Year-end summit drives RMB appreciation, new policy signals emerge in global markets

The Christmas holiday shrouds the global financial markets, with trading activity significantly declining. U.S. stocks were fully closed on December 25th and resumed trading on the 26th; Hong Kong markets also closed for two days simultaneously; European exchanges such as London, Frankfurt, and Paris continued their holiday pause due to the holiday season; markets in the Asia-Pacific region, including Australia and Singapore, also closed as usual. Against this backdrop, the RMB’s appreciation trend has accelerated against the trend.

RMB Breaks Psychological Barrier, Central Bank Policy Stance Becomes Key

On Thursday, the RMB against the US dollar reached its strongest performance since September, with the USD/CNH falling to 6.9965, appreciating to a high of 6.9960 intraday, and onshore RMB (USD/CNY) also fell to 7.0051, hitting a new low since May 2023. Market analysts believe that strong year-end foreign exchange settlement demand and the lack of upward momentum in external US dollar markets are the main drivers, and in the short term, the RMB is expected to continue approaching the 7 yuan mark.

A trader from a Chinese-funded bank stated that currently, the market has a large volume of settlement transactions, and the US dollar’s international trend remains weak, with a consensus forming around bullish expectations. Goldman Sachs’ latest report reveals the central bank’s intentions—The People’s Bank of China (PBOC) has recently alternated between statements emphasizing “resilience” and “flexibility,” implying that authorities tend to support RMB strength but still want to control the pace of appreciation to avoid rapid gains that could impact exports. Goldman Sachs economist Xinquan Chen pointed out that the minutes of the Q3 monetary policy meeting emphasized “enhancing exchange rate resilience,” and after entering Q4, the emphasis on resilience was reasserted, reflecting the central bank’s intention to slow the appreciation pace. Goldman Sachs maintains its RMB appreciation forecast, predicting USD/CNY will be 6.95, 6.90, and 6.85 respectively after 3, 6, and 12 months, and expects the central bank to cut reserve requirements by 50 basis points and interest rates by 10 basis points in the first quarter of next year, with another 10 basis point rate cut in Q3.

Precious Metals Hit Historic Highs, Inflation Expectations Support Gold and Silver

On Friday, gold briefly broke through the $4,500 mark to $4,504, while silver rose to $73.67, both hitting record highs. The strong performance of precious metals reflects market concerns about long-term inflation and adjustments in expectations regarding the global liquidity environment.

Divergence in Overseas Central Bank Policies, Japan Continues Rate Hikes

Japan’s central bank governor Ueda Kazuo recently stated in a speech at the Economic Federation that Japan’s core inflation is steadily approaching the 2% target set by the central bank, and he is prepared to continue raising interest rates. He emphasized that unless there is a significant economic shock, the labor market will remain tight, putting upward pressure on wages due to irreversible demographic changes. Notably, companies have already passed on rising labor and raw material costs in food and other goods and services sectors, forming a mechanism where wages and inflation rise in tandem. Given that real interest rates remain low, if the baseline scenario is achieved, the central bank will continue to raise rates based on economic and price improvements.

Meanwhile, Bank of America expects the Federal Reserve to cut interest rates once each in June and July next year, with the 10-year US Treasury yield expected to fall back to the 4% to 4.25% range by year-end, with the possibility of further declines. Compared to 2024-2025, overall borrowing conditions will be slightly looser but will not revert to the era of ultra-low interest rates.

Japan’s Budget Next Year Hits Record High, Debt Dependency at 27-Year Low

Japanese Prime Minister Suga Satoshi announced that the FY2026 budget will total approximately 122.3 trillion yen, an increase of 6.3% from this fiscal year, setting a new record for initial budgets. Despite the record scale, the government pledged to maintain fiscal discipline, with new government bond issuance controlled at 29.6 trillion yen, the second consecutive year below 30 trillion yen, and the debt dependency ratio decreasing from 24.9% this year to 24.2%, the lowest in 27 years. Following this news, the yield on Japan’s 40-year government bonds fell 7 basis points to 3.62%, the lowest since November 17. Suga stated that the budget balances fiscal discipline with a strong economy, and the draft budget will be submitted to the Diet early next year.

Semiconductor Market Reaches Hundred-Billion-Dollar Milestone, Leading Companies Drive Investment Trends

Bank of America semiconductor analyst Vivek Arya said that AI development is still in the middle of a decade-long structural transformation, with industry trends upward led by companies with clear competitive advantages. BofA forecasts global semiconductor sales will grow 30% by 2026, reaching the important milestone of $1 trillion for the first time. Companies with high gross margins and solid market positions will be the core of capital deployment, with names like NVIDIA, Broadcom, Lam Research, KLA, AMD, and Cadence Design Systems identified as the most confident investment targets for 2026.

On the other hand, NVIDIA has reached an licensing agreement with AI chip startup Groq. NVIDIA is authorized to use Groq’s chip technology and has hired its CEO Simon Edwards; Groq will continue to operate as an independent company, with founders Jonathan Ross, President Sunny Madra, and the engineering team joining NVIDIA. Last year, Groq was valued at $2.8 billion, and after completing a $750 million funding round in September, its valuation doubled to $6.9 billion, focusing on the “inference” domain—responding to user requests with trained AI models. Although NVIDIA dominates in AI model training, it faces fierce competition in the inference domain.

US Stocks May Struggle to Recreate Glory Next Year, S&P 500 Target Slightly Higher

CFRA Chief Investment Strategist Sam Stovall pointed out that for the US stock market to achieve double-digit gains again, all engines need to run at full speed. CFRA sets its S&P 500 target at 7,400 points by the end of 2026, about 7% above current levels. While stocks may still rise next year, increasing headwinds suggest it will be difficult to replicate the strong performance of 2024.

Market participants believe that next year will see divergence in global central bank policies, differences in regional economic resilience, and pressure on corporate earnings, and should pay close attention to policy directions, earnings revisions, and geopolitical risks.