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The U.S. stagflation signal resonates with the Bank of Japan’s expectation of imposing interest rates, and liquidity faces a severe test before Christmas
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The US stagflation signal resonates with the Bank of Japan's expectation of imposing interest rates, and liquidity faces a severe test before Christmas." Hope this helps you! The original content is as follows:
Asian market conditions
On Monday, the U.S. ISM manufacturing PMI in November was lower than expected, and the U.S. dollar index remained weak. It once approached the 99 mark during the session. As of now, the U.S. dollar is quoted at 99.41.

Trump held a meeting with the national security team on the Venezuelan issue to discuss the "next steps" towards Venezuela.
·The U.S. ISM manufacturing PMI in November was 48.2, which was lower than the market expectation of 49. It was in contraction territory for the ninth consecutive month.
·The United States and the United Kingdom have reached an agreement in principle on drug pricing. The agreement requires the British National Health Service to increase the net price of new drugs by 25%.
·U.S. xmmarkets.cnmerce Secretary Lutnick: The U.S. tariffs on Korean cars will be reduced to 15% starting from November 1.
·The UK’s Office for Budget Responsibility admitted that a mistake led to the budget report being leaked in advance, and the agency’s top leader resigned.
·BoJ Governor Kazuo Ueda sent a signal to pave the way for a rate hike in December.
Summary of institutional views
Academy Securities: A dovish chain reaction from Williams to Hassett, a December interest rate cut seems imminent
You may not believe in Santa Claus, or you may not believe in the Christmas market, but the Fed’s policy put may be the strongest in recent years. The market first realized on Friday that "FedPut is fully operational" asWilliams' speech was more dovish than expected. Over the course of the weekend, many officials continued to make dovish xmmarkets.cnments. Finally, there is news in the market that Kevin Hassett will be the next chairman of the Federal Reserve.
Markets correctly took this as a signal that the Treasury Department, the Fed and the government would work more closely together to pave the way for lower yields and easier financial conditions. There are also rumors that Hassett will serve as "shadow chairman" at the December meeting to ensure that the rate cut is implemented. The key factor that sparked this dovish wave over the past week was not economic data but stock market prices.
If there is a significant change in the data, we can say that the Fed is still "data dependent." But that's not the case at all. What really drives its rush back to an easing track is the performance of the stock market - and the risk of further downside after technical levels are broken. This is something the government and the Fed absolutely don’t want to see during the holiday season when liquidity is thin.
There are still several things that surprise me about the reaction of the market and the Federal Reserve: 1. I originally thought that the market correction was more due to concerns about AI investment expenditures than the fear of not cutting interest rates in December - obviously, this judgment was wrong. 2. We have maintained that the Fed's effective interest rate is expected to drop to 2.875% (100 basis points below current) by next summer. We thought it wouldn't matter whether we cut interest rates in December - but the market tells us it does. 3. The market currently only expects only three interest rate cuts by September 2026 - this is obviously too few and too slow, and the potential for future easing is greater.
JPMorgan Chase: Credit/fiscal stimulus boosts the euro zone, and new Ampere economics will bring variables to the yen
Driven by credit stimulus and fiscal stimulus measures, the momentum of economic activity in the euro zone is expected to improve. Earnings are expected to grow more than 13% next year on stronger operating leverage, waning tariff headwinds, a lower year-over-year base and improving financing conditions. While investors remain skeptical, it's still a good start, with cautious market expectations and relatively low valuations, leaving room for surprises. Within the Eurozone, funds will rotate from peripheral markets (Italy, Spain) to core markets (especially France). Regarding the yen, Shinanomics (Abenomics 2.0) and corporate reforms are expected to drive Japanese stocks higher in 2026. There will be a new focus on freeing up excess cash, which will boost capital investment, wage growth and shareholder returns, driving ROE above 10%. New Deal economics is also expected to boost consumption and strategic investment among the middle class, bringing benefits to the market. Key risks include excessive yen depreciation ($165 USD/JPY is the break-even point for real income growth) and sharp increases in long-term interest rates (10-year JGB rates of 2.5%-3.0% are the break-even point for local bank capital adequacy).
Scotiabank: Europe and the United States may repeatedly fluctuate in this region
The final value of the Eurozone manufacturing PMI has not changed much xmmarkets.cnpared with the initial value, and is still stable in the contraction range, slightly lower than the neutral threshold. The German manufacturing PMI fell slightly to 48.2, while the French PMI was even weaker, at 47.8. These data were largely ignored by the market as the ECB's stance was clearly neutral and the relative central bank policy outlook provided fundamental support for the euro.
The spread between 2-year German and U.S. bond yields remained stable, slightly below the recent 14-month high. The focus of this week's data will be the Eurozone's preliminary CPI for November, due to be released on Tuesday. The European Central Bank has a busy schedule, with 12 speeches scheduled. We will pay close attention to any changes in policy messages, as some policymakers have begun to mention the risk of upward inflation.
We expect the EURUSD to fluctuate between 1.1580 and 1.1680 in the near future.
DBS Bank: EUR/USD has gained solid protection here and may be looking towards higher levels in December
EUR/USD is expected to continue its gains in December after holding steady at the 1.15 support level in November. It is expected that European Central Bank President Lagarde will release a signal that interest rates are within an appropriate range. This, coupled with the economic resilience of the Eurozone and the stable situation in France, will provide support for the euro.
After EUR/USD found solid support at the 1.15 mark in November, it may look towards higher levels in December. Unlike the Fed, the ECB's case for keeping its deposit rate at 2% until 2026 is becoming stronger.
European Central Bank President Lagarde will attend a European Parliament hearing on December 3. Given optimism about the resilience of the euro zone economy later this year and the situation in France, she is likely to convey the stance that current interest rates are appropriate.
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