by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of President Trump’s decision to push for new governance in the EU. Next, we provide a primer for today’s pivotal Fed rate decision. We then offer an overview of critical global developments, including Denmark’s security concerns regarding the US, China’s restrictions on US chip sales, and a breakthrough in French government budget talks. Finally, we include a roundup of essential domestic and international data releases.

Trump on the EU: The US president expressed significant displeasure with current EU governments during a recent Politico interview, signaling a potential rupture in transatlantic relations. He levied specific criticism against the bloc’s leadership, citing its inability to control migration flows and its hesitation to fully back his strategic objectives for Ukraine. The president then intensified the statement by announcing he will openly endorse European candidates who share his outlook, suggesting an increasingly interventionist US foreign policy in the domestic politics of its allies.

• His remarks come as the US is embroiled in several disputes with European leaders, including disagreements over trade, technology regulation, and the approach to ending the Ukraine-Russia conflict. These setbacks have hampered President Trump’s efforts to pivot foreign policy toward containing China’s growing global influence. This tension suggests that the administration may not view its European counterparts as equals, but rather as subordinates to core US interests.
• While an alliance with right-leaning parties in Europe is imperfect, these groups nonetheless are facilitating several policy initiatives that the White House favors. This alignment stems from shared objectives, notably the desire for a swift end to the Ukraine war, a preference for greater national sovereignty within the EU bloc, and a rollback of climate change regulation.
• Despite shared political goals, the informal coalition between right-wing European parties and the US faces some internal friction. This stems from allegations that members within groups such as the Alternative for Germany (AfD) have been compromised, with some members reportedly passing sensitive data to Beijing. Furthermore, some members have pushed for closer energy ties with Russia to secure access to inexpensive resources, a position that directly conflicts with the US strategy of expanding its market share in the European energy sector.
• That said, the president’s statement that he will endorse right-leaning governments appears to be part of a growing trend of political statecraft. The US is actively seeking to reshape its relationships with foreign governments to facilitate deals that may benefit its broader strategic goals. Overall, this increased US involvement could make election outcomes in targeted countries far less certain, as past US interference has yielded mixed results, potentially introducing volatility into the equities of those nations.
• Additionally, the president’s stated aim is likely intended to encourage the EU to become more autonomous, urging the bloc to reduce its reliance on US influence and chart its own path forward. While we suspect the EU will continue to prefer strong ties to the United States, it may seek to balance this influence by entertaining closer relations with China and could even begin competing directly with the US for geopolitical influence in third countries.

Fed Primer: As its two-day meeting concludes, the FOMC is anticipated to lower the benchmark rate by 25 basis points, with future guidance being seen as critical for markets. Deliberations that have occurred since the November meeting have revealed a struggle within the Committee over whether to prioritize the price stability or the maximum employment side of its dual mandate. This tension culminated in unusual, conflicting dissents last time, as one policymaker pushed for a deeper cut while another favored maintaining the current rate.

• This division is likely to dominate the chair’s press conference, as markets remain uncertain about the future policy path. The latest CPI report revealed that core inflation is now rising at the same pace as headline inflation, signaling a potential broadening of price pressures. Meanwhile, the October JOLTS data showed an increase in job openings, even as hiring and quit rates stagnated — a mixed signal for the labor market.
• This policy dilemma unfolds against a backdrop of political pressure from the White House. The president has hinted at nominating Kevin Hassett for Fed chair, while also considering candidates like former Fed Governor Kevin Warsh and current Governor Christopher Waller. Notably, the president has publicly advocated for lower rates, a position echoed by Hassett, who has argued for a cut larger than 25 basis points.
• The market has shown a mixed response to the prospect of Fed rate cuts. While the anticipation of lower rates has boosted equities, concern over the possible loss of Federal Reserve independence — fueled by the potential appointment of a politically-aligned figure like Kevin Hassett as Fed chair — has provided support to 10-year Treasury yields, a development arguably more significant than the equity rally.
• The market will likely be paying close attention to the forward guidance provided by the Fed as it reviews the Summary of Economic Projections and the subsequent press conference. The prevailing expectation is that the Fed will cut rates by 25 basis points but signal an indefinite pause while it awaits further economic data. While we agree that a rate cut is more probable than not at this meeting, we suspect the Fed will continue to be less concrete on the path forward but will likely still leave the door open for additional cuts.

Denmark Fears the US: For the first time, the Danish Intelligence Agency (FE) has described the US as a potential security risk in its annual threat assessment. This unusual designation follows the US’s public pursuit of acquiring Greenland, a Danish territory. The agency’s report explicitly noted that the US is increasingly prioritizing its own self-interest, often at the expense of its allies. While this development is unlikely to have immediate market ramifications, it is a clear indicator of growing strategic mistrust between the US and its long-standing partners.

Pentagon Picks Google: Defense Secretary Pete Hegseth announced that the department has selected Gemini for its government systems to address its artificial intelligence (AI) needs. This selection is another example of the growing coordination between the US government and the technology sector, and it underscores the increasing reliance of tech companies on government contracts for sales. This major purchase is likely to boost Google’s stature as a significant and capable challenger to OpenAI in the competitive AI space.

China Blocks Nvidia: Beijing is reportedly preparing new limits on companies seeking to purchase the H200 chips recently cleared by the White House for export. The move is intended to push Chinese firms toward domestically produced alternatives, consistent with China’s broader goal of strengthening technological self-sufficiency. It also carries a political dimension as Beijing aims to avoid the appearance of yielding to US pressure — particularly amid reports that roughly 20% of the chip revenue is expected to go to the US government.

French Budget Passed: The French parliament passed the 2026 social security budget on Tuesday, a critical step toward approving the full state budget by year’s end. While the move was welcomed, concerns remain that Prime Minister Sébastien Lecornu may lack the votes needed for the broader bill, having alienated key allies with concessions to the Socialist Party. Nevertheless, finalizing the budget should help ease pressure on French bond yields.

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