in a year when many deepened their technology investments and profited from buoyant markets, according to… Global SWF. Overall, sovereign owned investors ploughed $66 billion into investments in artificial intelligence and digitalization in 2025… Middle East sovereign wealth funds led on digital investments, with Abu Dhabi’s Mubadala Investment Co. investing $12.9 billion in AI and digitalization, followed by the Kuwait Investment Authority’s $6 billion and Qatar Investment Authority’s $4 billion in 2025.”
December 31 – Bloomberg (Dylan Sloan and Jack Witzig): “The world’s 500 richest people added a record $2.2 trillion to their collective fortunes this year, as booming markets in everything from equities to cryptocurrencies to precious metals sent the value of their holdings soaring, according to the Bloomberg Billionaires Index. The gains, which brought their combined net worth to $11.9 trillion, were turbocharged by Donald Trump’s election victory in late 2024, and were only briefly derailed by tariff fears in April, when plunging markets caused the biggest one-day wealth wipeout since the pandemic’.”
January 1 – Bloomberg (Kara Carlson): “Tesla Inc. ended last year on a roll, with investors increasingly buying into Elon Musk’s ebullience about autonomous vehicles. Winning over actual car buyers was another story. Shares in the world’s most valuable auto company soared in the second half, largely on the basis of its chief executive officer touting advances in artificial intelligence and robotics. But the progress Musk trumpeted didn’t translate to success in showrooms… Tesla is expected to report that it delivered around 440,900 vehicles in the fourth quarter, down 11% from a year earlier… Tesla took the unusual step this week of publishing its own average of analyst estimates that was even more pessimistic, calling for a 15% decline. Wall Street has grown similarly gloomy about the outlook for 2026.”
Deflating Crypto Bubble Watch:
December 31 – Reuters (Hannah Lang): “Bitcoin is on track to post its first annual loss since 2022… Despite reaching a fresh record high this year, bitcoin has struggled to regain its footing since October, and last month experienced its biggest monthly drop since mid-2021. Now, it is on track to end the year more than 6% lower, after posting yearly gains the previous two years. It was last trading at $87,474.2. After soaring earlier this year with the election of crypto-friendly U.S. President Donald Trump, cryptocurrencies - along with stocks - plummeted in April on his tariff announcements. They quickly rebounded, with bitcoin hitting an all-time peak above $126,000 in early October.”
January 2 – Bloomberg (David Pan): “Michael Saylor has long noted that Bitcoin’s volatility ‘is a feature, not a bug’ when pitching his cryptocurrency accumulator Strategy Inc. Investors will soon see the downside of that, with the company likely to report a multibillion-dollar loss when it releases results for the just-ended fourth quarter. That would be a swing from a $2.8 billion profit in the previous quarter, reflecting an unrealized loss tied to the falling value of the company’s roughly $60 billion Bitcoin stockpile.”
Inflation Watch:
January 1 – Associated Press (Ali Swenson): “Enhanced tax credits that have helped reduce the cost of health insurance for the vast majority of Affordable Care Act enrollees expired overnight, cementing higher health costs for millions of Americans at the start of the new year. Democrats forced a 43-day government shutdown over the issue. Moderate Republicans called for a solution to save their 2026 political aspirations. President Donald Trump floated a way out, only to back off after conservative backlash… The change affects a diverse cross-section of Americans who don’t get their health insurance from an employer and don’t qualify for Medicaid or Medicare — a group that includes many self-employed workers, small business owners, farmers and ranchers.”
December 29 – Wall Street Journal (Jennifer Hiller and Max Rust): “Most Americans are paying more for electricity—and need to prepare their wallets for further pain ahead. Data centers are getting much of the blame lately for rising power costs, but they aren’t the only catalyst… The reasons our bills are rising are complex and varied. Hurricanes, wildfires, state renewable-energy plans and the replacement of aging or damaged grid equipment are all playing a role. Discontent over rising power bills has become a hot political issue that is expected to spill into the 2026 midterm elections. ‘I do think that we’re entering a new era, a new politics of electricity,’ said Charles Hua, executive director of PowerLines, a nonprofit that advocates for utility customers.”
December 29 – Bloomberg (Dayanne Sousa): “Cheap beef may soon become further out of reach. Brazil, one of the world’s few remaining sources of abundant cattle, is heading into a period of shrinking supplies that could push global prices higher. For the past two years, a surge in Brazil’s beef production helped fuel a jump in exports… At the same time, countries such as the US struggled with high food costs, and sought out sources of cheaper beef. That cycle is turning, with impacts that will ripple through global markets and hamper US President Donald Trump’s efforts to bring down beef prices. Climbing prices for calves in Brazil are signaling the start of a new phase, in which ranchers start holding back female cattle to rebuild herds.”
Federal Reserve Watch:
December 30 – Financial Times (Claire Jones): “US rate-setters clashed at their meeting this month over whether or not to prioritise fighting inflation over a cooling labour market, minutes of one of the most divided monetary policy votes in recent decades highlighted. While many Federal Reserve policymakers said the latest data indicated President Donald Trump’s trade war would not trigger persistent price pressures, several rate-setters ‘pointed to the risk of higher inflation becoming entrenched’, the minutes of the December 9-10 meeting, published on Tuesday, said.”
December 30 – Associated Press (Christopher Rugaber): “Some Federal Reserve officials who supported cutting a key interest rate earlier this month could have instead backed keeping the rate unchanged, minutes… show, underscoring the divisions and uncertainty permeating the central bank. At their December 9-10 meeting Fed officials agreed to cut their key interest rate by a quarter point for the third time this year, to about 3.6%, the lowest in nearly three years. Yet the move was approved by a 9-3 vote, an unusual level of dissent for a committee that typically works by consensus. Two Fed officials supported keeping the rate unchanged, while one wanted a larger, half-point reduction. The minutes underscored the deep split on the 19-member policymaking committee…”
December 30 – Bloomberg (Carter Johnson): “Respondents to a Federal Reserve survey anticipated that the central bank’s reserve management purchases will total more than $200 billion over 12 months as part of efforts to quell pressures in money markets. Fed policymakers decided at the Dec. 9-10 meeting to begin Treasury bill purchases after deeming that reserves in the financial system had dropped to levels considered as ample as indicated by rising short-term funding costs.”
December 29 – Bloomberg (Josh Wingrove and Kate Sullivan): “President Donald Trump teased that he has a preferred candidate to be the next chair of the Federal Reserve, but is in no hurry to make an announcement — while also musing that he might fire the central bank’s current leader, Jerome Powell. ‘I do, still do — hasn’t changed,’ Trump said…, when asked if he has a favorite candidate. ‘I’ll announce him at the right time. There’s plenty of time.’ Trump added that Powell ‘should resign’ and that he’d ‘love to fire him.’ The president came close to seeking Powell’s ouster in July, but backed away after a negative reaction in financial markets. ‘Maybe I still might,’ Trump told reporters…”
U.S. Economic Bubble Watch:
December 31 – Associated Press (Matt Ott): “Fewer Americans applied for unemployment benefits last week with layoffs remaining low despite a weakening labor market. U.S. applications for jobless claims for the week ending Dec. 27 fell by 16,000 to 199,000 from the previous week’s 215,000… Analysts surveyed by the data firm FactSet forecast 208,000 new applications. Unemployment benefit filings are often distorted during holiday-shortened weeks. The shorter week can cause some who have lost jobs to delay filing claims.”
December 30 – Bloomberg (Paulina Cachero): “Home-price growth in the US ticked up in October, as cities in the Northeast outpaced Sun Belt metro areas. A national gauge of prices climbed 1.4% from a year earlier, according to… S&P Cotality Case-Shiller. That followed a 1.3% year-over-year increase for the index in September… ‘October’s data show the housing market settling into a much slower gear,’ Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices, said... ‘National home prices also continue to lag consumer inflation.’ Among 20 major cities, Chicago topped the index, with a 5.8% annual gain in prices. Following were New York, with a 5% increase, and Cleveland at 4.1%. Prices fell the most in Tampa, with a 4.2% annual decline. Dallas, Miami and Phoenix also saw drops.”
December 31 – Wall Street Journal (E.B. Solomont): “The U.S. housing market in 2025 was tepid at best. Ultraluxury real estate, on the other hand, was white-hot. The top 10 residential deals were all above $100 million—up from seven in 2024 and five in 2023, according to… Jonathan Miller and The Wall Street Journal. This milestone also topped the eight $100 million-plus deals in 2021, at the height of Covid’s real-estate frenzy. Deals of this magnitude are no longer a fluke, said Miller... ‘The separation between the haves and have-nots is expanding, and it is being reflected in real estate,’ Miller said. Affluent buyers are scooping up luxury real estate as a way to diversify their portfolios, store wealth or as a hedge against inflation.”
January 1 – Wall Street Journal (Nicole Friedman): “Condo owners are struggling with the worst market in more than 10 years. Prices for U.S. condominiums posted their biggest annual decline since 2012 earlier last year… The condo market’s softness reflects ways the housing market and buyer preferences are evolving. Many condo buildings are located in urban downtowns, which are less attractive than they used to be for people who now work from home at least part-time. Condos are popular in second-home markets, which have suffered from a slowdown in demand. Rising homeowner-association fees due to higher insurance premiums and maintenance costs are also making condominium purchases less affordable. The rise in those condo HOA dues ‘is giving a lot of buyers pause,’ said Kirby Arkes, a real-estate agent in Portland, Ore. ‘Homes are just taking so much longer to sell’.”
China Watch:
December 30 – Bloomberg: “President Xi Jinping declared China’s economy is set to hit its growth target in 2025, after what he called an ‘extraordinary year.’ China’s gross domestic product is expected to expand by around 5% this year, Xi told an annual gathering held by the country’s top political advisory body… ‘China’s economy is forging ahead under pressure, moving toward innovation and quality, demonstrating strong resilience and vitality,’ Xi told an annual meeting of the Chinese People’s Political Consultative Conference. ‘The growth rate is expected to reach around 5%, continuing to rank high among the world’s major economies’.”
December 28 – Bloomberg: “China said it will expand government spending and improve how it deploys capital in 2026, aiming to balance supporting growth and containing debt risks. Beijing plans to boost expenditure and strengthen the spending power of local authorities through more effective transfer payments… The announcement… suggests a focus on better coordination between fiscal and financial tools rather than more forceful stimulus measures. ‘More proactive fiscal policy will be reflected not only in the scale of funding, but more importantly in improving the efficiency and effectiveness of how funds are used,’ Finance Minister Lan Fo’an was quoted by the official Xinhua News Agency…”
December 26 – Financial Times (Edward White): “China’s industrial profits last month fell at their fastest pace in more than a year, as President Xi Jinping’s economic planners struggled to contain the fallout from industrial overcapacity and lacklustre consumer confidence. Profits at industrial companies with annual revenues of more than Rmb20mn ($2.8mn) fell 13.1% in November compared with a year earlier…, down from a 5.5% decline in October. The November slump brought profit growth for the year to date down to 0.1% above the same period in 2024, down from 1.9% growth in the January-to-October period.”
December 31 – Associated Press (Elain Kurtenbach): “Chinese factory activity expanded for the first time in eight months in December, as orders picked up ahead of holidays and builders rushed to finish projects, according to surveys… The official purchasing managers index for manufacturing, a monthly survey of companies, rose to 50.1 this month… That was just above the 50 cut off for expansion versus contraction on a scale up to 100. Another, private sector, survey also was at 50.1 for December.”
December 28 – Financial Times (Joe Leahy): “Chinese offerings of asset-backed securities have hit a record high this year as cash-strapped local governments struggle to plug fiscal holes. The number of deals in China involving sales of ABS — financial instruments based on the revenue streams of an underlying pool of assets such as property rentals or leases — reached 2,386 as of December 24, surpassing the previous record set in 2021… The rise in deals this year was driven by authorities at the provincial level and below… The value of new ABS deals in the country has totalled $2.3tn, the highest in four years, the Wind data shows.”
Europe Watch:
January 1 – Associated Press: “Bulgarians began withdrawing euros for the first time on Thursday after the former communist nation joined the euro currency union as its 21st member. Cash machines in the capital, Sofia, dispensed brand new euro banknotes, replacing the lev… The country of nearly 6.7 million people was one of the poorest when it first became a member of the European Union in 2007. Joining the European single-currency system means deeper EU integration after its 1989 transition from a Soviet-style economy to democracy and free markets.”
Japan Watch:
December 28 – Bloomberg (Erica Yokoyama): “Some members of the Bank of Japan’s board signaled that the country’s real interest rate remains very low during a meeting earlier this month where authorities raised the benchmark rate, suggesting that further increases are likely in store. ‘Japan’s real policy interest rate is by far at the lowest level globally,’ one of nine board members said at the two-day meeting that concluded on Dec. 19, according to a summary of the discussions... ‘It is appropriate for the Bank to adjust the degree of monetary accommodation,’ the member said, citing the impact on prices through currency movements.”
December 30 – Bloomberg: “A prominent group of Japanese executives has put its planned visit to Beijing on hold, a sign that a diplomatic feud is chilling commercial ties between Asia’s two largest economies. The delegation of some 200 business leaders will skip the trip originally scheduled Jan. 20, the Japan-China Economic Association said... The organization cited challenges in securing meetings with Chinese officials and said no rescheduled date has been decided.”
Leveraged Speculation Watch:
January 2 – Bloomberg (Nishant Kumar): “D.E. Shaw & Co. will refrain from handing back any cash to clients despite double-digit returns at its main hedge funds in 2025, departing from its yearslong practice of returning profits to control asset growth. The money manager’s flagship multistrategy Composite hedge fund gained an estimated 18.5% last year… Oculus, its second-biggest fund that’s mostly into macro wagers, made an estimated 28.2%...”
January 2 – Bloomberg (Nishant Kumar): “Bridgewater Associates’ flagship money pool posted record gains, while D.E. Shaw & Co.’s strategies soared as much as 28% to rank among the biggest hedge fund winners of 2025… Bridgewater’s Pure Alpha II macro fund returned 34% last year, its best ever, while the All Weather strategy rose 20%... D.E. Shaw’s flagship multistrategy Composite hedge fund gained 18.5% and Oculus made an estimated 28.2%. Michel Massoud’s event-driven Melqart Opportunities Fund surged 45%... Millennium Management, the $83.5 billion multistrategy hedge fund firm, gained 10.5% last year. ExodusPoint… gained 18%, the most since its founding in 2017.”
Social, Political, Environmental, Cybersecurity Instability Watch:
December 31 – Associated Press (David Bauder): “By nearly any measure, 2025 has been a rough year for anyone concerned about freedom of the press. It’s likely to be the deadliest year on record for journalists and media workers. The number of assaults on reporters in the U.S. nearly equals the last three years combined. The president of the United States berates many who ask him questions, calling one woman ‘piggy’… It’s hard to think of a darker time for journalists. So say many, including Tim Richardson, a former Washington Post reporter... ‘It’s safe to say this assault on the press over the past year has probably been the most aggressive that we’ve seen in modern times.’ Worldwide, the 126 media industry people killed in 2025 by early December matched the number of deaths in all of 2024, according to the Committee to Protect Journalists, and last year was a record-setter. Israel’s bombing of Gaza accounted for 85 of those deaths, 82 of them Palestinians.”
December 30 – Bloomberg (Mark Gongloff): “Calling 2025 a disaster for the environment and renewable energy would be an insult to disasters. For the climate, 2025 was the equivalent of taking one of those rivers polluted enough to stand on, lighting it on fire and then driving a dodgy Amtrak train packed with scientists, puppies and nuclear waste into that river. Funny enough, flaming rivers helped inspire the creation of the Environmental Protection Agency in 1970. Fifty-five years later, President Donald Trump’s EPA has all but dropped ‘Environmental Protection’ from its name, thus fulfilling yet another prophecy of the satirical news site The Onion and also the Heritage Foundation’s Project 2025. The latter might sometimes read like bleak satire, but it’s actually a deadly serious playbook for dismantling the regulatory state to make life easier and more lucrative for polluters of all kinds, especially the fossil-fuel companies whose products are heating the planet.”
December 29 – Associated Press (Alexa St. John): “Climate change worsened by human behavior made 2025 one of the three hottest years on record, scientists said. It was also the first time that the three-year temperature average broke through the threshold set in the 2015 Paris Agreement of limiting warming to no more than 1.5 degrees Celsius (2.7 Fahrenheit) since preindustrial times. Experts say that keeping the Earth below that limit could save lives and prevent catastrophic environmental destruction around the globe. The analysis from World Weather Attribution researchers… came after a year when people around the world were slammed by the dangerous extremes brought on by a warming planet. Temperatures remained high despite the presence of a La Nina…”
December 30 – Axios (Herb Scribner and Jason Lalljee): “The United States is seeing a massive surge in flu cases this winter, many of them attributed to the so-called ‘super flu.’ An unprecedented rise in flu cases comes as other sicknesses… are slamming the United States this winter. It also arrives as chaos has enveloped the Centers for Disease Control and Prevention, with many questions about vaccination schedules for children. Cases of the flu remain elevated nationwide… New CDC data shows that there’s been at least 7.5 million illnesses, 81,000 hospitalizations and 3,100 deaths from the flu so far this season. Many of these cases have been tied to ‘subclade K’ — a variant of the H3N2 virus…”
