LONDON (Reuters) – World markets continue to assess what a Donald Trump administration will bring, as attention turns to an escalation of the war in Ukraine.

The U.S. Thanksgiving holiday will usher in a key shopping period, while inflation is in focus in Japan and Europe.

Here’s a look at the week ahead from Rae Wee in Singapore, Lewis (JO:LEWJ) Krauskopf in New York, and Naomi Rovnick, Amanda Cooper and Yoruk Bahceli in London.

1/ BINGO ANYONE?

“Trump trades” will likely continue dominating market action.

Anyone with “buy crypto and the dollar, sell anything foreign, or green” on their markets’ bingo card would still be in the money, even if momentum has softened. Bitcoin is within a hair’s breadth of $100,000, up around 50% from early October, when online betting markets pointed to a Trump election win. The dollar index is up 3.6%.

Clean energy, a Trump bug-bear, is the biggest loser, with iShares’ clean energy exchange-traded fund down almost 14%. Mexico’s peso has shed just over 4% and European equities, around 3%. With a few more Trump cabinet appointees to be announced and a little over 60 days before his inauguration, there’s still room for surprises.

Resistance to Trump trades could grow, from a realisation that stocks are expensive or from geopolitics providing a reality check on the risk assets’ rally.

2/ FOREIGN AFFAIRS

Group of Seven foreign ministers meet next week as Russia’s Ukraine invasion just passed the grim milestone of 1,000 days of war and risks a major escalation.

Russia fired a hypersonic intermediate-range ballistic missile at the Ukrainian city of Dnipro on Thursday after the U.S. and UK allowed Kyiv to strike Russia with advanced Western weapons, a further escalation of the 33-month-old war.

Safe-haven bonds have rallied in a sign of investor unease. But markets will struggle to assess the significance of fresh G7 communiques until Trump’s policy on Ukraine becomes clearer.

Trump regularly clashed with G7 allies during his first presidency and has pledged to end the war.

Investors expect Europe to pay more of Ukraine’s support bill and raise overall defence spending, which may require big changes like lifting Germany’s constitutional spending cap.

3/ BARGAIN HUNT

Thanksgiving week in the United States ends with Black Friday, which traditionally marks the start of the holiday shopping period. Investors are watching the extent to which inflation will weigh on buying habits, with consumer spending accounting for more than two-thirds of U.S. economic activity. In one worrisome sign, Target (NYSE:TGT) shares tumbled this week after the retailer forecast holiday-quarter comparable sales and profit below estimates. Inflation trends are also in focus with Wednesday’s release of the Personal Consumption Expenditures Price index, the Federal Reserve’s preferred gauge. The PCE index, which is expected to have climbed 0.2% for October, is one main data point before the Fed’s Dec. 17-18 meeting. Markets indicate investors are split over whether the Fed will hold rates steady or deliver another quarter-point cut, which would be another boost to consumers.

4/ RUSH HOUR

It’s a jam-packed Friday for the euro zone, kicking off with inflation data watched closely by traders betting on the European Central Bank outlook.

Inflation rebounded to 2% in October after falling below target a month. Pay growth meanwhile accelerated in Q3, though policymakers may look through that.

Traders see just under a 20% chance of a 50 bps ECB rate cut in December, versus 40% a month earlier.

Next (LON:NXT) up, S&P reviews France’s credit rating – Fitch and Moody downgraded their outlooks to negative recently.

Uncertainty remains high as Michel Barnier’s government seeks to pass a belt-tightening budget, with far-right leader Marine Le Pen threatening to topple the fragile ruling coalition.

And Ireland holds an election, where ambitious spending plans banking on a sustained boom in multinational corporate tax revenues could be threatened by Trump’s presidency.

5/ HIKE OR NO HIKE?

    Also on Friday, Tokyo inflation numbers will be watched by investors and Bank of Japan policymakers gauging whether interest rates should rise in December.

    While officials have kept markets guessing on when they will hike next, a sliding yen could spark a hawkish BOJ shift sooner rather than later.

    The market odds of a 25-bps December hike are now up to about 54% from negligible levels a month ago.

The yen, down more than 7% since the end of September to trade around 155 per dollar, has entered territory that previously triggered intervention by Japan to shore up the currency.

Officials are back to jawboning about yen weakness, while politics complicates matters.

The Liberal Democratic Party is looking to regain public support after a poor showing in recent election, and a rate hike is unlikely to sit well with voters.

(Graphics by Pasit Kongkunakornkul, Vineet Sachdev, Prinz Magtulis and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Kate Mayberry)

By Mike Dolan

LONDON (Reuters) – It’s hard to imagine the gloom surrounding Europe’s biggest economy deepening much further than it already has, but Germany’s outlook for 2025 just keeps getting bleaker.

Germany’s economy flatlined in 2024, and it now faces potential trade wars with both the United States and China – compounding pressure on its dominant and already ailing auto sector. Geopolitical worries in Ukraine are ratcheting higher, energy prices are starting to creep back up and the country’s fiscal future is obscured by the fog of February’s election.

Germany is not the euro zone, of course, and the rest of the region is doing notably better.

But the world’s third-biggest economy still represents more than 30% of the bloc’s gross domestic product and further damage to the zone’s traditional powerhouse could force the European Central Bank to ease far further than its recent statements on gradualism suggest.

Even in a season for central banks’ financial stability reviews – and their required scary lists of outsize risks – the Bundesbank’s version stood out this week.

Germany’s central bank stressed that the country’s corporate sector is still dogged by “profound structural challenges” that have caused aggregate earnings to decline almost every quarter for two years. And it pointedly spotlighted the damage still-high interest rates could yet wreak to darken the mood.

“A significant number of corporate insolvencies are likely next year,” the Bundesbank said. “Default risk for non-financial corporations is likely to remain elevated in 2025 … given ongoing structural change and the continued economic weakness.”

Although insolvencies through the first half of 2024 remain below the peaks of the global banking crash and euro crisis over a decade ago, the report showed that they had risen 25% over the previous year.

WEATHERING A WORSENING STORM

The Bundesbank laced the gloom with some confidence, noting that the economy was still weathering the huge shocks of the past two years.

It pointed out that fixed-rate loans taken out before 2022’s interest rate shock remained relatively cheap with a median rate of 2.6%. But it also noted that almost 10% of outstanding loans that need to be refinanced by the end of 2025 with new 3-5 year tenors would likely see borrowing costs jump to 4%.

“Sound fundamentals mean that the vast majority of enterprises should be able to cope with these burdens,” it said. “If, on the other hand, developments in the macro-financial environment are noticeably weaker than forecast, higher default risks are to be expected.”

None of this will be news to the ECB, which has already cut its main policy interest rates three times since mid-year from 4% to 3.25% and is widely expected to move again next month.

Like all other central banks – it can only surmise the effects of a global trade war and needs to wait until late January at least to find out if President-elect Donald Trump actually follows through on his long-threatened tariff plans.

And yet senior ECB figures already seem to see a trade war as more worrisome for growth than inflation.

ECB chief economist Philip Lane said on Thursday that global economic output would suffer a “sizeable” loss if trade became more fragmented while an initial boost to inflation would “subside gradually”.

For Germany’s export engine, trade fears could be amplified threefold – by the direct impact of universal U.S. tariffs, any hit to overall Chinese demand for its goods due to more severe U.S. barriers on China, and also the implications of the ongoing row between the European Union and China over autos.

AGGRESSIVE TARIFFS

Given all that, the big investment houses remain remarkably sanguine about the broader outlook for Europe next year. Annual investor forecasts have been streaming in over the last week, and they mostly call for some cyclical rebound in Europe, helped by falling interest rates, a weaker euro and resilient households.

What’s more, there’s some hope for more clarity on fiscal policy after the German election.

Germany’s blue-chip stock index hit another record high last month, notching a 15% gain so far this year, and it’s only slipped about 3% from that peak since.

The problem for policymakers and investors alike is that visibility is incredibly low and may remain so for months.

Salman Ahmed, Fidelity International’s Global Head of Macro (BCBA:BMAm) and Strategic Asset Allocation, reckons U.S. tariff risks could reduce euro zone growth by half a percentage point next year and Germany could be hit additionally by its own election anxieties.

Given that the International Monetary Fund already forecasts 2025 German growth to be the weakest among the G7 countries next year at just 0.8%, a jolt of that scale would mean the country could be flirting with recession for another year.

Ahmed’s baseline view is the ECB will cut rates quickly to 2%, followed by a more gradual move to 1.5% by the end of next year. But even that hinges on a scenario where U.S. tariff hikes end up being less than Trump’s pre-election pledges.

“More aggressive tariffs risk provoking additional and accelerated easing,” he said, adding the ECB would then need to keep a close eye on the extent of the ensuing weakness.

German economic gloom may be nothing new – there’s every reason to think it could get even worse before it lifts.

The opinions expressed here are those of the author, a columnist for Reuters

(By Mike Dolan; Editing by Sonali Paul)

SINGAPORE (Reuters) – Republican Governor of Texas Greg Abbott ordered state agencies to cease investing state funds in China and sell at the first available opportunity, citing financial and security risks.

“As Chinese aggression against the United States and its allies seems likely to continue, the financial risk associated with holding investments in China will also rise,” Abbott said in a letter to Texan state agencies dated Nov. 21 and posted to his website.

“I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity.”

By Indradip Ghosh

BENGALURU (Reuters) – German home prices will reverse their relentless two-year fall and rise 3% next year and in 2026 on lower borrowing costs, according to analysts polled by Reuters who said rental growth would outpace housing inflation in the coming year.

Once riding high on the wave of low interest rates, the property market in Europe’s largest economy plunged into its worst crisis in decades as a sharp rise in rates after the COVID-19 pandemic tipped developers into insolvency.

Prices have plummeted 12% from a peak in Q2 2022 after surging nearly 25% during the pandemic. But the latest data showed activity in the sector is stabilising.

Residential property prices climbed 1.3% during the April-June period from Q1, the first increase since 2022, while data from JLL recently showed transactions in the sector rose slightly in the first nine months of the year.

The rebound is likely to continue in the next few years as the European Central Bank, which has already cut its deposit rate by 75 basis points this year, is widely expected to deliver at least another 100 basis points of cuts by end-2025.

Average German home prices, which fell 8.5% last year, will decline only 0.3% this year and increase 3.0% next year, according to the latest Reuters survey taken Nov. 12-21.

That was an upgrade from a fall of 1.4% and a rise of 2.0% predicted in August. Prices were forecast to climb another 3.0% in 2026.

“As mortgage rates decline, the German housing market is poised for stabilisation, with both existing and new home prices expected to find support,” said David Muir, senior economist at Moody’s (NYSE:MCO) Analytics. 

“However, current interest rates remain elevated compared to the ultra-low levels of the 2010s…This suggests while we may see a moderation in price declines, a return to the rapid appreciation of the past decade is unlikely.”

Like the residential segment, commercial real estate is also showing some signs of recovery with valuations – in decline for two years – rising 0.7% last quarter from the second quarter.

Despite the glimmers of hope emerging from improving conditions and anticipated drops in borrowing costs, concerns around stretched affordability remain.

In response to a separate question, eight of 13 respondents said purchasing affordability for first-time buyers would worsen over the coming year.

That was likely to discourage first-time home buyers to own a home but to instead rent, in a market which is already hot.

Average urban home rents will increase 4%-5% over the coming year, according to the median view. Ten of 13 analysts said rents will outpace home prices in the next 12 months.

“While demand for purchasing properties is only recovering gradually, demand for rental properties remains at a record high. At the same time, construction activity is stagnating, resulting in unmet demand,” said Carsten Brzeski, chief economist at ING.

“Until construction activity picks up significantly, the mismatch between supply and demand, which is even more pronounced in cities than in rural areas, will continue to be a structural price driver in the rental market.”

(Other stories from the Q4 global Reuters housing poll)

BERLIN (Reuters) – New German Finance Minister Joerg Kukies dampened expectations that a reform of the nation’s spending cap, known as the debt brake, could lead to more leeway in the federal budget in an interview with the Handelsblatt newspaper published on Friday.

“You have to look at what is realistic and what there could be a political consensus on,” Kukies told Handelsblatt, adding that “in my view, this would be a moderate, targeted reform.”

German political parties have bristled over the spending rules, which limits the country’s public deficit to 0.35% of gross domestic product, viewing it as a hindrance at a time when the Ukraine war has held back growth in Europe’s largest economy.

A dispute over spending had led to the collapse of Germany’s government earlier this month, after Chancellor Olaf Scholz fired Kukies’ predecessor, Christian Lindner, ending a coalition between Scholz’s SPD, Lindner’s pro-market FDP and the Greens.

The basic principle of the debt brake is correct, said Kukies, as it ensures budgetary discipline during the good years and allows sufficient financial leeway during times of crises.

Nevertheless, it makes sense to look at the various proposals and evaluate what makes sense to be able to finance the necessary long-term investment needs, added Kukies.

And “even if we did not have a debt brake, we would still be subject to the European debt rules,” added Kukies.

“These also require prioritisation because they limit the increase in government spending and require a solid budget policy,” Kukies said, adding that he would campaign for Germany to be given more time to submit its spending plans under the new EU debt rules with a view to elections planned for February.

Investing.com–The Reserve Bank of Australia (RBA) is now expected to start cutting interest rates from May next year, instead of February, Westpac said in a note, although the central bank is likely to cut rates aggressively.

Westpac said concerns over sticky inflation, a robust Australian job market and improving consumer sentiment could potentially delay any easing from the RBA.

“An earlier start in February or March is still possible, but it is no longer more likely than a May start date,” Westpac’s Chief Economist Luci Ellis wrote in a note.

The late start is also an uncertain scenario, if inflation does not decline as the RBA is currently forecasting, Ellis said.

The RBA held rates steady at a 12-year high of 4.35% in its November policy meeting, as expected, and said the policy would need to remain restrictive until the inflation was tamed.

The country’s consumer price inflation fell to 2.8% last quarter, within the central bank’s 2-3% target for the first time in three years, but core inflation remained elevated. Government subsidies on energy have helped ease headline inflation in recent months. But high housing and food prices, coupled with steady consumer spending, have kept underlying inflation elevated.

The minutes of the RBA’s latest meeting showed that the central bank needed to see a sustained decline in inflation before it could begin trimming rates. The RBA only expects inflation to fall within its 2% to 3% target range by 2026.

Still, Westpac expects the central bank to cut rates sharply once it begins an easing cycle. The delay in easing will lead to “front loaded” initial moves by the RBA, with consecutive cuts in late May and early July, Westpac’s Ellis said.

“The longer the RBA Board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long,” she added.

“If employment growth slowed even moderately, things could unravel quite quickly,” Ellis said. Australia’s job market growth slowed in October after six straight months of outsized growth, although the sector still remained strong.

Westpac’s outlook for the RBA is more hawkish than other brokerages. ANZ expects the central bank to begin cutting rates by February 2025.

By Makiko Yamazaki

TOKYO (Reuters) – Japan is set to kick off discussions on raising the basic tax-free income allowance in effective permanent tax cuts worth up to $51 billion, a step that could also help ease constraints on part-time workers amid intensifying labour shortages.

The government’s plan, which will be mentioned in an economic stimulus package to be announced on Friday, comes as the ruling coalition yielded to a push by a key opposition party whose cooperation is crucial for the coalition to stay in power.

If the income tax threshold is lifted from the current 1.03 million yen ($6,674) per year to 1.78 million yen as demanded by the opposition Democratic Party for the People (DPP), tax revenue would drop by 7 trillion yen ($45.36 billion) to 8 trillion yen, according to a government estimate.

While the new threshold level has yet to be discussed, policymakers say a full increase to 1.78 million yen is unlikely.

DPP argues that 1.03 million yen has also served as constraining student part-time workers as their parents lose a tax deduction treatment if their dependent minors earn beyond the level.

Daiwa Research Institute estimates that about 610,000 students currently voluntarily limit their working hours to avoid hitting the threshold.

An increase in the deduction threshold to 1.8 million yen would boost labour supply by about 330 million hours, workers’ compensation by 456 billion yen and increase private consumption by 319 billion yen, according to Daiwa estimates.

But critics are sceptical about the impact on labour supply, pointing out that there are other barriers that prevent from such workers from working longer.

Raising the income tax threshold would also keep Japan an outlier among advanced nations that had mostly phased out pandemic-mode stimulus.

“This is effectively a dole-out policy disguised as a labour issue,” said Saisuke Sakai, senior economist at Mizuho (NYSE:MFG) Research and Technologies.

“Japan’s goal of running a primary budget surplus in the next fiscal year would be absolutely impossible. With no one caring about the fiscal discipline, concerns about Japan’s debt could intensify among investors,” he added.

In the stimulus package to be approved later on Friday, the government will spend 13.9 trillion yen from its general account to fund measures aimed at mitigating the impact of rising prices on households.

The focus will now shift to how to fund the budget.

JPMorgan said in a report to clients that it expects about 10 trillion yen in additional new government bonds for the latest package.

However, the outlook for the budget for the next fiscal year from April is growing unclear as the outcome of the discussions on the tax revision would impact tax revenue for the year.

Fixing tattered public finances has emerged as a more imminent task for Japan as its central bank moves to exit years of ultra-easy monetary policy that had kept borrowing costs ultra low.

Japan’s public debt stands at more than twice the size of its economy, by far the biggest among industrialised economies.

($1 = 154.3300 yen)

By Anant Chandak

BENGALURU (Reuters) – India’s business activity rose at its fastest pace in three months in November, helped by an improving services industry and record job creation, but output inflation spiked to a near 12-year high, a survey showed.

The findings are likely to add to economic growth in the ongoing festive quarter which is expected to pick up thanks to a rebound in private consumption, despite Asia’s third-largest economy reporting its highest retail inflation in 14 months.

HSBC’s flash India Composite Purchasing Managers’ Index, compiled by S&P Global, rose to 59.5 this month from October’s final reading of 59.1, taking the expansionary streak to 40 months.

The 50-level separates growth from contraction.

“Services saw a pick-up in growth, while the manufacturing sector managed to outperform expectations despite a marginal slowdown from its October final PMI reading,” noted Pranjul Bhandari, chief India economist at HSBC.

A PMI for the dominant-services sector rose to 59.2 from 58.5 last month, its highest since August. The manufacturing sector also continued to expand in November, although the pace slowed slightly and its index fell to 57.3 versus 57.5.

Overall domestic demand rose thanks to better sales in the services industry offsetting slower manufacturing orders growth, but overseas demand improved for both sectors with the latter’s exports accelerating to a four-month high.

That boosted the business outlook for the coming year as overall optimism rose to the highest since May, prompting companies to ramp up hiring.

Led by services firms, employment generation rose at the fastest pace since the survey began in December 2005, a positive indicator of economic health and consumer spending power.

However, rising inflationary pressures cast a shadow on the positive sentiment, with input costs increasing at the fastest pace in 15 months, forcing businesses to pass the burden to clients and resulting in output inflation spiking at the steepest pace since February 2013.

“Price pressures are rising for raw materials used by manufacturers, as well as food and wage costs in the services sector,” added Bhandari.

The Reserve Bank of India (NS:BOI) has recently expressed concerns regarding quickening core inflation. That is likely to prompt the central bank to maintain a cautious stance and it could keep interest rates on hold at its meeting in early December.

A look at the day ahead in European and global markets from Ankur Banerjee

A series of manufacturing data will likely dominate markets’ attention on Friday, with the euro rooted near its lowest in more than 13 months, while bitcoin edged towards $100,000 on expectations of friendlier regulations in the United States.

India-listed shares of Adani Group firms slid and their dollar bonds remained under pressure for a second day following billionaire founder Gautam Adani’s indictment for fraud by U.S. prosecutors.

Monthly PMIs will be released around the world over the course of the day, helping investors to chart out how the various economies are doing and where global rates are headed, as well as how much further the dollar’s recent uptrend may have to run.

Adani’s company denied the accusations in Thursday’s indictment, which comes less than two years after U.S. short-seller Hindenburg Research accused the Adani group of improper use of tax havens and involvement in stock manipulation, which the conglomerate also denied.

Where that leaves market sentiment on Indian equities is anyone’s guess. When Hindenburg’s report came out in January 2023, India’s broader stock markets felt the heat for a few weeks before rebounding and racing on to a bull run.

The BSE Sensex has been sliding since it touched a record high in late September, as investors wary of rich valuations flee the market. The Adani news has caught the markets at a vulnerable moment.

As for bitcoin, there’s little else to say except that the markets and crypto enthusiasts everywhere are waiting with bated breath for the world’s biggest cryptocurrency to hit $100,000 for the first time, a landmark moment for the sector.

Anything remotely related to crypto has been on a tear since the U.S. election as investors bet that President-elect Donald Trump and his administration will bring in friendlier regulations.

And finally, investors have been taking a closer look at Nvidia (NASDAQ:NVDA)’s results and are feeling a bit better about them. Investors’ sky-high expectations may not have been met but, under the hood, everything looks good with demand holding strong for the firm’s AI chips.

That has stocks in Asia surging while futures indicate European shares are set for a higher open.

Key developments that could influence markets on Friday:

UK retail sales for October

Flash PMI Nov data for France, Germany, euro zone and UK

(By Ankur Banerjee; Editing by Edmund Klamann)

By Satoshi Sugiyama

TOKYO (Reuters) – The Bank of Japan will raise interest rates again at its December meeting as a strengthening economy and concerns over the depreciating yen prompt policymakers to act, according to just over half of economists in a Reuters poll.

The BOJ is also likely to keep pushing interest rates higher in the wake of Donald Trump’s Nov. 5 election victory, most economists said, as markets brace for a slew of inflationary policies under the new administration.

In the Nov. 13-21 poll released on Friday, 56% of economists, 29 of 52, said the BOJ would raise borrowing costs again by end-year, compared with 49% in a poll last month. The median prediction for the end-year rate was 25 basis points higher at 0.50%.

Analysts said the economy and prices moving on track with the BOJ’s outlook, the receding downside global economic risks and the yen’s depreciation would prod the Japanese central bank to tweak rates.

“If the BOJ does not act in December, there is a risk the yen will weaken further by the end of January when the next meeting is scheduled, and that the bank will fall behind in its response,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.

The weak yen – which had pushed up import costs and inflation – was among the factors that led to the BOJ’s decision to raise interest rates in July.

BOJ Governor Kazuo Ueda said this week the economy was progressing towards sustained wage-driven inflation and warned against keeping borrowing costs too low. He said the BOJ will “seriously” take into account the impact yen moves could have on the economic and price outlook.

About 90% of economists, or 44 of 49, forecast the BOJ would have lifted rates to 0.50% by end-March. Two who had predicted a hike to 0.50% by end-year expected the rate to be 0.75% by the end of the first quarter.

Among a smaller sample of 20 who provided monthly forecasts and anticipated either a rate hike next year or no further increase at all, 90%, or 18, chose January. That was up from almost three-quarters in October’s poll and September’s 60%.

Additionally, 96% of economists, or 24 of 25, expected Trump’s return to the White House would encourage the BOJ to raise interest rates, the poll found.

Respondents said the president-elect’s economic policy, including tax cuts and tariffs, would reignite inflation in the U.S. which would also stoke inflationary pressure in Japan.

“In reality, the BOJ would like to proceed with raising interest rates carefully, taking into account the impact on the economy and other factors,” said Mitsuo Fujiyama, senior economist at the Japan Research Institute.

“But with import inflation causing prices to rise again, it feels like they have no choice but to raise interest rates.”

The median of 26 economists who offered their view on what the BOJ’s terminal rate should be was 1.00%, with a range of 0.50% and 2.50%.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was on the cusp of durably achieving its 2% inflation target.

Japan’s economy expanded an annualised 0.9% last quarter, slowing from the previous three months on tepid capital spending though an unexpected pickup in consumption was a bright spot.

(Other stories from the Reuters global economic poll)