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First (Second And Third) Rate

Market Update

15.12.2025

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What happened last week?

US 

  • The Federal Reserve cut interest rates to a three-year low. 
  • Elon Musk’s space company planned to raise money at a valuation of $1.5 trillion. 
  • Paramount launched a hostile $108 billion bid for Warner Bros., rivalling Netflix’s offer. 

Asia 

  • China recorded a near $1 trillion trade surplus, after exporting far more than it imported in November. 

Why It Matters

The Fed lowered its benchmark interest rate by a quarter point to between 3.5% and 3.75% on Wednesday. Despite expecting inflation to stay above target until 2028, the central bank mainly focused on the risks in the job market, which have risen over the last few months. Mind you, three of the twelve voting members disagreed with that decision. While the committee currently expects one cut in 2026, the US president wants a more heavy-handed approach – so with a new Fed chair expected to be announced early next year, don’t be surprised if the president picks one who happens to share the same stance. 

Elon Musk’s SpaceX is reportedly looking to raise at least $30 billion in an initial public offering next year, valuing the firm at a massive $1.5 trillion – almost double the roughly $800 billion floated during its recent internal share sale. Some of the newly raised funds will help pay for the planned expansion of Starlink – the satellite internet company, which makes up most of SpaceX’s  revenue – including space-based data centres. 

 

While Musk planned to take over space, Paramount launched a hostile $108 billion bid for Warner Bros., owner of HBO and Discovery. That trumped Netflix’s $84 billion offer. Regulators would likely prefer Paramount to win the bidding war, since it’s the less dominant streaming service with fewer subscribers. But Netflix might still try to compete – and anticipating a bigger bid, investors sent down the stock of the world’s biggest streaming service. 

You’d think US tariffs would weigh on China’s export numbers, but they were actually 6% higher this November versus last. At the same time, imports remained steady. That lifted the difference between the two to $112 billion – one of the biggest monthly trade surpluses in China’s history – and the annual surplus to nearly $1 trillion so far. China upped exports to Europe by almost 15% this month, rerouting supply chains due to tariffs. But it can’t rely on that solution forever: those cheap Chinese wares have sparked pushback from European producers, causing the region to discuss tariffs of its own. 

The Focus This Week: First (Second And Third) Rate

The Federal Reserve (Fed) had investors’ full attention last week – and realistically, the US will attract some eyes this week, too. Usually, you’d get fresh US payroll data on the first Friday of each month. Remember, though, that the government shutdown caused the Bureau for Labour Statistics to cancel the October jobs report entirely and delay the next release. So November’s report will land this Tuesday, slightly behind schedule. 

But as far as central banks are concerned, Japan, Europe, and the UK steal the limelight. All three need to decide whether they need to change interest rates to meet their mandates. 

Traders expect the Bank of England to make its fourth cut in the past year, bringing the UK’s rates down by a quarter percentage point to 3.75%. They think the European Central Bank will leave rates at 2%, after already making eight cuts in the last two years. 

Japan’s rates currently sit at 0.5% – and right now, a hike looks likely. But keep an eye on the quarterly “Tankan” survey (which measures business sentiment), released at the start of this week: it will indicate companies’ projected sales, spending, and profit, as well as broader employment conditions. The Bank of Japan will scan for signs of potential salary increases, since widespread pay bumps can aggravate inflation – and that would call for higher rates. 

Japan still has a relatively low rate compared to the rest of the world. This makes the country’s currency a cheap source of funding for the so-called carry trade. Here’s how it goes: investors borrow a relatively affordable currency – the yen, in this case – to then invest in other assets that generate better returns. A single hike shouldn’t unravel that setup – but there’s no guarantee: the trade was rattled last year after a rate adjustment. What’s more, economists don’t just expect one hike: they think another will land next year. That will make the yen a more expensive source of funding which could pull the rug out from under the yen carry trade. 

The Week Ahead

  • Monday: Japan Tankan business sentiment survey (December), Europe industrial production (October). 
  • Tuesday: UK employment (November), Europe purchasing managers index (December), US payrolls (November), US purchasing managers index (December), Japan machinery orders (October). 
  • Wednesday: UK inflation (November), Europe inflation (November), US retail sales (November). Earnings: Micron. 
  • Thursday: Japan interest rate decision, UK interest rate decision, Europe interest rate decision, US inflation (November), Japan inflation (November). Earnings: Accenture, FedEx, Nike. 
  • Friday: US home sales (November).

 

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