Year-end showdown intensifies: Federal Reserve disagreements deepen, global stock and bond markets diverge, cryptocurrencies hit new highs

Wednesday (December 31) release of the Federal Reserve’s December meeting minutes reveals deep internal disagreements among decision-makers. U.S. Federal Reserve officials have divergent views on monetary policy direction; some advocate further lowering the federal funds rate target range if inflation continues to decline, while others believe that after this meeting’s rate cut, rates should remain unchanged to observe economic developments. White House advisor Milan favors an aggressive 50 basis point rate cut, whereas Kansas City and Chicago Fed presidents oppose this stance.

This internal debate has led to increased market expectations, with the MOVE index surging 8.05%, reflecting significant activity in the volatility market. The US dollar index has rebounded to a high of 98.2, the 10-year U.S. Treasury yield has risen slightly, while the 2-year yield has fallen for four consecutive trading days. Gold initially rose then fell, ending up 0.14% at $4,338.3 per ounce; silver performed even stronger, rebounding 5.67%.

Global stock markets show uneven performance, US stocks lead declines while European stocks rise

The three major US stock indices all declined. Dow Jones fell 0.2%, S&P 500 dropped 0.14%, marking the third consecutive day of decline, Nasdaq down 0.24%, and China Golden Dragon Index down 0.27%. In stark contrast, European markets all rose: FTSE 100 up 0.75%, France CAC 40 up 0.69%, Germany DAX 30 up 0.57%.

Technology stocks show clear divergence. Meta rose 1.1% on news of acquiring AI startup Manus, defying the trend; Alphabet rose slightly by 0.1%, but Nvidia fell 0.36%, Apple down 0.25%, Microsoft up 0.08%, Amazon up 0.2%.

Hong Kong stock futures also fluctuated. Hang Seng Index night session futures closed at 25,880 points, down 45 points, slightly above yesterday’s close of 25,854 points; China H-shares index futures closed at 8,998 points.

Crypto market continues strong, Bitcoin hits new milestones

Despite changes in macro policy environment, the cryptocurrency market maintains upward momentum. Bitcoin rose 1.56% in 24 hours, currently trading at $92.75K, further up from the previous quote. Ethereum increased 1.21% in 24 hours, now at $3.25K, demonstrating ongoing market confidence in digital assets.

USD/JPY rose 0.24%, EUR/USD fell 0.21%. In oil markets, WTI crude oil increased 0.21%, trading at $57.9 per barrel.

Fed staff raise growth outlook, inflation risks remain

The Fed’s latest economic outlook indicates an upward revision of real GDP growth for 2028 compared to October. This adjustment mainly reflects expectations of improved financial market conditions and strengthened potential output. After 2025, as the negative impact of high tariffs diminishes and fiscal policy and financial market conditions continue to support, GDP growth is expected to stay above potential.

Unemployment rate is expected to gradually decline, reaching slightly below the natural rate by 2027. Notably, staff forecasts for inflation in 2025 and 2026 are slightly lower than in October, but projections for 2027 and 2028 are similar to previous estimates, indicating that medium- to long-term inflation risks are still not fully eliminated.

The FOMC ultimately approved a 25 basis point rate cut with a 9-3 vote, the most opposition votes since 2019, reflecting differing views among officials on policy direction.

Geopolitical developments: Ukraine advances security negotiations

Ukrainian President Zelensky recently stated that Kyiv is negotiating with representatives from the U.S. and European “Volunteer Alliance” countries to explore the possibility of deploying U.S. peacekeeping troops under a security framework. Zelensky emphasized that this move would play a solid and effective role in security guarantees, with the final decision resting with the U.S.

Ukrainian negotiators have reached consensus with the “Volunteer Alliance” countries, planning a national security assistant meeting in Ukraine this Saturday, and a leader-level summit in France next Tuesday, with U.S. representatives participating. French President Macron announced that a “Volunteer Alliance” conference will be held in Paris early next month, where countries are expected to finalize specific contributions to Ukraine’s security framework.

U.S. relaxes chip export restrictions on Korean companies

Recent signs indicate easing of U.S. export controls on South Korean tech firms. Samsung Electronics and SK Hynix are reportedly approved to export U.S.-made chip manufacturing equipment to China by 2026. After previously rescinding some exemptions for tech companies, the U.S. has now adjusted its controls on South Korean firms.

Samsung, SK Hynix, and TSMC benefited from the U.S. “End-Use Verification” (EUV) system, allowing import of certain controlled items without individual licenses. However, in August, the U.S. Commerce Department announced the rescission of exemptions for Samsung and SK Hynix factories in China, with measures taking effect in December. Since then, shipments of U.S. chip equipment to Chinese factories require U.S. export licenses. The current policy adjustments suggest a reshaping of the global chip supply chain landscape.

Meta makes major acquisition of AI startup, plans digital workforce solutions

Meta announced it will acquire mainland AI startup Manus. While details are not yet public, Chinese financial media report the acquisition amount is “several billion dollars,” making it Meta’s third-largest acquisition to date. Meta plans to integrate Manus’s AI agent technology into its consumer and commercial products, including Meta AI, to serve billions of users and millions of enterprises.

Manus, headquartered in Singapore, is a subsidiary of Beijing Butterfly Effect Technology. It develops general-purpose AI agent technology that can act as “digital employees,” capable of independently conducting research and automating tasks with minimal prompts. Manus CEO Xiao Hong stated that joining Meta will enable the company to develop on a stronger, more sustainable foundation, and the team will continue iterating products.

SoftBank completes commitment to invest over 10% in OpenAI

According to CNBC, SoftBank has completed its $40 billion investment commitment to OpenAI. Last week, SoftBank transferred between $22 billion and $22.5 billion to OpenAI, adding to the previous joint investment of $10 billion, bringing its ownership stake to over 10%. This investment underscores the Japanese tech giant’s strong confidence in the future of generative AI.

Economists sound alarm: credit bubble risks emerging

Top economist Henrik Zeberg recently warned that the global financial markets are approaching a dangerous late-stage blow-off phase. Despite ongoing economic weakness, stocks and other risk assets have surged to unsustainable extremes.

Zeberg describes this rally as the end of a credit-driven bull market. He notes that the current rally is increasingly detached from fundamentals—economic growth slowing while stock prices continue to rise—an divergence often signaling a sharp reversal ahead. Markets widely believe central banks will continue to intervene, which itself poses significant risks. Zeberg emphasizes that a substantial portion of apparent wealth in the system is built on credit, making it highly vulnerable to reversal.

As the business cycle reasserts itself, he expects the long-term consequences of excessive monetary easing to suddenly surface, exposing market fragility and setting the stage for a severe correction—potentially marking the end of the post-2008 monetary era.

Important economic calendar reminders:

• China December official manufacturing PMI
• China December RatingDog manufacturing PMI
• US initial jobless claims for the week ending December 27
• US EIA crude oil inventory data for the week ending December 26