Investment Rating - The report projects a real GDP growth of 4.8% for 2026, which is above the consensus expectation of 4.5% [7]. Core Insights - China's manufacturing competitiveness and rare earth controls are expected to drive export volumes growth of 5-6% annually [7]. - The current account surplus is projected to be 4.2% of GDP, significantly higher than the consensus of 2.5% [7]. - Although the property market has not yet bottomed, its negative impact on GDP growth is expected to lessen [7]. - Government consumption growth is anticipated to increase, compensating for weak household consumption in 2026 [7]. - Investment is expected to rebound from 2025 to 2026 [7]. Economic Growth - The report anticipates a gradual reflation process in China, with PPI inflation expected to rise from -2.6% in 2025 to -0.7% in 2026 and headline CPI inflation increasing from 0% in 2025 to 0.6% in 2026 [7]. - The fiscal deficit is projected to widen by 1.2 percentage points of GDP, reaching 12.2% in 2026 [33]. Policy Outlook - The report expects a 20 basis points cut in policy rates and a year-end USDCNY exchange rate of 6.85 [7]. - The 15th Five-Year Plan continues to prioritize manufacturing, technology, and security [7]. Investment Trends - Investment growth is expected to rebound in 2026 due to policy support and a low base effect [42]. - The report highlights that the high-tech sector is projected to contribute an average of 1 percentage point to real GDP growth over the next five years [59].

Energy and Geopolitics - Former President Trump announced a meeting with the top 14 oil companies at the White House, emphasizing the potential for the U.S. to capture "trillions of dollars worth of oil" from Venezuela following the ousting of Nicolás Maduro [2][7] - U.S. officials indicated the necessity for the U.S. to control Venezuela's oil sales and revenues to restore its oil industry, with Trump stating American oil companies are ready to invest billions in infrastructure [2][7] - Proceeds from seized Venezuelan oil are planned to be placed into U.S.-controlled offshore accounts [2] Lithium and International Relations - Ukraine has awarded its Dobra lithium field to a consortium with connections to Trump allies, indicating a shift towards business-driven ties with the U.S., although significant mining and profits are expected to take years [3][7] China's Economic Dynamics - China is experiencing its fastest inflation rate in nearly three years, primarily due to rising food costs, while domestic car sales are cooling, leading to a projected increase in car exports [4][7] Healthcare Sector Developments - Johnson & Johnson has finalized an agreement with the U.S. government to reduce drug prices, part of broader efforts to make medications more affordable [5][7] International Diplomacy - Italian Prime Minister Giorgia Meloni is set to visit South Korea to enhance strategic partnerships and cultural exchanges [6][7] - Japan's Finance Minister Katayama will meet with U.S. counterparts to discuss rare earth supplies, noting that Japan's consumption trends remain stable [6][7] Market Movements - The KOSPI index in the Seoul Stock Market reversed an early loss of 1.14% to turn positive, reflecting broader global economic shifts [6]

Economic Indicators - Core inflation in December was up 1.2% year on year, unchanged from the previous month [1] - Consumer prices rose 0.8% year on year, the highest level since February 2023, following a 0.7% increase in November [2] - Monthly consumer prices grew 0.2%, exceeding the expected 0.1% gain [3] Industrial Performance - Factory-gate prices dipped 1.9% in December, better than the forecasted 2% decline, extending a deflationary streak beyond three years [1] - Industrial production growth is estimated to have edged up to around 4.9%, supported by a pickup in manufacturing activity [5] - The official purchasing managers' index (PMI) rose to 50.1 from 49.2, indicating a return to growth in manufacturing activity after eight months of decline [5] Investment and Consumption - Fixed-asset investment likely contracted by around 11.8% in December, worsening from an 11.1% decline in November [5] - Policymakers are expected to implement measures to boost consumption and stabilize the property market, although past efforts have not yielded significant results [6] - New home sales in floor space are estimated to fall by 7% in 2026 after an 8% decline in 2025 [6] Profitability and Market Dynamics - Industrial firms experienced a profit drop of 13.1% year-on-year in November, marking the steepest decline in over a year [7] - Carmakers have initiated a new round of price cuts and perks due to sluggish demand and the withdrawal of part of a tax incentive for electric vehicles [8]

Core Viewpoint - President Trump is directing representatives to purchase $200 billion in mortgage bonds to lower mortgage rates, attributing economic issues to the Biden administration and claiming to restore the "American Dream" [1][2]. Group 1: Housing Market Initiatives - Trump emphasizes the importance of the housing market, stating that he chose not to sell Fannie Mae and Freddie Mac during his presidency, which he claims has resulted in significant financial benefits [2]. - The proposed purchase of $200 billion in mortgage bonds is intended to reduce mortgage rates and make homeownership more affordable for Americans [2][5]. - Trump argues that high inflation has made homeownership unattainable for many, particularly younger buyers, and that the housing market has strayed from its traditional role as a pathway to the American Dream [6]. Group 2: Policy Proposals - Trump plans to ban large institutional investors from purchasing single-family homes, which he believes will help restore affordability in the housing market [5][9]. - Details on the implementation of this ban are not provided, but Trump intends to discuss it further at the World Economic Forum in Davos [8]. Group 3: Critique of the Biden Administration - Trump criticizes the Biden administration for neglecting the housing market while focusing on issues like crime and inflation, claiming that the previous administration destroyed affordability [2][5]. - He asserts that his administration's actions have already begun to fix the economic issues left by Biden, particularly in the housing sector [2].

Employment Trends - December saw a sluggish addition of only 50,000 jobs, a slight decrease from the revised figure of 56,000 in November [1][4] - The unemployment rate decreased to 4.4%, marking its first decline since June, down from 4.5% in November [1] Business Hiring Behavior - Businesses appear reluctant to hire despite economic growth, with many companies no longer needing to fill additional positions after aggressive hiring post-pandemic [2] - Factors contributing to this reluctance include uncertainty from shifting tariff policies, elevated inflation, and the impact of artificial intelligence on job roles [2] Sector Performance - The majority of job gains in December were concentrated in the health care sector, which added 38,500 jobs, and the restaurant and hotel industries, which gained 47,000 jobs [5] - Conversely, manufacturing, construction, and retail sectors experienced job losses, with retailers cutting 25,000 positions, indicating weaker holiday hiring compared to previous years [6] Federal Reserve Response - Weak employment figures have raised concerns at the Federal Reserve, which cut its key interest rate three times last year [3] - Some Federal Reserve officials are worried about persistent inflation above the 2% target, while others advocate for lower borrowing costs to stimulate hiring and economic growth [3]

Market Sentiment - Markets are sensitive to uncertainty, performing best when trends are clear and outcomes are understood [1] - A recent reversal in market gains indicates potential buyer exhaustion, often driven by institutional sellers [2][3] Economic Indicators - Upcoming events include the Bureau of Labor Statistics Employment Situation Summary and a Supreme Court ruling on tariffs, both of which could significantly impact market perceptions [2][4] - The Federal Reserve is closely monitoring unemployment figures, which could influence future interest rate decisions [4] Unemployment and Inflation - Unemployment rose to 4.6% in November, up from 4% in January, while layoffs surged by 54% to over 1.1 million [5] - Inflation, as measured by the Consumer Price Index, increased from 2.3% in April to 3% in September before decreasing to 2.7% in November [4] Federal Reserve Actions - The Federal Open Market Committee cut interest rates by a quarter percentage point at the last three meetings of 2025 due to rising unemployment concerns [5] - Future rate cuts may depend on the unemployment rate's movement in December, with a hawkish tilt observed from Fed Chairman Jerome Powell [6]

Core Insights - Productivity increased significantly in the third quarter, which alleviated labor cost pressures and contributed positively to inflation trends [1] - The productivity gains are attributed more to the methods of measuring output rather than a substantial AI-driven efficiency boom [1] Summary by Categories Productivity and Labor Costs - The rise in productivity during the third quarter has eased the pressures associated with labor costs, indicating a potential stabilization in wage-related inflation [1] Inflation Impact - The improvements in productivity are helping to manage inflation levels, suggesting a positive correlation between productivity metrics and inflation control [1] Measurement of Output - The article emphasizes that the productivity gains reflect the way output is measured, rather than indicating a significant transformation driven by advancements in AI technology [1]

Economic Indicators - US nonfarm payrolls are expected to increase by +70,000 in December, with the unemployment rate projected to decrease by -0.1% to 4.5% [1] - Average hourly earnings for December are anticipated to rise by 0.3% month-over-month and 3.6% year-over-year [1] - October housing starts are expected to increase by 1.8% month-over-month to 1.33 million, while building permits are projected to rise by 1.5% month-over-month to 1.35 million [1] Trade and Productivity - The US trade deficit unexpectedly shrank to -$29.4 billion in October, significantly better than the expected widening to -$58.7 billion, marking the smallest deficit in 16 years [2] - Q3 nonfarm productivity rose by +4.9%, close to expectations of +5.0%, representing the largest increase in two years [2] - Q3 unit labor costs fell by -1.9%, exceeding expectations of a -0.1% decline [2] Stock Market Performance - The S&P 500 Index is up +0.02%, while the Dow Jones is up +0.45%, and the Nasdaq 100 is down -0.77% [6] - Defense stocks are experiencing a rally following President Trump's announcement of plans to increase military spending to $1.5 trillion [5][14] - Chipmakers and data storage companies are underperforming, with significant declines in stocks like Sandisk and Western Digital [12][13] Interest Rates and Bonds - The 10-year T-note yield has risen by +3 basis points to 4.18%, influenced by positive labor market indicators [4][8] - European government bond yields are also increasing, with the 10-year German bund yield up +6.2 basis points to 2.874% [9] Company-Specific Movements - Costco Wholesale reported December comparable sales ex-gas rose by +6.3%, outperforming the consensus of +4.4% [17] - Generac Holdings saw an increase after Citibank upgraded the stock to buy, with a price target of $207 [17] - Revolution Medicines is down more than -4% after AbbVie stated it is not in talks to acquire the company [15]

Economic Indicators - US nonfarm payrolls are expected to increase by +70,000 in December, with the unemployment rate projected to decrease by -0.1% to 4.5% [1] - Average hourly earnings for December are anticipated to rise by 0.3% month-over-month and 3.6% year-over-year [1] - October housing starts are forecasted to increase by 1.8% month-over-month to 1.33 million, while building permits are expected to rise by 1.5% month-over-month to 1.35 million [1] Trade and Productivity - The US trade deficit unexpectedly shrank to -$29.4 billion in October, significantly better than the expected widening to -$58.7 billion, marking the smallest deficit in 16 years [2] - Q3 nonfarm productivity rose by +4.9%, close to expectations of +5.0%, representing the largest increase in two years [2] - Q3 unit labor costs fell by -1.9%, exceeding expectations of a -0.1% decline [2] Stock Market Performance - The S&P 500 Index is down -0.15%, while the Dow Jones is up +0.16%, and the Nasdaq 100 Index is down -0.67% [5] - Defense stocks are rallying following President Trump's announcement of plans to increase military spending to $1.5 trillion, with Northrop Grumman up more than +10% [4][14] - Chipmakers and software stocks are experiencing declines, with notable losses in companies like Sandisk and Autodesk, which are down more than -5% [11][12] International Markets - Overseas stock markets are generally lower, with the Euro Stoxx 50 down -0.22%, China's Shanghai Composite down -0.07%, and Japan's Nikkei Stock 225 down -1.63% [6] Earnings and Guidance - Helen of Troy Ltd has lowered its full-year adjusted EPS guidance to $3.25-$3.75, below the consensus of $4.03, resulting in a decline of more than -12% in its stock [15] - Constellation Brands reported Q3 comparable net sales of $2.22 billion, exceeding the consensus of $2.16 billion, leading to a stock increase of more than +6% [17]

Core Viewpoint - U.S. Treasury Secretary Scott Bessent emphasizes the importance of lower interest rates for future economic growth, advocating for the Federal Reserve to act promptly in cutting rates [2][4]. Group 1: Interest Rate Cuts - The Federal Reserve implemented three interest rate cuts in the last four months of 2025, totaling 0.75 percentage points, bringing the key interest rate down to a range of 3.5%-3.75% [2]. - The pace of interest rate reductions is expected to slow in 2026, with markets anticipating only two cuts and Fed officials projecting just one [3]. Group 2: Economic Agenda - Bessent supports President Trump's economic agenda, highlighting the passage of the One Big Beautiful Bill, new trade deals, and a deregulation agenda as foundational for robust economic growth [5]. - The administration believes that cutting interest rates is the missing ingredient for stronger economic growth, which will positively impact the lives of citizens [2]. Group 3: Federal Reserve Leadership - A new chair for the Federal Reserve will be appointed this year, with Bessent overseeing the selection process, as current Chair Jerome Powell's term ends in May [4]. - Scott Bessent and former Fed Governor Kevin Warsh are considered the leading candidates for the position [4].