Fed Cut Hopes Rise, AI Leadership Shifts

For the week ending 26 November 2025

As of midday Wednesday, ahead of the US Thanksgiving holiday, global equities were higher from Friday amid a rotation of leadership among AI megacaps and a shift in expectations in favor of a rate cut at the next FOMC meeting. The yield on the US 10-year note dipped below 4% on Tuesday before rebounding to 4.04% Wednesday, while the price of a barrel of West Texas Intermediate Crude oil was little changed at $57.90. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 19 from 22.2 on Friday. 

MACRO NEWS

Trump and Xi to meet in April

US President Donald Trump and Chinese President Xi Jinping spoke by phone on Monday, and during the conversation, Xi invited Trump to visit Beijing in April. Trump accepted, with Xi expected to visit the US in late 2026. China also agreed to accelerate its buying of US farm products, resulting in the purchase of approximately $300 million in soybeans on Tuesday. Both sides agreed that recent trade talks have maintained positive momentum. The two leaders also discussed Ukraine-Russia and fentanyl, according to the US readout of the call. Xi raised the topic of Taiwan, reportedly asking Trump to speak with Japanese Prime Minister Sanae Takaichi regarding her recent comments on Taiwan, to which China took offense. Trump agreed, and he and Takaichi spoke shortly after the call with Xi ended. Trump and Xi are expected to meet as many as four times in 2026.

Rate cut odds rise as doves speak out

Federal Reserve hawks dominated the headlines in the wake of the November FOMC meeting, but the last week has seen a resurgence of the doves. New York Fed President John Williams got the ball rolling last Friday morning, calling for a December cut. On Monday, Fed Governor Christopher Waller, a finalist in the search to replace Fed Chair Jerome Powell, echoed Williams by advocating for a December cut, but Waller added that the Fed should then adopt a meeting-by-meeting approach to further rate cuts. He remains concerned over the state of the labor market, a sentiment seconded by San Francisco Fed President Mary Daly, who said she thinks the labor market is vulnerable and that the Fed shouldn’t hold off on rate cuts out of fear. Odds of a cut at the December meeting in two weeks jumped to 80% from 30% a week ago.

Momentum builds toward Ukraine-Russia peace plan

Reports are circulating that after talks with US officials in Abu Dhabi, Ukraine has agreed to a framework to end the war with Russia, though there remain additional details to be worked out. An initial 28-point plan that closely aligned with Russia’s aims has reportedly been narrowed to 19 points. Russian officials have been tight-lipped in recent days, so the outlook remains uncertain. A Thanksgiving deadline for Ukraine to agree to the deal has been put aside amid reports that US presidential envoy Steve Witcoff will meet with Russian President Vladimir Putin in Moscow next week.

UK budget yields a record tax burden

British Chancellor of the Exchequer Rachel Reeves proposed a budget that contains £26 billion in tax hikes as she seeks to increase the amount of fiscal headroom in the budget from £9.9 billion to £22 billion. The Office for Budget Responsibility (OBR) warned that Reeves' plans will leave the UK spending more on debt interest than at almost any other time in its post-war history. More than 1.7 million people will face increased income taxes as tax thresholds are frozen, so rising wages will push taxpayers into higher tax brackets. An annual surcharge will also be levied on properties valued over £2 million, while taxes on savings and dividends will rise 2%. Other provisions include allowing local governments to impose a tourist tax on overnight visits. Taking into account the new policy mix, the OBR forecasts that the UK economy will grow 1.4% in 2026, down from an earlier estimate of 1.9%.

QUICK HITS

The White House is expected to soon unveil a health care policy framework that will include a short-term extension of the Obamacare subsidies that are due to expire at the end of next month, as well as new limits on eligibility.

US retail sales rose a smaller-than-expected 0.2% in September, while the component of the producer price index that feeds into PCE (the Fed’s preferred inflation measure) were muted. The data were modestly dovish, helping amplify the rebound in expectations for a rate cut at the early-December FOMC meeting.

US weekly jobless claims fell to a seven-month low of 216,000 for the week ending November 22, as the “no fire, no hire” US labor market persists. Continuing jobless claims rose 7,000 to 1,960,000, nearing the top of their recent range.

Market sentiment could shift abruptly due to deteriorating growth prospects or disappointing news on artificial intelligence adoption, the European Central Bank said in its bi-annual Financial Stability Review, published Wednesday.

On Friday, Moody’s upgraded Italy's sovereign rating for the first time in 23 years to “Baa2” from “Baa3,” citing the country's consistent track record of political and policy stability.

The Trump administration is reportedly preparing fallback options if the US Supreme Court strikes down its use of IEEPA tariffs. Options include Section 301 and Section 122 of the Trade Act, which grant the president the unilateral ability to impose duties.

US Commerce Secretary Howard Lutnick said this week that the EU must ease its rules regulating US tech giants if it wants the US to lower its tariffs on steel.

Amid tensions between Japan and China, Japanese defense minister Shinjiro Koizumi said plans are moving forward to deploy missiles to a military base on the southern Japanese island of Yonaguni, near Taiwan. Chinese officials view this planned move as provocative.

ECB President Christine Lagarde said Europe should embrace artificial intelligence and remove hurdles to avoid missing out on its benefits. Lagarde urged Europe to position itself to take advantage of AI transformation, saying it can turn a late start into a competitive edge if it acts decisively.

The US Bureau of Economic Analysis has canceled the advance estimate of Q3 US GDP due to the disruptions caused by the recent government shutdown. The market’s first look at Q3 growth data will now come on December 23.

US Treasury Secretary Scott Bessent said Tuesday that the last of the second round of interviews for Fed chair would take place that day. He added that President Trump is likely to announce his choice to replace  Powell before Christmas. Bloomberg reported Tuesday that National Economic Council Director Kevin Hassett has emerged as the frontrunner for the post.

The fallout from the government shut down could trim as much as 1.5% from US GDP in Q4, Bessent said.

US durable goods orders rose 0.5% in September, while non-defense capital goods orders rose a stronger-than-expected 0.9%.

US pending home sales fell 0.4% year-over-year in October but rose 1.9% from the month before.

Taiwan plans extra an $40 billion in defense spending to counter China, according to a Reuters report.

The Conference Board’s Consumer Confidence Index tumbled in November amid concerns over the US labor market and fallout from the long government shutdown.

On Wednesday amid continued deflation in China, yields on Chinese 10-year government bonds fell below those of Japan for the first time in history.

THE WEEK AHEAD

Monday: Global manufacturing PMIs

Tuesday: Eurozone unemployment, CPI

Wednesday: Global services PMI; Australia GDP; eurozone PPI; US industrial production

Thursday: Eurozone retail sales

Friday: Eurozone GDP; Canada unemployment; US PCE

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.