Calm Like a Bomb

December 08, 2025

Elias Haddad

Financial markets hold ground ahead of eventful week. Check-out our Drivers for the Week for all the details.

ECB Schnabel backs market hike bets. EUR firm.

China trade surplus reaches all-time high. Top leaders reiterate pledge to boost domestic demand. Stronger CNH can help.

USD is mixed and consolidating just above last week’s lows. The New York Fed November survey of consumer expectations is today’s highlight (4:00pm London, 11:00am New York). US inflation expectations are anchored around 3% and leaves room for the Fed to ease policy. Pay attention to the survey’s “mean probability of losing a job.” Greater job insecurity will push households toward higher savings and constrain consumer spending activity.

EUROZONE

EUR/USD is firm near 1.1650. ECB Executive Board member Isabel Schnabel signaled she’s “rather comfortable” with market expectations that the next rate move is going to be a hike. The swaps curve implies steady ECB rates at 2.00% over the next twelve months and a full 25bps rate increase in the next two years. EUR/USD needs to break above resistance at 1.1690 to gain upside traction.

JAPAN

USD/JPY is up 0.40% today to 155.45, with the next resistance offered at 156.12 (50% retracement of November-December downswing). Japan’s October cash earnings data was mixed and does not move the dial on Bank of Japan (BOJ) rate expectations. Labor cash earnings printed at 2.6% y/y (consensus: 2.2%) vs. 2.1% in September. The less volatile scheduled pay growth for full-time workers was 2.2% y/y (consensus: 2.4%) vs. 2.3% in September.

Japan wage growth is not a source of significant inflation pressures given annual total factor productivity growth of about 0.7%. However, risk to wages growth is skewed to the upside. One of Japan’s largest labor union groups (UA Zensen) plans to push for a 6% bump in overall wages for regular employees next year after agreeing on a 4.75% gain in 2025.

The swaps curve price in 90% odds of a 25bps BOJ rate hike to 0.75% on December 19. Tighter monetary policy paired with Japan’s government latest fiscal stimulus package is JPY positive. We see room for USD/JPY to adjust lower towards the level implied by US-Japan two-year bond yield spreads around 140.00.

CHINA

USD/CNH is trading heavy under 7.0700. China’s November trade data continues to point at weak domestic demand activity and decoupling with the US. In the twelve months to November, China’s trade surplus totaled a record $1182bn, while the trade surplus with the US narrowed to a five-year low at $435bn.

In November, exports recovered more than expected to 5.9% y/y (consensus: 4.0%) after falling -1.1% in October while import growth underwhelmed at 1.9% y/y (consensus: 3.0%) vs. 1.0% in October. Softer import growth underscores persistently weak domestic demand.

China’s annual two-day closed-door Central Economic Work Conference kicks-off in the next few days. At that conclave, GDP growth target and stimulus plans for 2026 are set. Ahead of that meeting, the Politburo signaled again plans to have domestic demand be “the main driver” of growth while maintaining a “more proactive” fiscal policy and “moderately loose” monetary stance.

In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. In parallel, China can tolerate a stronger currency with limited damage to the manufacturing sector as the yuan remains deeply undervalued. Bottom line: USD/CNH downtrend is intact.

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