Weekly Market Recap

U.S. investors returned from their Thanksgiving holidays with a focus on this week’s Federal Reserve (the Fed) interest rate decision. Bets on a rate cut have been bolstered by tentative evidence of job market weakness.

The official non-farm payrolls report for November was not released on Friday as the Bureau of Labor Statistics is still catching up from the government shutdown. In its stead, evidence has had to come from private sector studies, like the ADP Employment Report and the Challenger Report.

The S&P 500 has been hovering near all-time highs but struggling to gain significant traction. It has benefitted from the anticipation of lower interest rates and most investors expecting slower jobs growth. Meanwhile, other risk assets have found the going harder.

Cryptocurrencies recovered a little after their precipitous falls during October and November. The more conventional limited supply asset, gold, recovered much sooner and continued that recovery last week.

In the aftermath of the UK Autumn Budget, gilts and the pound have broadly held on to their gains, outperforming most other government bond markets. The exception would be Japanese government bonds (JGBs), whose yields have continued to rise, bucking the trends of other government bond markets. Thirty-year JGBs have fallen in price by about 20% this year.

Race for the Fed chair heats up

Speculation remains rife about who will succeed Jay Powell as the next Fed chairman, with the prediction markets now firmly favouring Kevin Hasset.

As director of the National Economic Council, Hassett forms part of the White House economic team. While this demonstrates his suitability based on knowledge and experience, it also raises questions over his independence. Those questions are added to by his recent assertions that the Fed should be cutting interest rates more, a view shared with President Donald Trump.

Hassett’s also likely to be remembered for his co-authorship of the infamous Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market. The book, published in October 1999, argued that the Dow Jones Industrial Average would triple in value over the coming two to four years, however, over that time period, it barely grew and was at one stage 30% down.

The prediction markets indicate that Hassett is the frontrunner, but that he is unlikely to be named as Powell’s successor until next year or assume the position until May 2026. He would be joining a Fed that has historically operated by consensus but has recently become more divided, this is due to the injection of Stephen Miran as a governor, who joined directly from the White House alongside two more explicitly dovish Fed members.

By May, the Supreme Court will likely have ruled whether President Trump could fire Fed Governor Lisa Cook. If the court rules in the president’s favour, he would be able to name a third governor and increase his influence on the committee, although probably not decisively.

Pensions threat to German defence spending

In Germany, Fredrich Merz’s coalition government passed its pension bill. This was achieved despite a rebellion by 18 younger members of his own party, who argued that the increased spending was shifting the burden of pensions spending to future generations.

This example of politics reflecting intergenerational interests threatened to derail one of the policies the Social Democratic Party had brought to the coalition. Had it failed, the coalition may have collapsed, raising the prospect of further elections. Current polling indicates the right-wing Alternative for Germany (AfD) party might attract the most votes, which would have made it harder still to exclude it from government.

The AfD is less keen to loosen Germany’s restrictive debt break policy and increase defence investment. However, even though the AfD’s popularity has continued to grow, its path to power still seems elusive.

It is currently only the second largest party, with no new elections due until 2029. If the collapse of the coalition triggered new elections, AfD still seems short of a majority, and would likely be excluded from government by the other major parties.

Sentiment was supported by renewed expectations of monetary easing in the U.S., as incoming data pointed to a softer economic backdrop.

While the overall market tone remains one of caution due to lingering concerns over high U.S. artificial intelligence (AI) stock valuations, investors cheered on improved rate cut expectations and signs of near-term fiscal clarity.

In the UK, all attention was on the Autumn Budget, which highlighted the government’s efforts to balance fiscal responsibility with the need to sustain near-term activity.

The Budget was broadly viewed as fiscally conservative. Chancellor Rachel Reeves announced a much larger fiscal headroom of £21.7 billion, a figure more than double the £9.9 billion previously projected.

This headroom was achieved by a combination of more favourable forecasts from the Office for Budget Responsibility (OBR) and a sizeable package of tax rises.

Markets interpreted this larger fiscal buffer as a signal of discipline, particularly at a time when gilt investors have been wary of potential policy slippage. Gilt yields fell modestly after the announcement, and the pound edged higher, reflecting a constructive reaction to the government’s strengthened capacity to meet fiscal rules.

Autumn Budget shows fiscal pain to be backloaded

It was well known that the Chancellor would need to cut spending or raise taxes, as changes to the OBR’s growth forecasts meant she was no longer on track to meet her fiscal rules.

In response, she is increasing borrowing in the near term, while raising the tax burden later. In practical terms, this means ‘pain is backloaded.’ This will mainly be achieved through £26 billion in tax increases, three quarters of which will not be implemented until April 2028.

Amongst the main measures announced were:

• freezing income tax thresholds until April 2031, which will raise an estimated £8 billion in the 2029/30 tax year.
• subjecting salary sacrificed pension contributions above £2,000 to both employer and employee National Insurance contributions from April 2029, which will raise an estimated £4.7 billion in the 2029/30 tax year.
• increasing income tax rates on dividends, property, and savings by 2%, which will raise an estimated £2.1 billion in the 2029/30 tax year.

On top of these revenues of almost £15 billion from personal tax increases, a further estimated £11 billion in revenue is to be achieved from a series of smaller measures.

While fiscal tightening is backloaded, spending measures were frontloaded, consisting mainly of £10 billion of welfare measures (including the expected removal of the two-child benefit limit).

Overall, the Budget remains modestly contractionary for growth across the forecast period. There is frustration amongst businesses over the lack of a pro-growth spirit or constructive strategies to tackle dire productivity growth.

While the Budget is not expected to materially reshape the interest rate outlook, it also does not stand in the way of the Bank of England (BoE) cutting rates in December.

Against the mildly growth-supportive loosening of policy in the near term, the package announced also included measures which the OBR estimates will reduce Consumer Price Index (CPI) inflation by 0.5% in Q2 2026. This includes freezing rail fares, extending the fuel duty freeze, and an energy bills package that aims to reduce bills by an average of £150 per year from April 2026.

Encouragingly, the OBR’s inflation forecasts show CPI inflation at 2.4% in Q2 2026, an improvement to the BoE’s forecast of 2.9% year-on-year made in its November Monetary Policy Report. Financial markets continue to price in a high probability of a BoE rate cut in December, citing muted growth and moderating inflation trends.

Looking beyond the near term, longer-term fiscal challenges remain. The OBR now projects the UK tax-to-GDP (gross domestic product) ratio to reach a new all-time high of 38.3% in 2030-31, markedly above its projection in March.

While the chancellor’s efforts may offer short-term reassurance to investors, structurally higher tax burdens risk reducing incentives for both businesses and workers. That could weigh on investment decisions and growth trends over time, particularly if economic momentum weakens more than anticipated. If tax receipts fall short because of weaker growth, this may reignite concerns for higher taxes or increased borrowing in the future.

Weak U.S. data fuels December rate cut bets

Turning to the U.S., recent economic data came in softer than expected across several fronts, reviving expectations of a December rate cut.

September retail sales increased by just 0.2% month-on-month, which was much lower than both experts’ anticipations and August’s figures. Weakness was seen in motor vehicle sales and discretionary categories.

November data from the Conference Board showed that consumer confidence saw its highest decline since April, with forward-looking measures falling to their lowest in over a year. Part of that could be related to the prolonged government shutdown, but it also revealed rising concerns around income security and the labour market.

For instance, the share of consumers that expect their incomes to rise in the next six months fell to the lowest level since February 2023. The views on current and future business conditions deteriorated.

In addition, U.S. regional manufacturing surveys like the Richmond Fed Manufacturing Index pointed to further moderation in activity. Meanwhile, producer prices came in below expectations, which indicated that tariffs haven’t materially impacted factory gate prices.

The broad U.S. data tone suggests that the economy is still expanding, but at a slower pace, and that price pressures will continue to ease due to the cooling labour market.

The Federal Reserve (the Fed) will not receive another employment report before its December meeting, and visibility on inflation will also be more limited than usual.

Traders initially viewed a December pause as the most sensible course of action. But last week’s range of weaker-than-expected data changed that narrative. The market is now pricing in an over 80% chance of a December rate cut.

Let us kick off with AI, and markets were nervous ahead of the highly anticipated Nvidia earnings results on Wednesday 19 November.

As the poster child and arguably one of the biggest beneficiaries of AI, Nvidia is in a position to make or break the AI enthusiasm that has propelled global stock markets to record highs this year. It once again beat high expectations and delivered a stellar report card. Revenue increased 62% year-on-year (YoY), and earnings per share surged 67% YoY against a tremendous base, both handily above expectations.

In terms of outlook, Nvidia highlighted continuously strong demand for AI data centres, high utilisation rates, and continued momentum in new platform deployment. CEO Jensen Huang said demand for Blackwell (its top AI chip infrastructure) is “off the charts”. Broader integration across software and networking reaffirms Nvidia’s competitive advantage.

As a result of its moat (its long-term competitive advantage), the business is highly profitable, with an impressive 75% gross margin guided for Q4 2025, despite the surging cost of memory chips.

However, market reactions show sentiment has turned fragile on AI. Nvidia and the broader AI-related stocks initially rallied but reversed intraday to end the session lower. With Nvidia now comprising around 8% of the S&P 500 index, its price movement has a significant influence on the broader market.

This behaviour suggests even companies with exceptionally strong fundamentals and growth prospects face a valuation reality check. It could simply come down to investors taking profits before year-end across a sector that has performed so well.

It’s too early to say that the AI rally is over, but we are entering a stage where investors are putting more scrutiny on aspects such as return on investments and valuations.

The long-term AI opportunity remains intact. Demand for compute capacity (the total amount of computing resources available to process data), infrastructure upgrades and AI adoption continues to accelerate. However, the market discussion has shifted from pure growth momentum to valuation and over-investment risks.

While we believe that AI will be a transformative technology, there are lingering questions about whether the returns generated by providers of AI services will be high enough to justify both the massive levels of investment, and the extended valuations the AI picks and shovels plays trade on. In addition, the S&P 500, excluding the so-called ‘Magnificent Seven’, also trades on a large price-to-earnings premium compared to the World ex U.S. market.

The U.S. unemployment rate rose

Another highly anticipated event last week (w/c 17 November) was the release of the September U.S. employment report, which was significantly delayed due to the U.S. government shutdown.

The report showed 119,000 new jobs were created over the month, well above the 51,000 expected. However, the unemployment rate edged higher from 4.3% to 4.4%. This was the third consecutive monthly increase, defying expectations of no change. This is likely to add to the dovish view within the Fed.

However, the Fed will not receive another jobs report before its December meeting, and visibility on inflation data is expected to remain more limited than usual due to the previous government shutdown. With the labour market a bit weaker (but still generating jobs), and conditions not deteriorating sharply, most investors now view a Fed pause in December as the most appropriate and likely scenario.

Markets have reduced expectations for a December interest rate cut, and further policy easing is considered more likely from 2026 if inflation and growth slow.

Economic trouble for the chancellor

In the UK, the data flow remained weak ahead of this week’s Autumn Budget. October retail sales fell by 1.1%, while the private sector business survey (PMI) suggested the economy was stagnant. Fiscal indicators have deteriorated, with the fiscal deficit widening more than expected in October.

This is an economic backdrop that makes it hard to raise taxes without further dampening growth, but it’s widely speculated that this is what Chancellor Rachel Reeves will do.

One silver lining is that inflation is heading in the right direction, albeit slowly. Headline UK CPI (Consumer Price Index) slowed from 3.8% to 3.6% while core inflation slowed from 3.5% to 3.4% in October. Services inflation, which is closely monitored by the Bank of England (BoE) as a measure of domestic price pressure, softened from 4.7% to 4.5%, falling below expectations.

A lower inflation trajectory helps support the case for a rate cut in December. Markets are pricing in a very high chance of that happening. Ultimately, whether the BoE will proceed with that depends on Governor Andrew Bailey’s swing vote. The latest inflation figure probably ticked a box, but we still need to see how the Budget goes.

Overall, last week’s market action reflected a more cautious stance. AI remains the dominant structural theme, but greater scrutiny is being applied now, so the bar for a further rally is high at this stage.

In the U.S., job growth continues, but there are signs of cooling. In the UK, data confirms a weakening backdrop ahead of significant fiscal decisions that ultimately impact growth.

Staying diversified remains highly relevant in this environment.

In the current financial landscape, a dichotomy exists between high-growth structural technology demand i.e. artificial intelligence (AI), and short-term cyclical credit risks. The two should not be directly connected but as is so often the case, the best performing assets are susceptible to pullbacks when investor anxiety rises. That seemed to be the case last week.

Macroeconomic and credit backdrop: Signs of cooling

The best news of the week was that the U.S. government shutdown finally came to an end. While it was in place, we were without the usual catalogue of economic indicators. Those that were available (from private sources) were downbeat. For example:

• U.S. small business nervousness: The National Federation of Independent Business (NFIB) survey of smaller businesses showed weakness across several categories. Companies are less confident that the economy will improve, they are less likely to increase employment and have lower expectations for sales.
• Evidence of credit distress: The structural issues in the credit market are worsening, especially in less-liquid areas:
  • Commercial real estate (CRE): the commercial mortgage-backed securities (CMBS) market, the timeliest indicator of distress, confirmed a rise in delinquency. The CMBS loan delinquency rate (30+ days past due) rose to 5.66% in the third quarter of 2025 (source: MBA). While traditional bank data is lagged, this shows concentrated distress in non-bank and office-sector debt.
  • Private credit: the Federal Reserve’s (Fed’s) Financial Stability Report (FSR), released on 7 November 2025, confirmed elevated vulnerabilities, noting that while banks are sound, the ability of risky privately held firms to service their debt continues to decline amid high corporate leverage.
• UK economic fragility: The UK economy is suffering from a cautious business sector in anticipation of a tax hiking Autumn Budget. The unemployment rate rose to 5% in the three months to September, increasing the risk of weak consumer demand and late payments for small-to-medium enterprises (SMEs).

UK Budget speculation: The tax U-turn challenge

The focus last week on the upcoming Autumn Budget taking place on 26 November was dominated by speculation that risks undermining the government’s hard-won fiscal credibility.

The background to this was a slightly greater-than-expected increase in unemployment to 5%.

• Doubt over “hard choices”: Chancellor Rachel Reeves has successfully anchored gilt yields by maintaining a stern rhetoric of fiscal prudence and signalling a willingness to make “hard choices.” The market appraisal of this restraint is fragile, relying entirely on the assumption that the government will deliver sufficient revenue-raising measures to plug the estimated £30 to £40 billion fiscal shortfall against its fiscal rules.
• The U-turn briefing: Press reports last week indicated that the Chancellor may feel she has to revisit plans to increase headline income tax rates due to internal political pressure. Instead, the final Budget is expected to rely on a complex mix of ‘stealth taxes’, such as extending the freeze on tax thresholds (fiscal drag) and targeting wealth through adjustments to capital taxes.
• Market risk: There are a couple of reasons to be concerned about this. Currently, there are an estimated 1,100 tax reliefs in the UK. These undermine the concept of tax neutrality, meaning that, when spending decisions are being made, government policy is tipping the scales in favour of one area or another.

This lack of tax neutrality risks causing inefficient allocation of resources. But also, if the final Budget’s numbers are perceived by bond investors to be based on unreliable future spending cuts or insufficient stealth taxes, the gilt market could react badly, resulting in a rise in the political risk premium and higher government borrowing costs.

Rumours of the existence of two Budgets (one with headline tax increases and one without) rattled the bond market, as did rumours of a leadership challenge within the government. The Starmer/Reeves combination may be under pressure politically but remains the ‘devil-you-know’ as far as the bond market is concerned.

Geopolitics: Fragile truce and structural de-risking

The U.S.- China trade dynamic remains an exercise in tactical de-escalation rather than fundamental peace, while Europe’s approach hardens.

A couple of weeks ago, we saw a thawing of relations, with a truce reached between the U.S. and China over trade. Investors realised it was temporary in nature, but last week, the concerns were for how complete the agreement was, specifically in relation to Chinese purchases of U.S. soybeans. These commitments have not been officially recognised on the Chinese side, and purchases don’t seem to have resumed.

Meanwhile in Europe, European Commission President Ursula von der Leyen expressed the region’s commitment to “de-risking” it’s relationship with China. This strategy led to the official anti-subsidy probe into Chinese Battery Electric Vehicles (BEVs) and the activation of new trade defence mechanisms like the Anti-Coercion Instrument (ACI). It creates a long-term headwind for Chinese exporters and accelerates the trends of supply chain diversification and global fragmentation.

Risk assets: Rotation into resilience

The combination of geopolitical tension, economic cooling, and valuation concerns triggered a clear shift to risk aversion last week, with investors rotating out of speculative growth and into assets offering stability and structural tailwinds.

• Tech sell-off: Global equities experienced a pullback, led by the previously market-leading technology sector. The Nasdaq Composite gave back a fraction of recent gains as investors engaged in profit-taking, questioning the lofty valuations of AI-linked stocks and pricing in slower economic growth. This sector weakness comes at a time when RBC’s technical analyst noted the breadth of the market has been showing signs of improving, which is usually a good sign.
• Defensive sectors: This increased breadth was reflected more explicitly in defensive sectors like healthcare, utilities, and industrials. These outperformed, finally enjoying some benefit from their more predictable earnings, attractive dividend yields, and the long-term investment required for reshoring and supply chain diversification.

The bill pays back furloughed workers and prevents layoffs but defers the decisive vote (which the Democrats had been holding out for), on extending the Affordable Care Act premium subsidies. The deal, brokered by a bloc of centrist Democrats who dropped the subsidy renewal demand in exchange for a promise of a mid‑December Senate vote, sparked an intra‑party backlash but secured the crucial Freedom Caucus Chair’s conditional support.

House Speaker Mike Johnson has signalled a swift floor vote on Wednesday, and with the Grand Old Party‑controlled chamber expected to approve the measure, the bill should soon land on President Trump’s desk for signature.

Equity markets seem buoyed by the news. Nevertheless, analysts warn that air‑travel disruptions and SNAP (food stamps) benefit backlogs will linger, and the ultimate fate of the Obamacare subsidies remains uncertain.

Tariffs are back in the spotlight

The Supreme Court of the United States (SCOTUS) was in focus last week as it heard oral arguments on the legality of President Donald Trump’s sweeping global tariffs. These measures were the subject of legal challenges that were originally heard by the U.S. Court of International Trade, then moved to the Courts of Appeal, and eventually to SCOTUS. The tariffs were imposed under the International Emergency Economic Powers Act (IEEPA).

The challengers argue that the IEEPA does not grant the President authority to impose tariffs; that power is reserved for Congress according to the U.S. constitution.

The session seemed to favour the complainants. A majority of the justices, including Chief Justice John Roberts and Justice Neil Gorsuch, appeared deeply sceptical. They focused heavily on the separation of powers and the ‘major questions doctrine,’ questioning whether a law intended for emergency sanctions could be twisted to impose a massive, sustained, global tax (i.e., a tariff). This signals that SCOTUS is likely to rule that the President exceeded his legal authority under IEEPA.

What happens next?

The consensus among observers is that SCOTUS will strike down the IEEPA‑based tariffs, with a ruling expected sometime in December or early 2026.

The administration has said it will immediately try to reimpose the tariffs using alternative statutory tools, such as:

• Section 232 (National‑Security Tariffs)
• Section 301 (Unfair‑Trade‑Practice Tariffs)

However, the short‑term fix most likely involves Section 122 (Temporary Balance‑of‑Payments Tariffs). Legal experts believe the administration has the authority to use these provisions, so the substantive outcome may not change dramatically.

One important consequence of SCOTUS upholding the lower‑court decision is that the Treasury would have to refund all duties collected under the IEEPA authority, which is estimated at USD90 billion to USD130 billion (plus interest).

This amount is roughly 5% to 7% of the federal budget deficit. The refund would go to the parties that paid the duties directly, primarily U.S. importers.

Much debate took place in the immediate aftermath of ‘Liberation Day’ over whether the taxes were borne by exporters or U.S. consumers. In reality, both groups shared the burden, but only importers would receive the refund. Consequently, the net effect is a wealth transfer from consumers and exporters to importers.

Broader economic context

The event is significant, but it does not appear to be systemic in the short term.

However, assessing its impact is complicated by the record‑breaking federal government shutdown. Assuming this now ends, as seems likely, the U.S. economic data series will begin to resume.

A fractured look into the U.S. jobs market

Because of the shutdown, there is limited data on the broader U.S. labour market. Some private sector sources, such as the Challenger Job Cuts report, continue to track announced layoffs

Employment is highly seasonal, a nuance that is obscured in seasonally adjusted data series like non‑farm payrolls or the unemployment rate.

The Challenger report highlighted an unusual uptick in job cuts during October, a month when companies typically avoid layoffs to preserve goodwill before the holiday season. The second most cited reason for October cuts was artificial intelligence (AI).

The majority of these cuts came from the technology sector, which has experienced the largest amount of private sector job losses over the past two years (though the public sector surpassed it after the Department of Government Efficiency (DOGE) cuts earlier this year) amidst concerns over their investment plans

AI‑related layoffs in 2025 total under 50,000, a relatively small figure, especially given that most of those cuts occurred in the last month. At present, this looks more like a blip than a trend.

Strains in the credit markets

The high‑yield (HY) credit spread remains a robust leading indicator for both real economic activity and equity market performance.

A widening spread raises companies’ cost of capital, prompting them to cut investment and output growth. HY spreads are also predictive for equities; historically, high‑yield returns correlate with equity returns at a range of 66% to 92%. Essentially, equities and high-yield bond returns have a strong positive correlation.

Spreads have risen recently, but they started from a low base, so they are not yet prohibitively high.

A handful of credit concerns have emerged in recent weeks, involving names such as First Brands, Tricolor, Western Alliance, Zions Bancorp, Broadband Telecom, and Bridgevoice. This follows JPMorgan Chase CEO Jamie Dimon’s comment that the first credit worries, “like cockroaches”, often signal the presence of many more.

How to view the credit market

The recent uptick in credit spreads has been modest, and spreads remain relatively low in a long‑term historical context.

High‑yield investors accept higher default risk in exchange for extra yield; even with the recent spread widening, the overall yield on high‑yield bonds is still modest compared with safer credit.

There is room for defaults to increase without indicating a systemic financing crisis, this is what we would expect in a normal credit cycle.

Consequently, we can tolerate a further widening of spreads or additional distressed credit cases before becoming overly concerned about an economic slowdown.

The size of the short and longer-term investment commitments is unnerving for investors, as it reminds them of previous investment cycles where long-term demand was slower than expected. This led to longer periods of underused capacity.

Large investments in telecommunications infrastructure during the late 1990s, or mining capacity during the early 2000s, led to correspondingly high depreciation charges, with little offsetting revenue and, often, asset writedowns (when the recorded value of an asset is reduced because the market value has fallen below its book value). This is why people worry about an AI investment bubble.

Instead, companies reported that their spending is based on the concrete evidence of robust, immediate demand, mitigating concerns over a potential AI spending bubble.

Executives were unanimous in reporting that AI demand continues to exceed available capacity. Microsoft’s CFO Amy Hood noted that the company is still operating from a “constrained capacity place,” primarily in power and data centre space, rather than just chip supply. Amazon CEO Andy Jassy echoed this sentiment, stating that despite aggressive building, “as fast as we are bringing it in, right now, we are monetising it,” indicating a rapid and visible return on deployed assets.

Crucially, Microsoft disclosed that it still has a remaining performance obligation (RPO) backlog of USD392 billion, an increase of 51% year-on-year. This represents the revenue that Microsoft expects to earn from services or products it has yet to deliver to clients and customers. This figure, which is expected to take about two years to realise, proves that Microsoft has committed customer contracts and a certainty of near-term revenue, which directly supports its elevated CapEx roadmap for the forthcoming years.

Alphabet raised its 2025 CapEx forecast and signalled a ‘significant increase’ expected for next year, driven by a USD155 billion backlog in demand for cloud business.

Central banks: Policy divergence and political scrutiny

Central bank activity underscored a notable divergence in global monetary policy, while the U.S. Federal Reserve and the Bank of Japan continued to face unique political pressures.

Federal Reserve (the Fed): The Federal Open Market Committee (FOMC) cut the federal funds rate by 25 basis points to a range of 3.75% to 4%. The cut was characterised as a pre-emptive easing measure designed to address rising downside risks to the employment mandate (its mandate from Congress to promote maximum employment).

Fed Chair Jay Powell affirmed that future policy would remain data-dependent, even as the narrative continues to focus on the administration’s strategy of using political appointments to the Board of Governors to pressure the rate-setting process.

European Central Bank (ECB): The ECB held its key interest rates steady, keeping the deposit rate at 2% for the third consecutive meeting. With Eurozone inflation stabilising near the ECB’s 2% target, it provided minimal forward guidance, suggesting a prolonged pause. Market expectations are pointing to rates staying unchanged well into 2026. No new economic forecasts were issued at this meeting.

Bank of Japan (BoJ): The BoJ also held its main interest rate unchanged at 0.5%. At the subsequent press conference, Governor Kazuo Ueda was inevitably asked about the stance of the newly installed prime minister, Sanae Takaichi, who is known to favour accommodative monetary policy.

Ueda made it clear that while the bank would “stay in close contact with the government and maintain necessary communication,” the BoJ’s decision to maintain its current stance was based solely on the need to evaluate more data, particularly concerning domestic wage trends and the impact of U.S. tariffs.

He pledged to “adjust the degree of monetary accommodation when we are convinced, irrespective of the political situation”, an explicit verbal defence of the central bank’s independence against both domestic and external (U.S. Treasury) pressure to quicken its tightening pace.

Trade spats: A tactical China-U.S. truce and chip policy volatility

The last few weeks have seen an intensification of trade stresses between the U.S. and China, with tech restrictions and tariffs from the U.S. prompting rare-earth metal export restrictions and other countermeasures from China.

But more recently, relationships seemed be thawing, resulting in a temporary de-escalation. However, volatility in the semiconductor sector underscored the fragility of the tech relationship.

The rare-earths and tariffs deal

Beijing secured short-term relief for key industries by agreeing to a one-year suspension of its latest, more restrictive rare-earth export control measures, and committing to resuming large purchases of American agricultural products (notably soybeans).

In return, the U.S. offered tangible concessions, agreeing to reduce existing tariffs by 10% on certain categories of Chinese goods. This marks a tactical retreat by both sides to stabilise markets, though the underlying structural controls remain in place.

The Blackwell chip drama

Market attention was intensely focused on the potential relaxation of export controls on Nvidia’s advanced Blackwell AI chips (B-series).

Speculation began when U.S. President Donald Trump publicly signalled, he might discuss the sale of a downgraded variant (e.g., the B30A) with Chinese President Xi Jinping. This talk ignited a massive rally in semiconductor stocks, driving Nvidia’s market capitalisation briefly toward the USD5 trillion mark on Wednesday, as investors anticipated access to the vast Chinese market.

However, the market impact proved short-lived. On Thursday, President Trump clarified that while semiconductors were discussed broadly, the advanced Blackwell chips were not specifically on the table, instantly cooling market optimism.

Analysts and U.S. lawmakers had vehemently opposed any relaxation, arguing that exporting even a scaled-down Blackwell chip would functionally end the existing export control regime and severely erode America’s critical advantage in AI computing power.

Technology remains the dominant force behind the economy and the market, with technological supremacy becoming the prevalent geopolitical issue.