by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with key takeaways on monetary policy from an interview President Trump did with the Wall Street Journal on Friday. We next review several other international and US developments with the potential to affect the financial markets today, including a preview of tomorrow’s off-cycle reports on the US labor market, a new US investment in a critical-minerals facility, and a conservative’s victory in Chile’s run-off presidential election over the weekend.

US Monetary Policy: In an interview with the Wall Street Journal on Friday, President Trump said he wouldn’t put anyone on the Federal Reserve board who would raise interest rates as economic growth is accelerating. Just days after the Fed cut its benchmark fed funds rate to a range of 3.50% to 3.75%, he also said he would like to see the rate at 1.00% or lower one year from now. The statements are consistent with our view that the Fed will be under strong pressure to cut interest rates more aggressively in 2026 than in 2025.

• In our 2026 Outlook, published last week, we discuss our projections for interest rates and longer-term bond yields. After cutting the fed funds rate three times in 2025, we would expect the central bank to cut rates at least four times in 2026, and potentially more.
• More aggressive rate cuts could unsettle the bond market, but we would expect the administration to keep taking steps designed to cap longer-term bond yields. By implication, that means the yield curve may only steepen modestly in 2026.

US Labor Market: As a preview, the Department of Labor tomorrow will release a combined report on the job market in October and November. The unusually timed report will come out on Tuesday morning at 8:30 AM ET. Analysts currently expect the data to show that November payrolls rose by 50,000 while the unemployment rate rose to 4.5%. However, Fed Chair Powell last week said actual hiring might be much weaker than the recent available data showed, so investor concerns could keep the US financial markets volatile today.

United States-South Korea: Korea Zinc, the world’s biggest zinc-smelting company, announced a deal today in which the US government will enter a joint venture with the firm and back its $7.4-billion investment in a new critical-minerals processing plant in Tennessee. The plant will produce rare earths and other critical minerals. The deal is further evidence that the US is intent on building up its own critical minerals industry to end its reliance on China, even as China builds up its artificial intelligence industry to cut its reliance on the US.

• The news also shows how the US administration appears to be much more willing to work with Asian partners than European ones. Such deals could strengthen US ties to key foreign countries, such as South Korea, even as US ties to Europe fray.
• The news has also given a big boost to Korea Zinc’s share price today. The price reportedly surged as much as 27% when the deal was announced earlier this morning.

United States-United Kingdom: According to confidential sources, the US has told the UK that it will stop implementing a May technology agreement between the two countries to retaliate for Britain being slow to lower its trade barriers. The frozen tech deal was part of the US-UK trade agreement reached in May and called for collaboration on artificial intelligence and nuclear energy. The development is a reminder that the quickly negotiated, relatively vague deals spawned by the US tariff war can carry a lot of implementation risk and may not be final.

Chinese Industrial Policy: Shandong province has released a plan to sharply improve and increase its copper-smelting sector, in part to help boost Chinese exports of the metal. Now that the world has seen in 2025 how China has nearly monopolized the production of rare earth minerals and is willing to embargo them to undermine Western economies, the Shandong plan will likely raise concerns that Beijing wants to do the same with copper. Once concern would be if China were willing to use predatory pricing to put foreign copper producers out of business.

Chinese Economy: Several data releases today showed Chinese economic growth continues to slow, in part because of its massive excess production. November retail sales were up just 1.3% year-over-year, compared with a rise of 2.9% in the year to October. November industrial output was up 4.8% on the year, compared with an increase of 4.9% in the year to October. Fixed-asset investment in January through November was down 2.6% compared with the same period one year earlier, and had an annual decline of 1.7% in the January through October period.

• As reported last week, Chinese exports continue to surge, producing a record trade surplus of more than $1 trillion so far in 2025. All the same, the weakness in China’s domestic demand helps confirm that the country’s producers are likely dumping product on the global markets because they can’t sell them at home.
• That is likely to continue causing trade frictions between China and its trade partners, including the US. Even if the US and China reach a long-term trade truce, Beijing’s need to keep exporting could make any such deal tenuous.

European Union-France-South America: Paris yesterday urged the European Parliament to delay a vote aimed on the proposed free-trade agreement between the EU and the Mercosur grouping of Argentina, Brazil, Uruguay, and Paraguay. If France is successful in delaying the vote, it would increase the odds of the deal being rejected. Any rejection of the deal would likely help shield European agribusiness firms from a wave of cheaper imports from South America and further signal the end of the post-Cold War period of globalization.

Chile: In yesterday’s presidential run-off election, hardline conservative José Antonio Kast came in first with approximately 58% of the vote, heralding Chile’s most right-wing government in more than a decade. Kast’s success has largely been tagged to his tough positions on crime and illegal immigration. However, he has also championed government spending cuts, lower taxes, and deregulation, all of which will likely be taken well by investors.

Kenya: As foreign aid falls and its people become more resistant to tax increases, Nairobi this week is planning its biggest sell-off of state assets in nearly 20 years to finance a new infrastructure fund. The plan includes selling a $1.58-billion stake in telecom and fintech firm Safaricom, considered the crown jewel of Nairobi’s state-owned assets, to South African telecom firm Vodacom.

• The deals illustrate how the US aid pullback will likely put economic pressure on many less-developed countries.
• Some of the affected countries may respond with better fiscal and regulatory policies, but a key risk is that Beijing might step into the breach with its own aid to curry favor with them and draw them closer to China.

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