Trump hints at Fed chair candidates; Fed officials have differing views on interest rates

Former US President Donald Trump said former Federal Reserve Governor Kevin Warsh and former White House National Economic Council Director Kevin Hassett are his two preferred candidates for Fed chair. Four Fed officials expressed conflicting views on interest rates, with three regional Fed presidents emphasizing inflation risks while the Philadelphia Fed president expressed greater concern about labor market weakness.

Overnight Highlights

· The S&P 500 and Nasdaq Composite fell more than 1% on Friday as investors rotated out of tech stocks amid concerns about an AI bubble fueled by Broadcom and Oracle. The yield on the 10-year US Treasury note rose as investors assessed comments from multiple Fed officials and the economic outlook. The US dollar gained against major currencies after recent declines but still posted its third consecutive weekly drop amid expectations of Fed rate cuts next year. Oil prices closed lower, down 4% for the week, as oversupply and a potential Russia-Ukraine peace deal overshadowed concerns about the impact of the US seizure of a Venezuelan oil tanker. Gold prices rose to a seven-week high.

International News

· In an interview with The Wall Street Journal, Donald Trump said former Fed Governor Kevin Warsh and former White House National Economic Council Director Kevin Hassett are his top two candidates for Fed chair. Trump bluntly stated that the next Fed chair should consult him on interest rate decisions.

· Hassett later responded that if he were appointed Fed chair, he would consider Trump's policy views but the central bank's rate decisions would remain independent.

· Four Fed officials expressed conflicting views on interest rates last week, with three regional Fed presidents, including the Chicago Fed, emphasizing inflation risks while the Philadelphia Fed president expressed greater concern about labor market weakness.

· The EU will impose a temporary tariff of €3 per small parcel starting next July to address a surge in shipments, mainly from Chinese e-commerce platforms.

· Ukrainian President Volodymyr Zelensky hinted that Ukraine may accept security guarantee offers from the US and Europe to prevent future Russian invasions as an alternative to its NATO membership goal.

· Sources say European officials are increasingly concerned that a US-brokered Ukraine peace deal could be exploited by Russia to lay the groundwork for a future invasion of Ukraine's eastern Donbas region.

· The Bank of Japan is widely expected to restart its rate hike cycle this week, with officials reportedly believing the cycle could continue after rates reach 0.75%. See: [Market Review] Yen: Opportunities and Risks Amid Diverging Fed-BOJ Policies.

· Two US soldiers and a US interpreter were killed in an attack during a counterterrorism operation in Syria over the weekend. Trump blamed ISIS and vowed severe retaliation.

· Goldman Sachs strategists believe S&P 500 companies' EPS could jump 12% in 2026 as AI becomes more widely adopted and the US economy remains resilient, maintaining their 7,600 target for the index next year.

· Oracle (ORCL.US) has reportedly delayed the completion date for some of its data centers prepared for OpenAI from 2027 to 2028 due to labor and material shortages, though an Oracle spokesperson denied any delays and said progress is normal.

· Nasdaq plans to amend its listing rules to allow it to reject stock listing applications if red flags are detected, even if applicants meet all requirements, to prevent frequent market volatility and stock manipulation in small IPOs.

Greater China News

· China's new yuan loans in November fell short of expectations, highlighting weak credit demand continues to weigh on economic growth. Focus on Monday's key data releases, including industrial output and retail sales.

· The People's Bank of China held a meeting last Friday to study the Central Economic Work Conference, pledging to continue implementing appropriately accommodative monetary policy and flexibly using tools like RRR and rate cuts.

· Vanke's (2202.HK) proposal to extend its RMB2 billion bond due December 15 failed to secure sufficient creditor support. Vanke must raise funds to repay the bond by Monday's close or within a five-business-day grace period, or find another extension plan, or risk being declared in default by creditors.

· Chinese Vice Premier He Lifeng called for preventing financial risks involving real estate firms and local government financing platforms at a national financial system meeting last Friday.

· The White House AI chief cited reports that China has refused to buy Nvidia's (NVDA.US) H200 chips and plans to use domestic chips instead. Beijing is reportedly considering a chip industry support package worth up to RMB500 billion.

· China's Commerce Ministry announced that about 300 steel products will require export licenses starting January 1, likely aimed at curbing record steel exports.

· China's market regulator released draft rules to curb cutthroat price wars in the auto industry, banning automakers from selling below cost to squeeze out competitors. Regulators will also strengthen product quality oversight on e-commerce platforms and regulate price comparisons.

Commodities & Forex

· The Bloomberg Dollar Index fell for a third straight week, its longest losing run since August, as investors adjusted positions ahead of key US economic data.

· WTI crude futures fell to their lowest level since May amid growing oversupply concerns. Gold pared gains due to a tech stock selloff and hawkish Fed comments.

Earnings & Economic Data Focus

· US December Empire State Manufacturing Index (prev: 18.7, est: 10)

· Eurozone October Industrial Production MoM (prev: 0.20%, est: 0.8%)

Source: Golden Horse Capital Management (Hong Kong) Limited

Author: Terry Chow

Proofreader: Penny Yang