by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an assessment of the latest CPI data and its implications. We then turn to critical geopolitical and legislative developments, including the proposed US-TikTok joint venture, the Bank of Japan’s pivotal rate decision, and the progress in French budget negotiations. Finally, we include a roundup of essential domestic and international data releases to monitor.

Foggy CPI: November’s CPI report outperformed forecasts, with headline and core inflation cooling to 2.7% and 2.6%, respectively, down from September’s 3.0%. This slowdown was primarily driven by easing price pressures in hotels, airlines, and apparel, which offset the increase in energy costs. However, the report’s reliability is being debated; data collection hurdles stemming from the government shutdown suggest these figures might not reflect the full economic reality.

• The primary concern stems from significant data gaps within the report. Due to the lapse in appropriations, the BLS was unable to retroactively collect price data for October and November, leaving several categories incomplete. The October index was calculated by carrying forward September’s figures — consistent with standard contingency procedures — while the November index was derived using those October carry-forwards as the baseline. 
• Speculation is mounting that these data gaps have artificially suppressed the headline CPI figures. Particular scrutiny has fallen on the shelter component, which accounts for nearly one-third of the total index weight. Because the BLS lacked primary data for this category over the two-month period, the index remained virtually unchanged. This stagnation suggests that the reported cooling may be a byproduct of missing inputs rather than a genuine shift in the housing prices.
• Financial markets offered a mixed response to the shutdown-impacted report. Stocks performed well, buoyed by hopes that the 2.7% reading would secure a January rate cut. However, the bond market was far less convinced. Investors there largely stood pat, wary that the “missing” data may have artificially lowered the result. For bondholders, the report seemed to be more of a non-event that will require further verification from the upcoming December release.
• While the recent data is a positive signal for inflation, it likely will not justify a rate cut as early as January given the current composition of the FOMC. We believe Fed officials will require further softening in the labor market in order to feel comfortable allowing rates to fall meaningfully. However, the Fed’s overall stance on rates could shift significantly with the appointment of a new Fed chair.

TikTok Partnership: The US has reached an agreement regarding TikTok that allows its Chinese parent company, ByteDance, to maintain direct control over US operations through a partnership with Oracle, MGX, and Silver Lake. For now, this deal resolves the standoff sparked by legislation that threatened a nationwide ban. However, because ByteDance retains ownership, the arrangement may still face future legal or political challenges. Ultimately, we view this compromise as a significant sign of easing tensions between Washington and Beijing.

China’s AI Maneuvers: China has successfully scaled its AI chip production by retrofitting legacy ASML lithography systems. This strategy will allow Beijing to circumvent stringent export restrictions intended to stifle its semiconductor development. By repurposing older equipment to manufacture advanced chips, China is demonstrating a growing capacity for self-reliance as it competes with the US in the AI race. This breakthrough will likely compel the US to further prioritize AI within its national security strategy.

Bank of Japan: The yen (JPY) slid against the dollar on Friday despite the Bank of Japan raising interest rates to 0.75% — the highest level in nearly 30 years. Although the central bank signaled a willingness to continue the hikes into next year, Governor Kazuo Ueda’s reluctance to provide specific guidance on the terminal rate has sparked market concern. Investors fear the tightening cycle may be shallower than anticipated, fueling worries that monetary conditions will remain accommodative for longer than expected.

FedEx Positive Result: The shipping giant, widely considered a barometer for global trade and broader economic health, has raised its full-year outlook. This upward revision follows a surge in revenue driven by robust US shipment volumes and improved margins on international freight. Such a spike in logistics activity is traditionally viewed as a leading indicator of economic expansion, reinforcing expectations for a strong rebound in the coming quarter.

EU Lending to Ukraine: The European Union has committed to a 90 billion EUR ($105.6 billion) loan for Ukraine to bolster its defense against the Russian invasion. This pledge arrives as the bloc continues to debate the legalities of seizing frozen Russian assets. The timing is critical and is occurring as Russia, Ukraine, and the US engage in negotiations to end the conflict, with the EU eager to secure its influence in the process. Notably, the loan is structured to be repaid only once Russia provides war reparations, a condition intended to grant Kyiv significant leverage in upcoming peace talks.

French Budget Talks: The French government will not reach a budget agreement before the end of the year. Prime Minister Sébastien Lecornu has struggled to secure sufficient parliamentary support for his fiscal plan, prompting the government to prepare a “special law” — essentially an emergency rollover of the 2025 budget — to prevent a shutdown in 2026. This prolonged fiscal impasse is expected to exert upward pressure on French bond yields and deepen the country’s climate of political uncertainty.

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