The Fed, as expected, trimmed interest rates by 0.25%. While this might sound like cheerful news just in time for Christmas, don’t get too excited—Fed Chair Jerome Powell has made it clear this isn’t the start of a rate-cutting spree. Although inflation has eased from its fiery peak in 2022, it remains stubbornly above the Fed’s target. As a result, Powell is taking a cautious approach.

Another factor behind this measured rate cut is Trump’s looming presidency. With plans for higher tariffs, tax cuts, and increased spending, the Fed is bracing for potential inflation spikes. U.S. central bankers now forecast only two 0.25% rate reductions by the end of 2025, far fewer than previously anticipated.

Wall Street’s Reaction?
All three major indexes posted their worst one-day declines in months. The Dow plunged 2.58%, marking its tenth straight daily loss. The S&P 500 fell 2.95%, and the tech-heavy Nasdaq tumbled 3.56%. Small-cap stocks weren’t spared—the Russell 2000 nosedived 4.4%.

And the Bond Market?
The 10-year yield soared to 4.51%, its highest level since May, while the 2-year yield dropped to 4.31%, steepening the yield curve to levels last seen in mid-2022. Even a $22 billion auction of five-year TIPS¹ attracted weak demand—investors aren’t eager to lock in long-term bets amid so much uncertainty².

European government bonds have been riding high for over a year, buoyed by the ECB’s aggressive rate-cutting plans. But according to J.P. Morgan, that story is starting to run out of steam. Investors have already priced in as many as five rate cuts from the ECB for 2025, leaving little room for surprises—or profits. Meanwhile, Australian bonds are quietly positioning themselves as the next big player in global markets

What makes Australia so attractive? It comes down to timing and restraint. Unlike the ECB or the Fed, the Reserve Bank of Australia (RBA) hasn’t joined the rate-cutting party yet with Australian bonds trading in a narrow range³ for much of the past 18 months.
What might seem like a drawback has actually created a less crowded market. Investors aren’t piling in on speculative trades, keeping yields steady and expectations grounded.

Now, with inflation trending downward, rate cuts have come into focus and Aussie bonds are poised for a breakout … at least according to JPM.

Honda and Nissan are revving up talks for a potential merger as soon as December 23, accelerating after Foxconn made a bold move to snatch a stake in Nissan. While Foxconn got a flat “no”, Honda stepped up with a proposition.

If this merger takes off, it would create the third-largest automaker in the world, a $54 billion juggernaut pumping out 7.4 million vehicles annually. The aim? To fend off challengers like Tesla and China's BYD while creating a domestic rival strong enough to compete with the Japanese OG, Toyota.

But not everything’s cruising smoothly. Nissan’s performance has been stalling (remember Issue 5?), meanwhile, Honda’s EV lineup isn’t electrifying its bottom line, and the cash flow forecast for next year is dim.

Investors are already calling it: Nissan’s stock rocketed 24% on Wednesday, while Honda saw a 3% dip. Translation? The merger might just be Nissan’s lifeline—but it could leave Honda paying the toll.

The Bank of Japan (BOJ) left markets scratching their heads this week after keeping rates steady whilst Governor Ueda struck a dovish tone on rate hikes, a stark shift from his more hawkish stance in October.

Ueda now says inflation is moving too slowly, and he’s waiting for more data, particularly on wages, before making a move. Analysts now believe a rate hike might not happen until Japan’s March labor union negotiations.

Critics blame politics for BOJ’s wavering communication. Gains by an opposition party focused on disposable income relief and this ruling coalition’s advocate for stimulus may have pressured the bank to tread carefully to prevent alienating mortgage-strapped voters.

The yen’s continued slide against the dollar adds to the tension. While a rate hike could stabilize the currency and temper inflation^4, Ueda’s hesitation reflects fears of another market shock—like July’s surprise hike that sent the Nikkei⁵ plunging.

Hawkish or Dovish? Traders summed it up best: “BOJ’s communication has room for improvement”.

China and the U.S. are squaring off again - this time over graphite, the unsung hero of EV batteries. A trade group representing U.S. graphite producers has filed petitions asking federal agencies to investigate whether Chinese producers are breaking anti-dumping laws. If it’s true they’re demanding punitive tariffs of up to 920% on Chinese graphite imports.

Why though? Graphite makes up about 10% of EV battery production expenses. Slapping a 920% tariff on it would double battery costs. That’s a major blow for the EV industry, already grappling with cost pressures and political scrutiny.

The U.S. doesn’t produce natural graphite—it's entirely dependent on synthetic sources, led by Novonix. But here’s the thing: China dominates the market, controlling a staggering 92% of battery-grade graphite supply. China’s not sitting idle, either…

In retaliation for U.S. semiconductor restrictions, Beijing has announced fresh export curbs on critical minerals, including graphite. It’s a game of high-stakes chess with EVs, geopolitics, and trade policies colliding.

• Amazon and Starbucks have begun striking on Thursday and Friday respectively, aiming to disrupt holiday deliveries.

• Shares of Micron Technology fell 14.1% as it missed revenue forecast projections by about $1 billion.

• Nike stock jumped >12% after reporting better-than-expected earnings last quarter, the first under new CEO Elliot Hill.

• Disney to settle $15 million defamation lawsuit with Trump to avoid his “animus” amid his second term.

• Ukraine killed Lt. Gen. Igor Kirilov, Russia’s top chemical and biological defence commander in a targeted scooter bombing.

• US Supreme Court will hear TikTok’s plea to a law that would ban the social media app if it isn’t sold by its Chinese parent company before Jan. 10.

• Germany Chancellor Olaf Scholz loses confidence vote, paving the way for snap elections in February paving the way for snap elections in February.

1. TIPS: Treasury Inflation-Protected Securities are bonds designed to protect investors from inflation as their principal adjusts based on changes in the CPI.

2. “Not willing to lock in long term b…”: Markets are cautious that the Fed might unexpectedly pivot back to rate hikes if inflation continues. If rates rise, the prices of long-term bonds fall, leading to capital losses for investors.

3. Narrow Range: Australian bonds have had stable prices and yields due to their reluctance to join the global rate-cut spree. This is advantageous for bond investors because it reduces market speculation and overcrowding which offers a less volatile, more attractive entry point for them when the RBA eventually pivots to easing.

4. “Rate hike…stabilize the currency and temper inflation”: A rate hike could stabilize the yen by making Japanese assets more attractive to investors, boosting demand for the currency and reducing import costs, which temper inflation.

5. Nikkei: The Nikkei 225 is a stock index on the Tokyo Stock Exchange composed of the nation’s top 225 blue-chip companies.

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