The European credit environment entering 2026 has entered a plateau phase with both sovereign and corporate spreads reaching historic lows and further compression would be increasingly dependent for further reforms, such as integration into the fiscal sector. The February policy update from the ECB states that rates will remain steady at 2% which is interrupting the easing momentum as inflation remains sticky 1.7%. The ECB’s pause has reinforced a low volatility and risk on environment allowing carry trades.

The economic data released in the US during the past week showed mixed but increasingly stable signals, with the economy’s growth appearing strong but with risks of inflation persisting. The US factory activity showed a surprise gain, with the ISM Manufacturing PMI registering at 52.6, the first reading above 50 in almost a year. The rebound was driven primarily by new orders and postholiday restocking, though business sentiment remained cautious due to tariff uncertainty and planning challenges.

Structural Tightness Beneath the “Soft Landing Narrative” • The collapse of the French government and a shock -32k ADP payroll contraction confront the “soft landing” narrative, revealing a breakdown in global collateral quality and the end of labor hoarding. • The depletion of the ON RRP facility means Treasury cash rebuilds now directly drain bank reserves, forcing dealers to rely on Fed backstops to manage daily liquidity needs. • While markets are aggressively pricing immediate rate cuts to salvage the economic cycle, the yield curve is steepening as long-term inflation and fiscal risks prevent the long end from rallying along with the front end.

Diverging trends across industrial metals, agriculture and energy this week • Physical copper markets showed clear signs of stress this week as prices surged into backwardation following major inventory withdrawals in Asia and growing expectations of supply shortages. • U.S. corn futures fell on Wednesday and wheat futures also dipped as fears eased about a military escalation in the Black Sea grain export region, according to Reuters analysts. • Oil and gas extend their decline as warm weather, rising inventories, and fading geopolitical risk pressure prices.

Chasing the post-shutdown rally, hedging the China tax, and the bifurcation of crypto • U.S. equities had a powerful rally despite the absence of critical GDP and inflation data, with Russell 2000 surging 5.5% as investors interpreted a drop in jobless claims to 216,000 as the final green light for a December rate cut. • Renewed risk appetite is driving capital into Emerging Markets on signs of Chinese stabilization, though the rally is tested by persistent FX headwinds and structural fragility in market plumbing. • While Visa and PayPal operationalize stablecoin settlement rails to capture billions in flow, Circle Internet Group faces an immediate technical test on December 2 as its IPO lock-up expiration floods the market with approximately 157 million shares.

Key Developments in Global Interest Rates and Central Bank Policy • USA: Treasury yields consolidated this week as investors, lacking fresh macro data, hesitated to build on last week’s dovish repricing despite Fed cut odds rising to 86%. • Japan: Core CPI up 2.8%, past the target of 2.7%. Index excluding food and fuel rose 2.8% in November but remained constant in October. Inflation driven mostly by continued gains in food prices with the cost of rice up 38.5% year-on-year, a bag of coffee beans 63.4% higher and chocolate up 32.5%. • UK: The new UK governmental budget appeases both investors and labour MPs as headroom is increased by unusual measures, long-term impact however, remains in question.

Precious metals rally on Fed-cut momentum, base metals tighten on supply constraints, while oil & gas weaken amid oversupply and peace-deal progress. • Gold and silver rose on Fed-cut expectations and safe-haven demand, with silver boosted by supply deficits and strong industrial use. • Copper outperformed as a weaker dollar, supply cuts, and electrification-driven demand tightened the market.

Delayed data and dovish Fed signals drive repricing across the curve • Dovish repricing accelerates after delayed payrolls data show mixed labor signals and Fed speakers hint at “room for further adjustment.” • Treasury yields fall across maturities as traders lift December rate-cut odds from ~40% to above 70% in a single session. • Dollar firms and yen weakens while Fed minutes show broad support for ending QT early and stabilizing liquidity.

Falling Tech prices igniting talks of AI bubble, passive Fed response causing market uncertainty. U.S. equities are down over the week, S&P ≈ -2%, Nasdaq ≈ -2.7%, this was mainly due to hesitation linked to AI and September economy data coming out. European markets slid this week as U.S. AI tech volatility spilled over, driving the STOXX 600, major indices and semiconductor stocks down 2–6%. Asian equities sharply lower Friday. MSCI Asia Pacific ex Japan index dropped 2.6% to bring weekly loss to 3.8%, steepest since early April. Sharp losses, predominantly by tech, in South Korea, Taiwan and Japan. (FactSet, Top Stories Asia Pacific) U.S. equities are down over the week, S&P ≈ -2%, Nasdaq ≈ -2.7%, this was mainly due to hesitation linked to AI and September economy data coming out.

Supply Shocks, Geopolitical Demand, and Rising Transition-Metal Floors • Structural scarcity has superseded financial headwinds in the copper market, as the Grasberg force majeure and cascading Latin American disruptions has instantly inverted the projected 2025 balance sheet from surplus to deficit • State-drive Chinese soybean purchases have introduced a geopolitical premium to grain markets, temporarily overshadowing bearish inventory fundamentals • Structural deficits in copper and lithium are hardening price floors, creating resilience against cyclical macro weakness as supply constraints bite.

Markets tread water after a tech-led slide while policy uncertainty and rotation out of growth names take center stage. • The S&P 500 finished the week up less than 0.1 %, the Nasdaq Composite fell ~0.5 % and the Dow Jones Industrial Average rose ~0.3 %, as early tech declines gave way to dip-buying later in the week. • Major tech/AI-linked names such as Oracle Corporation (-6.9 %) and Core Weave Holdings, Inc. (-26 %) slumped, prompting a shift into defensive and cyclical sectors including healthcare, energy and materials. • With natural-gas futures at multiyear highs and the Federal Reserve (Fed) signaling that a rate cut is “not a foregone conclusion”, investors face a delicate macro backdrop as data drought and policy ambiguity weigh.

Prometheus Capital researchers note that the October ADP report triggered a two-stage repricing in U.S. rates that turned dovish once markets analyzed the data. ADP reported a 42,000 gain in private payrolls, approximately 10,000 above expectations, pushing yields higher as investors viewed it as evidence of labor market resilience. TLT fell 1.1 percent, consistent with a 7-8 bps upward shift in long-end yields given its approximate duration of roughly 18.