Upcoming economic events (Singapore Local Time):
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The Fed and Bank of Japan (BoJ) will have their last meetings of the year. Investors should watch out for any surprises that may move the market due to the thin liquidity seen in holiday seasons.


Markets in focus

Figure 1: U.S. Core CPI YoY (Monthly)

Figure 1: U.S. Core CPI YoY (Monthly)

It’s premature to dismiss a resurgence of inflation under Trump’s second term. The 1970s stand as a historical reminder, with inflation rebounding sharply after an initial decline.

Figure 2: U.S. 10-year Treasury Yield

Figure 2: U.S. 10-year Treasury Yield

The broader uptrend in U.S. Treasury yields remains intact. Prior descending channels appear to be corrective pullbacks, with subsequent breakouts aligning with a higher inflation scenario.

Figure 3: EUR/GBP futures (Weekly)

Figure 3: EUR/GBP futures (Weekly)

Following the European Central Bank’s (ECB) latest rate cut, the euro weakened further against the British pound and is now at a multi-year support level that has repeatedly contained declines in the past.

Figure 4: Live Cattle futures (Weekly)

Figure 4: Live Cattle futures (Weekly)

Live cattle prices have decisively broken out of a 15-month ascending triangle, indicating renewed bullish momentum after a prolonged consolidation.


Our market views

It’s that time of year again. As we head into the second half of December, the market tends to show certain seasonal patterns. Perhaps the most famous is the “Santa Rally,” when stock markets often finish the year strong and sometimes even extend their gains into early January. This phenomenon is attributed to various factors, including holiday optimism, year-end portfolio adjustments, lighter trading volumes and higher retail participation. All these influences are valid reasons for us to stay comfortably on the sidelines rather than pushing a contrarian bearish stance, especially given the recent market euphoria across risk assets, notably technology stocks and cryptocurrencies. As the saying goes, don’t fight the trend. That said, as we prepare to turn the page into the new year, we need to look beyond this seasonal upswing and consider the larger forces at play and remain watchful of the potential headwinds that could challenge the current exuberance.

Analysts scrutinized the Trump administration’s Cabinet picks and key White House appointments, seeking clarity on his likely policy priorities for the second term. A well-known foreign policy hawk, Senator Marco Rubio, has been nominated for Secretary of State. Once a protégé of George Soros and an advocate of tariffs, Scott Bessent was slated to be the Treasury Secretary. To address the burgeoning U.S. budget deficit, a new Department of Government Efficiency (DOGE) has been established, helmed by Elon Musk and Vivek Ramaswamy. DOGE is mandated to streamline the federal operations, reduce wasteful spending, cut unnecessary regulations and restructure agencies. Many see this as overdue, given that the U.S. budget deficit this year is at a record high outside of the pandemic years. “We have to reduce spending to live within our means,” Musk remarked. “That might bring some temporary hardship, but it will ensure long-term prosperity.”

From these developments, we can draw a few conclusions. Trump’s team is clearly focused on domestic economic health and prosperity, promoting economic protectionism, a non-interventionist military posture and a more isolationist foreign policy. Tax reforms, deregulation and other incentives to encourage reshoring—bringing production and jobs back to U.S. soil—will likely follow. These changes might make it cheaper for companies to bring operations back home, but that doesn’t necessarily guarantee lower consumer prices. Trade frictions are set to persist, if not intensify.

This marks a key difference between Trump’s upcoming term and his first. Back in 2016–2020, U.S. inflation hovered near 2%, roughly in line with the preceding two decades. The next four years, however, may tell a very different story. Investors anticipating a repeat of market performance during Trump’s first term could be setting themselves up for a rude awakening. We believe inflation may soon return to the hot spot (pun intended). As investors realize the world has entered a new regime, many of the assumptions and models built on the patterns of the past three decades may no longer hold true. We believe this is one of the most underappreciated risks in today’s market.

The final FOMC meeting of the year takes place on December 18, and the short-term interest rate market has almost fully priced in a 25bps rate cut, as suggested by FedWatch. But looking further out, if inflation indeed flares up again, expectations for further cuts could shift dramatically, and so will bond yields.

In an environment where volatility is likely to remain elevated thanks to policy uncertainties and ongoing geopolitical tensions, our preferred asset allocation still leans toward hard assets like commodities. This asset class remains under-owned and overlooked, yet it has the potential to do well under both inflationary and growth scenarios, not to mention amid trade frictions and heightened geopolitical risks.

With this broader perspective in mind, we wrap up our last report in 2024, an eventful year marked by political shifts, AI explosion and regulation, escalating tensions and economic uncertainty. We wish all our readers a wonderful holiday season filled with warmth, hopes and joy. See you next year!


How do we express our views?

We consider expressing our views via the following hypothetical trades1:

Case study 1: Long 10-Year Yield futures

We would consider taking a long position in the 10-Year Yield futures (10YZ4) at the current price of 4.40, with a stop-loss below 4.10, a hypothetical maximum loss of 4.40 – 4.10 = 0.30 points. Looking at Figure 2, if the 10-year yield breaks out from the bull flag pattern, it has the potential to reach 5.00, resulting in 5.00 – 4.40 = 0.60 points. Each point move in the 10-Year Yield futures contract is 1,000 USD.


The Rearview Mirror

Figure 5: E-mini Nasdaq 100 futures (Weekly)

Figure 6: E-mini Russell 2000 Index futures (Weekly)

Figure 7: Nikkei 225 (USD) futures

Figure 8: AUD/USD (Weekly)

Figure 9: USD/CNH (Weekly)

Figure 10: Gold futures

Figure 11: Silver futures

Figure 12: Gold / Silver Ratio (Monthly)

Figure 13: Platinum futures (Monthly)

Figure 14: Palladium futures (Monthly)

Figure 15: WTI Crude Oil futures (Weekly)

Figure 16: RBOB Gasoline futures (Weekly)

Figure 17: Heating Oil futures (Weekly)

Figure 18: Feeder Cattle futures (Weekly)

Figure 19: U.S. 5-year Yield



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