Market rotation accelerates: Federal Reserve cuts interest rates by 25 basis points, silver surges to a new focus, and divergence in central bank policies sparks investment opportunities

This Week’s Market Overview

The US Dollar Index showed a pattern of rising first and then falling this week. Early in the week, the market slightly rallied due to expectations of a “hawkish rate cut” by the Federal Reserve, but after the Federal Reserve confirmed a 25 basis point rate cut to 3.50%-3.75% and launched a short-term government bond purchase program, the dollar accelerated its decline as Powell’s stance was seen as not sufficiently hawkish. Gold spot prices generally trended upward, gaining for four consecutive trading days. On Friday, driven by a weakening dollar and risk aversion sentiment, gold temporarily broke through $4,330 per ounce, hitting a new monthly high. Silver performed even more impressively, reaching a new all-time high for four consecutive days, continuing to rise amid limited supply. Since January, silver prices have doubled. According to the Silver Institute, the global silver market will experience a supply shortage for the fifth consecutive year, with a gap of about 117 million ounces in 2025. The imbalance of supply and demand combined with a loose interest rate environment has driven up silver prices, with some analysts predicting silver could surpass $100 next year.

The USD/JPY charted a V-shaped pattern this week: initially rising due to dollar strength, then retreating on expectations of future rate hikes by the Bank of Japan. The euro, pound, and AUD/USD all generally appreciated. The market widely believes these central banks’ easing cycles are about to end, and some may even start hiking rates.

International oil prices remained weak and volatile, with market focus on India’s prospects for purchasing Russian oil, Iraq’s production recovery, and falling refining product prices. On Wednesday, US seizure of a Venezuelan oil tanker raised supply concerns, causing a rebound in oil prices; on Thursday, progress on a peace agreement between Russia and Ukraine pressured prices downward again.

US stocks performed well overall this week but showed clear internal divergence. Early in the week, major indices fluctuated under pressure from the Fed meeting and tech giants; on Wednesday, bank stocks and cyclical sectors drove the Dow Jones and S&P 500 higher; on Thursday, both indices continued to rise and hit new all-time highs.

Focus of Investment Institutions

“The Bond King” Gundlach believes this may be the last rate cut of Powell’s term. Goldman Sachs stated that the hawkish camp within the Fed has been reassured, and future easing depends on the labor market. ING continues to expect two rate cuts by the Fed in 2026. Oak Tree Capital co-founder said further rate cuts by the Fed are of limited significance. Renowned short-seller Michael Burry warned that the Fed’s RMP policy aims to mask banking system vulnerabilities, essentially restarting quantitative easing.

Deutsche Bank, Goldman Sachs, and other investment banks expect the dollar to weaken by about 3% by the end of 2026 due to ongoing rate cuts by the Fed and divergence in other central bank policies. UBS forecasts that the average gold price next year will reach $4,600. The Bank for International Settlements reports that retail investors have driven recent gold gains, increasing speculative activity in gold. Major Wall Street firms like Goldman Sachs and Citigroup believe the oil sell-off is far from over, and prices are expected to continue declining next year due to oversupply.

Key Events This Week

1. The Fed confirms rate cut and launches short-term bond purchase plan

At the December meeting, the Fed decided to cut rates by 25 basis points to 3.50%-3.75%, and launched a short-term government bond purchase program, approved by a 9:3 vote, with 2 members advocating no change and 1 supporting a 50 basis point cut. Powell stated that current interest rates are within the estimated neutral range, allowing the Fed to patiently observe further economic developments. He emphasized that rate hikes are not a basic assumption for anyone.

The first month of the short-term bond purchase plan will amount to $40 billion, with potential to remain high afterward. Powell stressed that this move aims to maintain ample reserve supply, ensuring the Fed can effectively control policy rates, and does not signal a change in monetary policy direction. Many Wall Street banks quickly adjusted their forecasts for 2026 government bond supply, expecting the Fed to be the main purchaser, lowering borrowing costs. Barclays projects the Fed will buy $525 billion in bonds in 2026, well above the previous estimate of $345 billion; JPMorgan and Wells Fargo also raised their estimates.

Powell admitted that non-farm payroll data is “systematically overestimated,” possibly by 60,000 jobs per month; the actual labor market may already be contracting by an average of 20,000 jobs per month. This finding tilts the Fed’s policy stance toward “protecting employment,” increasing expectations for further rate cuts. However, President Trump expressed dissatisfaction with the 25 basis point cut, calling it “quite limited,” and argued it should have doubled. He claimed that rapid rate cuts are a “touchstone” for measuring the new Fed chair.

Before the rate cut, the leading candidate for Fed Chair, Harker, said that it would be irresponsible for the Fed to set interest rate adjustment plans for the next six months; the key is to follow economic data. He added that the Fed has significant room to cut rates and will make decisions based on its judgment. Additionally, on Thursday, the Fed Board unanimously reappointed all 11 regional Fed presidents for five-year terms, effective March 1, 2026, with the exception of Atlanta Fed President Raphael Bostic, who has announced his retirement. This move removed uncertainty about the future composition of the Board and temporarily alleviated the “direct threat” to regional bank presidents. The three Fed nominees proposed by Trump also supported these reappointments.

US employment data this week showed that job vacancies in October rose to a five-month high, but declining hiring and increasing layoffs indicated the labor market continues to slow. Q3 wage growth was the lowest in four years, reflecting that labor market slowdown helps curb inflation pressures. Last week, the number of Americans filing for unemployment benefits for the first time surged to the largest weekly increase since the pandemic, reversing the strong decline during Thanksgiving week.

2. Divergence in global central bank policies: Is a rate hike cycle imminent?

Bank of Japan Governor Ueda Kazuo said this week that Japan is gradually approaching a sustainable inflation target of 2%, implying that future rate hikes may not be limited to a single move, signaling a clear policy shift that could be reflected at next week’s meeting. Ueda clarified that the central bank will continue to gradually adjust monetary easing until inflation stabilizes above 2% and policy rates return to natural levels. He indicated that even if the BOJ raises rates this month, the normalization process will continue.

Expectations for a rate hike at the Bank of Japan’s policy meeting next week are rising. Based on overnight swap data, investors now estimate about a 90% probability of a 25 basis point increase. If the BOJ raises rates to 0.75%, it will be the highest funding cost since 1995. Some analysts believe the continued weakness of the yen supports a December rate hike. However, Ueda stated that the BOJ generally avoids directly commenting on fiscal policy, emphasizing that achieving medium- and long-term fiscal sustainability is the government’s responsibility. On Friday, news indicated that the BOJ will maintain its commitment to further rate hikes at next week’s policy meeting, but will emphasize that the pace of further hikes depends on how the economy responds to each round of increases.

Apart from Japan, many global central banks are expected to shift toward rate hikes in 2026; the ECB, Reserve Bank of Australia, and Bank of Canada are all expected to raise rates, while the Fed may continue cutting, making it an exception. Market expectations for the ECB to hike next year have increased, the RBA is expected to hike twice, and the Bank of England is expected to end its rate-cutting cycle. The ECB’s rate hike expectations have strengthened, traders almost rule out further rate cuts, estimating a roughly 30% chance of hikes before the end of 2026. Hawkish statements from ECB Governing Council member Schnabel reinforced this outlook. Meanwhile, RBA Governor Lowe ruled out further easing, with markets expecting nearly two rate hikes by the end of next year, each about 25 basis points. The Bank of Canada remains supported by economic recovery, with expectations of slight tightening early next year. The Bank of England is expected to complete its rate-cutting cycle, and OECD forecasts that rate cuts will end in the first half of 2026.

3. Divergences in Russia-Ukraine peace negotiations: Zelensky’s “Reciprocal Withdrawal” Plan Creates US-Ukraine Rift

Regarding the US-proposed 20-point peace framework to resolve the Russia-Ukraine conflict, Ukrainian President Zelensky submitted a revised version to the US side. Major disagreements still focus on territorial and security issues. Zelensky clarified that the US continues to demand significant territorial concessions from Ukraine, especially in Donetsk, with Ukraine insisting that Russia and Ukraine should withdraw simultaneously based on reciprocity, opposing any unilateral concessions. Key unresolved issues between the US and Ukraine include sovereignty over Donetsk and joint management of the Zaporizhzhia nuclear power plant. Ukraine believes some US-proposed ideas actually reflect Russian positions, clearly harming Ukraine’s interests.

It is reported that the US suggests Ukrainian forces withdraw from certain controlled areas and establish so-called “free economic zones” or “demilitarized zones,” but management is unclear, with risks that Russia might infiltrate under the guise of civilians and effectively control these areas. Zelensky emphasized that any buffer zone arrangement must be reciprocal, with Russian forces withdrawing simultaneously; territorial concessions must be fair, and final decisions should be made by the Ukrainian people through elections or national referendum.

On military security, discussions between the US and Ukraine also cover Russian troop withdrawals from parts of Kharkiv, Sumy, and Dnipropetrovsk, a “frozen” contact line in Zaporizhzhia and Kherson, and an agreement allowing Ukraine to retain about 800,000 troops after the war. Russia reiterated that Ukrainian neutrality, non-alignment, and denuclearization are the starting points for resolution, warning that it will respond to any European military deployments in Ukraine or confiscation of Russian assets. European countries support the peace process but are cautious about some US proposals, emphasizing that territorial issues should be decided by Ukraine, and no agreement should threaten European security or the unity of the EU and NATO.

On Friday, the Financial Times reported that the UK and US are mediating a “fast-track” proposal that may allow Ukraine to join the EU on January 1, 2027, bypassing the EU’s “performance-based” accession process.

4. US seizes Venezuelan oil tanker, Caracas condemns “international piracy”

The US Coast Guard recently seized a supertanker carrying Venezuelan oil exports, marking the first US seizure of Venezuelan oil. Since 2019, Venezuela has been under US sanctions; this move signifies an escalation in US pressure on Venezuela’s oil trade. The Venezuelan government strongly condemned the seizure, calling it “international piracy”, and declared its “absolute determination to defend sovereignty, natural resources, and national dignity,” planning to file complaints with international agencies. A White House spokesperson said the tanker would be taken to a US port, and the US intends to confiscate the oil. Levitan stated that the tanker involved activities subject to US sanctions, and the seizure will proceed lawfully, including interrogations of crew and evidence collection.

It is reported that the tanker was carrying about $80 million worth of oil, roughly 5% of Venezuela’s monthly commodity imports. Levitan further said that the oil was originally delivered to Iran’s Islamic Revolutionary Guard Corps, which has been designated as a “terrorist organization” by the US since 2019. On the same day, the US Treasury added six Venezuelan oil tankers to its sanctions list on its official website.

6. SpaceX plans to go public next year, Musk confirms target

Elon Musk confirmed via social media that SpaceX plans to launch its initial public offering in 2026. According to insiders, SpaceX aims for a valuation of about $1.5 trillion at IPO; selling 5% of shares as planned could raise approximately $40 billion, surpassing Saudi Aramco’s global IPO record. Musk owns about 42% of SpaceX shares; his stake’s value would rise from approximately $136 billion to over $625 billion, potentially increasing his total assets from $460.6 billion to $952 billion.

The IPO plan partly stems from strong growth in Starlink. The company expects revenue of about $15 billion in 2025, increasing to $22-24 billion in 2026, mostly from Starlink. Additionally, progress on the Starship rocket further supports the IPO outlook. Musk previously denied reports valuing SpaceX at $800 billion and stated that Starlink’s commercial business is the main revenue source for SpaceX. He also emphasized that although NASA is an important partner, its revenue share will gradually decline, accounting for less than 5% of total next year. Looking ahead, SpaceX may receive greater support from US government space programs.

7. Moorthrend issues risk warning, shares plunge sharply

“China’s first GPU stock” Moorthrend’s stock soared over 700% after listing. On Thursday night, the company issued a risk warning, and on Friday, its stock price sharply adjusted. The warning pointed out that Moorthrend’s stock may face risks of excessive market enthusiasm and irrational speculation, urging investors to be cautious and invest rationally. The warning emphasized that the company’s operations are normal, with no major changes in internal or external environments, no significant events affecting the stock price, or undisclosed material information.

Moorthrend also stated that new products and architectures are still in development and have not yet generated revenue. Product sales require certification, customer onboarding, mass production, and supply, all of which involve uncertainties. Additionally, the company will hold its first MUSA developer conference soon, but it is not expected to have a significant short-term impact on operations.

8. Meta shifts strategy: from open source to closed source, Zuckerberg focuses on AI commercialization

US tech giant Meta is leveraging Alibaba’s open-source AI model Qwen to restart its own AI projects. Meta’s new model, codenamed “Avocado,” is planned for release next spring and may be launched as a closed-source model. This shift marks a major adjustment in Meta’s traditional open-source strategy, aligning more with Google and OpenAI. Moreover, AI is positioned as Meta’s primary strategic priority. Zuckerberg pledged to invest $600 billion in US infrastructure over the next three years, mainly to support AI development. To implement this plan, Meta is restructuring internal resources, significantly cutting back on virtual reality and metaverse investments, and focusing funds on AI glasses development and related hardware. However, Wall Street remains cautious about Meta’s aggressive spending plans.

9. Netflix takes the lead, Paramount “races ahead”: hundreds of billions in mergers shake Hollywood

Recent fierce competition for control of Warner Bros. Discovery (WBD) has intensified, with Netflix and Paramount’s bidding war becoming a global media focus. On December 5, Netflix announced a framework agreement to acquire WBD for about $72 billion, including film studios, TV studios, and core streaming assets like HBO/HBO Max; the deal will be completed after WBD spins off its live TV business, using a cash-plus-stock combination.

However, Netflix’s lead is quickly challenged. On December 8, Paramount and Skydance launched a hostile bid, offering $30 per share, totaling about $108.4 billion, all cash, including all WBD assets such as CNN, Discovery, and other live TV networks. Paramount emphasizes its bid’s higher value and certainty, directly pressuring shareholders to bypass WBD management. Interestingly, Trump has shown strong interest in this merger battle.

On December 10, he claimed that whoever acquires Warner Bros., CNN ownership must change. According to insiders, Trump repeatedly told allies that CNN should be sold or replaced, linking CNN’s future to negotiations over Warner Bros. sale. Paramount CEO has included Trump’s son-in-law Kushner in the acquisition plan and praised Trump on TV.

10. OpenAI launches ChatGPT-5.2, plans to end red alert in January

OpenAI released its most advanced AI model, GPT-5.2, and plans to end the previous “red alert” in January. OpenAI reports explosive growth in enterprise AI applications, with ChatGPT’s weekly active users surpassing 800 million. GPT-5.2 outperforms previous versions in spreadsheet generation, presentation creation, image perception, coding, and long-context understanding.

GPT-5.2 ranks highly in multiple industry benchmarks, including SWE-Bench Pro for intelligent agent programming and GPQA Diamond for graduate-level scientific reasoning; in OpenAI’s early 2024 GDP evaluation system, GPT-5.2 exceeds or matches top industry experts in 70.9% of explicit tasks. Additionally, Disney announced a $1 billion investment in OpenAI and reached an agreement to allow OpenAI to use over 200 Disney animated characters on the Sora video generation platform. The agreement also enables ChatGPT to generate images based on Disney characters.