Investors Positioning for Likely Fed Reserve Rate Cut from FOMC Meeting that Starts Tomorrow
December 8, 2025
(162) The 10-year U.S. Treasury yield rose five basis points overnight in anticipation of a 25-basis point cut likely to be announced on Wednesday. This increase exerted a similarly-sized increase in other 10-year sovereign debt yields, for example of 8 bps in Spain, 7 bps in Spain, 6 bps in Germany and Great Britain, 5 bps in France and 3 bps in Japan.
The dollar has meanwhile strengthened 0.4% against the yen and Swiss franc, 0.3% versus the Australian dollar and Mexican peso, and 0.2% relative to the euro, kiwi and sterling. The DJIA, SPX and Nasdaq U.S. equity indices are marginally lower in contrast to a 0.3% climb in the Russell 2000 at this writing.
Stock markets in other economies are similarly mixed, with gains of 1.3% in South Korea, 1.2% in Taiwan, 0.5% in China and 0.2% in Japan but losses of 1.9% in Hong Kong, 0.7% in India, 0.5% in Singapore, 0.4% in the U.K., and 0.2% in France and Germany thus far.
When President Trump began to complain about Fed policy remaining too tight, he frequently compared the the stance to that of the European Central Bank, where easing started in June 2024, three months before the initial cut of the federal funds target and where cuts continued early in 2025 in contrast to an easing pause by the Fed. From peak, the ECB target has dropped around 75 bps more than the cumulative Fed easing, but Trump no longer harps on the contrast because that would be inconvenient. A half-year has now elapsed since the last ECB interest rate cut, and rhetoric from officials at that bank has become progressively less dovish in tone. ECB Executive Board member Isabel Schnabel today opined that both risks to both growth and inflation in Euroland’s economy have now skewed to the upside. Not only is a rate cut next year looking unlikely, it is becoming more possible that the rate’s next change could be in an upward direction.
The price of Bitcoin is 0.6% higher today, while oil and gold costs are down by 0.9% and 0.8%.
Highlights from today’s comparative light data release menu involved revised Japanese growth, the Chinese trade balance, and German industrial production.
Japanese GDP during the third quarter of 2025 was reported initially as a decline of 0.4% (0r 1.6% at a seasonally adjusted annualized rate SAAR). That contraction has now been revised to -2.3% SAAR and has halved year-on-year growth to 1.1% from 2.0% in the second quarter. In quarterly terms on an annualized basis, residential construction plunged 29%, non-residential investment fell 0.8%, and net foreign demand and government investment expenditures exerted negative effects on GDP growth as well, while government and personal consumption mitigated the drop in GDP.
Other Japanese data reported this Monday include 1) the current account surplus, which at JPY 2.88 trillion in October was 4.6% wider than the surplus a year earlier but which in seasonally adjusted terms narrowed around 36% from September’s surplus; 2) average cash earnings in October (a gauge of wage growth), which rose 2.6% on year but fell by 0.7% on an inflation-adjusted basis; 3) bank lending growth that at 4.2% between November 2024 and last month accelerated marginally more than expected; and 4) the economy watchers index that reflects the sentiment of service sector workers and slipped back to a 2-month low of 48.7 last month from a 19-month high of 49.1 in October.
The Chinese trade surplus of $111.7 billion last month far exceeded expectations and a surplus of $97.4 billion a year earlier. The year-to-date surplus of $1.08 trillion exceeds the full-2024 surplus and is almost 22% greater than the accrued surplus over the first 11 months of last year. To be sure, exports to the United States (down 28.6% on year in November) have been stymied by Trump’s tariff policy, but China has so far managed to compensate with larger surpluses from trade with other countries. The $3.46 trillion value of Chinese foreign exchange reserves at the end of November was at a 10-year high, benefitting from the dollar’s soft tone in President Trump’s second term.
German industrial production unexpectedly jumped 1.8% in October, marking the third monthly increase of at least 1.0% in the past four reported months but neutralized by August’s 3.7% monthly decline. Industrial production compared to October 2024 was only 0.8% higher.
Consumer price inflation of 3.8% last month in both Latvia and Lithuania was at 4-month lows. Lithuanian inflation had declined from 24.1% in September 2022 to as low as 0.3% in October 2024, while Latvian inflation slowed from a 2022 peak of 22.2% to a low point of 0.1% touched in May of last year.
Vietnamese CPI inflation of 3.6% last month represented a 10-month high, having been as low as 2.0% in June 2023. Vietnamese retail sales and industrial production were 7.1% and 10.8% above November 2024 levels. Those gains represented a 13-month low and a 2-month high, respectively.
Czech industrial production edged down 0.1% in October and was 1.1% higher than its year-earlier level.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Chinese trade balance and forex reserves, ECB Executive Board Member Schnabel, German industrial production, Japanese GDP and economy watchers index
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