Take Two: Fed cuts rates; China’s trade surplus tops $

What do you need to know?

The Federal Reserve (Fed) cut US interest rates by 25 basis points (bp) to a three year-low of 3.50%-3.75%, with two of the 12-member committee voting for no change, and one opting for a larger 50bp cut. Fed Chair Jerome Powell said the central bank faced “a challenging situation”, with upside risks to inflation and downside risks to employment. “There is no risk-free path for policy as we navigate this tension between our employment and inflation goals,” he said. However, the Fed upgraded its 2026 economic forecast, predicting 2.3% growth, up from the 1.8% it forecast in September. 

Around the world 

China’s trade surplus exceeded $1trn over the first 11 months of this year for the first time, up 22% from the same period last year. The data underlined China’s economic reliance on overseas demand, as it increased exports to Europe and within Asia, offsetting a decline in trade with the US due to increased tariffs. Elsewhere, Japan’s economy contracted by more than expected in the third quarter (Q3), as GDP fell 2.3% on an annualised basis, further than the initial estimate of a 1.8% decline. The first annual contraction in six quarters was partly due to a slowdown in consumer spending and a fall in exports. 

Figure in Focus: $20trn

Investing in a stable climate, healthy nature and land, and a pollution-free planet could add some $20trn a year to the global economy by 2070 and $100trn per year thereafter, according to the United Nations (UN) Global Environment Outlook. Annual investment of around $8trn is needed to achieve net zero emissions by 2050 and to ensure adequate funding for conserving and restoring biodiversity, but “the cost of inaction is far higher”, the UN said. The report, drawn up by 287 scientists across 82 countries, recommended changes across five key areas: economy and finance, materials and waste, energy, food systems and environment. 

Words of wisdom

Pan-European Market Operator: The European Commission (EC) has introduced a new Pan-European Market Operator (PEMO) status for trading venue operators, removing barriers to cross-border transactions. It is part of a new package of measures that form a central component of the EC’s Savings and Investments Union strategy, aiming to create a more integrated, efficient and competitive financial system. Ultimately, the strategy is expected to help boost investment in areas including cleantech, energy, biotech and artificial intelligence. “A unified capital market is needed to improve company financing and citizen investment options”, the EC said.

What’s coming up? 

Monetary policy is in focus this week as several central banks hold their final meetings of the year. On Thursday, the European Central Bank and Bank of England convene to set interest rates. The Bank of Japan holds its own policy meeting on Friday. In terms of economic data, flash December Purchasing Managers’ Indices are released covering the Eurozone, UK, US and Japan on Tuesday. Attention shifts to inflation on Wednesday as the Eurozone and UK release their latest figures, followed by the US on Thursday and Japan on Friday.

Our 2026 Outlook is now live on the AXA IM Investment Institute – read it here