BoJ hikes 25bps, Yen collapses as Ueda does not specify time for further actions

EU Mid-Market Update: BOJ hikes 25bps; Yen collapses as Ueda does not specify time for further actions; Trump refuses to rule out war with Venezuela; Maersk transits via Red Sea.

Notes/observations

- Equities mixed. Japanese Yen in focus after BOJ hiked rates by 25bps, as expected to 0.75% but currency is heavily weighed upon after decision was priced in

- After BOE decision to cut rates by 25bps, UK Nov retail sales missed expectation and public finance data was mixed. German consumer confidence was weak.

- President Trump told NBC News he does not rule out war with Venezuela, signaling a potential escalation in rhetoric after reports that the US is preparing to seize additional Venezuelan oil tankers. The comments follow briefings to Trump by aides outlining military strike options against alleged drug facilities and air-defense sites inside Venezuela, underscoring renewed tension around the country’s oil exports and regional security.

- Following EU leader summit on Thurs, EU agreed €90B loan to Ukraine backed by budget but Russian assets remain frozen.

- Maersk says one of its vessels transited the Bab el-Mandeb Strait into the Red Sea this morning for the first time in nearly two years under the highest safety measures, but it is not ready to put a date on any broader shift back to the trans-Suez corridor and has no additional Red Sea sailings planned. While security is still seen as fragile (with tankers returning sooner than container liners), Tier 1 analysts’ base case is a wider return around July 2026 if conditions stay stable - with containers, car carriers, and product tankers most exposed to rate pressure on reopening.

- OpenAI is reportedly seeking up to $100B in its latest funding round, potentially valuing the company at around $830B (v $750B prior estimate just weeks ago) and drawing interest from sovereign wealth funds. The push comes as CEO Sam Altman signals a new models’ releases early next year.

- Asia closed higher with Nikkei225 outperforming +1.0%. EU indices -0.1% to +0.5%. US futures +0.1-0.5%. Gold -0.1%, DXY +0.2%; Commodity: Brent -0.5%, WTI -0.5%; Crypto: BTC +0.8%, ETH +3.3%.

Asia

- Bank of Japan (BOJ) raised the Policy Rate by 25bps to 0.75% (as expected). To resume rate hikes under the current tightening cycle. Vote to increase rate by 25bps was unanimous. To raise rates in line with economic, price improvement. It was highly likely that the mechanism in which both wages and prices rise moderately would be maintained. Must be vigilant to risks including FX market developments, overseas developments, corporate wage, price-setting behavior.

- Japan Nov National CPI Y/Y: 2.9% v 2.9%e; CPI (ex-fresh food) Y/Y: 3.0% v 3.0%e.

- South Korea Nov PPI Y/Y: 1.9% v 1.5% prior.

- New Zealand Nov Trade Balance (NZD): -0.2B v -1.5B prior.

- New Zealand Dec ANZ Business Confidence: 73.6 v 67.1 prior.

- New Zealand Dec ANZ Consumer Confidence Index: 101.5 v 98.4 prior.

Global conflict/tensions

- EU leaders reached an agreement to loan Ukraine €90B for the next two years; The EU would raise joint debt backed by the bloc’s budget.

Europe

- UK Dec GfK Consumer Confidence: -17% v -18e.

- ECB officials said to feel rate cutting cycle is most likely over.

- Goldman Sachs analyst expect three BoE cuts in 2026 (March, June and September).

Americas

- US Oct Total Net TIC Flows: -$37.3B v $184.3 prior; Net Long-Term TIC Flows: $17.5B v $173.2B prior.

- Mexico Central Bank (Banxico) cut Overnight Rate by 25bps to 7.00% (as expected) for its 12th straight cut (13th overall) under the current phase of its easing cycle. Statement noted that the vote to cut by 25bps was not unanimous (4-1), with Dep Gov Heath voting to keep rates on hold at 7.25%. Board would evaluate timing for additional adjustments.

Trade

- EU Commission Pres Von der Leyen confirms to delay Mercosur trade deal signing "slightly" (**Note: EU to delay the signing of its trade deal with South American countries until early January after Italy and France said they needed more time to convince farmers to accept the pact.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

Equities

Indices [Stoxx600 +0.12% at 586.04, FTSE +0.02% at 9,839.34, DAX +0.23% at 24,253.22, CAC-40 +0.09% at 8,157.95, IBEX-35 +0.04% at 17,139.38, FTSE MIB +0.40% at 44,641.50, SMI -0.04% at 13,126.70, S&P 500 Futures +0.31%].

Market focal points/key themes

Equities

- Consumer discretionary: WH Smith [SMWH.UK] -7.0% (earnings; FCA probe), Adidas [ADS.DE] -0.5%, Puma [PUM.DE] -1.0% (Nike results and guidance).

- Healthcare: Ion Beam Applications [IBAB.DE] +4.0% (acquisition), Ipsen [IPN.FR] -1.0% (trial results).

- Industrials: BBVA [BBVA.ES] +0.5% (buyback approval).

- Telecom: WPP [WPP.UK] -0.5% (CEO interview).

Speakers

- ECB's Muller (Estonia) stated that saw no reason to change rates now. Market expected the Deposit Rate to remain at 2.00% for at least 6 months but was too early to speculate what happens beyond that.

- ECB's Villeroy (France) commented that inflation risks were towards the downside; Council would be agile at upcoming meetings. ECB would be agile if needed to adjust to strong Euro currency.

- ECB Rehn stated that ECB would take decisions meeting-by-meeting; next move may not necessary be higher.

- ECB's Kazaks (Latvia): Uncertainty remained high; to make decisions on a meeting-by-meeting basis.

- ECB's Kocher (Austria): At where we want to be on rates; many risks to growth and inflation outlook (both upside and downside). Wanted to keep all options on the table.

- BOE Gov Bailey: Confident inflation would be close to target by late spring; Good reason to expect bit more downward path on rates.

- France PM Lecornu: Parliament will be unable to vote on budget before year-end.

- BOJ Gov Ueda post rate decision press conference reiterated view that was difficult to determine neutral rate ahead of time; Needed to view neutral rate as having broad range. Still distance to lower limit of neutral rate estimate and the real rate was significantly low. Pace of monetary adjustment to depend on economic, price and financial outlook. Needed to check impact of rate change each time. He noted that delaying rate hike could force a significant hike later. Could not deny risk of going above the neutral rate. Would conduct policy not to fall behind the curve. No comment on FX levels but to closely look at possibility of weak yen currency impacting underlying inflation.

- Japan Economy Min Kiuchi stated that the govt would closely monitor financial market developments while looking at data. Not planning to calculate neutral rates. Expected BOJ to conduct appropriate monetary policy to sustainably and stably hit its price target, working closely with govt.

- Russia President Putin annual year-end press conference noted that the budget was balanced and would allow funding of armed forces; Krasny Liman city in Ukraine to be liberated in near future.

Currencies/fixed income

- USD recovered from its softness following the release of Thurs US CPI data.

- The JPY currency weakened after BOJ Gov Ueda stressed that the pace of monetary adjustment to depend on economic, price and financial outlook. Difficult to determine neutral rate ahead of time. USD/JPY approached the 157 area after the BOJ remained vague about the timing of its next potential rate hike.

- EUR/USD again probing the lower regions of the 1.17 area. ECB members out in force noting that the current level of rates were appropriate but downplayed that the next moved would be a hike.

- 10-year German Bund yield at 2.86%, France 10-year Oat at 3.57% and 10-year Gilt yield at 4.50% 10-year Treasury yield: 4.14%.

Economic data

- (NL) Netherlands Dec Consumer Confidence: -21 v -21 prior.

- (DE) Germany Jan GfK Consumer Confidence: -26.9 v -23.0e.

- (DE) Germany Nov PPI M/M: 0.0% v 0.1%e; Y/Y: -2.3% v -2.2%e.

- (UK) Nov Public Finances (PSNCR): £10.3B v £20.5B prior; Net Borrowing (PSNB): £11.7B v £10.0Be.

- (UK) Nov Retail Sales (ex-auto fuel) M/M: -0.2% v +0.2%e; Y/Y: 1.2% v 1.6%e.

- (UK) Nov Retail Sales M/M: -0.1% v +0.4%e; Y/Y: 0.6% v 1.0%e.

- (SE) Sweden Nov Retail Sales M/M: +1.1% v -0.2% prior; Y/Y: 5.6% v 3.5% prior.

- (NO) Norway Dec Unemployment Rate: 2.1% v 2.1% prior; Unemployment Rate (seasonally adj): 2.1% v 2.2%e.

- (DK) Denmark Nov Retail Sales M/M: 1.5% v 1.0% prior; Y/Y: 4.7% v 4.9% prior.

- (DK) Denmark Dec Consumer Confidence: -17.3 v -20.1 prior.

- (TR) Turkey Dec Consumer Confidence: 83.5 v 85.0 prior.

- (HU) Hungary Oct Average Gross Wages Y/Y: 8.7% v 9.5%e.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 95.8K v 89.4K tons prior.

- (TH) Thailand May Foreign Reserves w/e Dec 12th: $277.5B v $275.8B prior.

- (FR) France Nov PPI M/M: 1.1% v 0.0% prior; Y/Y: -3.3% v -0.8% prior.

- (RU) Russia Narrow Money Supply w/e Dec 12th (RUB): 19.30T v19.16 T prior.

- (SE) Sweden Dec Consumer Confidence: 95.8 v 96.8e; Manufacturing Confidence: 103.8 v 100.8 prior; Economic Tendency: 103.7 v 102.5e.

- (FR) France Nov Retail Sales Y/Y: +0.7% v -1.0% prior.

- (EU) ECB Wage Tracker for 2026: Saw Q4 wage growth at 2.7% v 2.5% q/q.

- (EU) Euro Zone Oct Current Account Balance: €25.7B v €23.6B prior.

- (IT) Italy Dec Consumer Confidence: 96.6 v 96.0e; Manufacturing Confidence: 88.4 v 89.5e; Economic Sentiment: 96.5 v 96.1 prior.

- (IT) Italy Oct Current Account Balance: €3.5B v €3.4B prior.

- (GR) Greece Oct Current Account Balance: -€1.1B v -€0.4B prior.

- (PT) Portugal Oct Current Account Balance: €1.1B v €0.6B prior.

- (IS) Iceland Nov Wage Index M/M: 0.2% v 0.2% prior; Y/Y: 7.5% v 7.7% prior.

- (IT) Italy Oct Industrial Sales M/M: -0.5% v +1.9% prior; Y/Y: 1.7% v 3.4% prior.

Fixed income issuance

- (IN) India sold total INR300B vs. INR300B indicated in 2030 and 2074 bonds.

- (DK) Denmark sold total DKK0M (nil) in 3-month and 6-month Bills; Received zero bids.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut Key One-Week Auction Rate by 50bps to 16.00%.

- 06:00 (UK) Dec CBI Retailing Reported Sales: No est v -32 prior; Total Distribution Reported Sales: No est v -35 prior.

- 06:00 (UK) DMO to sell £6.0B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £3.0B respectively).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell Bonds through Ori Auction.

- 06:30 (BR) Brazil Nov Current Account Balance: -$5.0Be v -$5.1B prior; Foreign Direct Investment (FDI): $6.5Be v $10.9B prior.

- 06:30 (IN) India Central Bank (RBI) Dec Minutes.

- 06:30 (IN) India Forex Reserve w/e Dec 12th: No est v $687.3B prior.

- 07:00 (MX) Mexico Q3 Aggregate Supply and Demand: No est v 0.3% prior.

- 07:00 (MX) Mexico Oct Gold Production: No est v 5.9K prior.

- 07:00 (IT) ECB’s Cipollone (Italy).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (CA) Canada Oct Retail Sales M/M: 0.0%e v -0.7% prior; Retail Sales (ex-auto) M/M: 0.0%e v 0.0% prior.

- 09:00 (BE) Belgium Dec Business Confidence: No est v -8.2 prior.

- 10:00 (US) Dec Final University of Michigan Confidence: 53.5e v 53.3 prelim.

- 10:00 (US) Nov Existing Home Sales: 4.15Me v 4.10M prior.

- 10:00 (EU) Dec Preliminary Consumer Confidence: -14.0e v -14.2 prior.

- 10:10 (IE) EBC’s Lane (Ireland, chief economist).

- 11:00 (EU) Potential sovereign ratings after European close.

- 13:00 (CO) Colombia Central Bank Interest Rate Decision.

- 13:00 (US) Weekly Baker Hughes Rig Count data.