The tug-of-war between interest rate cut expectations and employment data: The Federal Reserve at a crossroads, market caught in a "quicksand" dilemma

The US economic data is telling a contradictory story. On one hand, White House officials are confident that the Federal Reserve will cut interest rates by 25 basis points next week, while on the other hand, strong signals from the labor market are weakening this expectation. The latest data shows that initial unemployment claims in the US dropped to 191,000, a decrease of 27,000 from the previous week, well below the market forecast of 220,000, hitting a three-year low. This data directly challenges the rationale for rate cuts—after all, when the labor market remains robust, the urgency to cut rates diminishes.

However, the CME( FedWatch tool still indicates that the market expects about an 89% probability of a rate cut at next week’s meeting, a significant increase from mid-November forecasts. White House National Economic Council Director Jared Bernstein stated that Fed Chair Jerome Powell needs to be someone who “responds to data,” implying that policymakers should react to optimistic signals about economic growth—Americans have just experienced the best Black Friday shopping season in history, the Christmas shopping season is approaching, and wage growth has outpaced inflation. The Fed will start a two-day policy meeting next Tuesday, with the results announced at 3 a.m. Hong Kong time next Thursday.

Market focus is shifting increasingly toward the complex interactions between Japanese bond yields, US stocks, and the dollar. The Bank of Japan will hold a monetary policy meeting on the 18th and 19th of this month. Japan’s 10-year government bond yield has risen to 1.941%, a high not seen since July 2007. Reports suggest that if the central bank decides to raise interest rates, key members of Prime Minister Fumio Kishida’s government will not oppose it—BOJ Governor Kazuo Ueda gave a clear hint last week that this month’s meeting will discuss the possibility of raising rates.

The three major US stock indices closed mixed: the Dow Jones fell 0.07%, the Nasdaq rose 0.22%, and the S&P 500 gained 0.11%. The Russell 2000, representing small-cap stocks, rose more significantly by 0.76%. Market attention is focused on AI data centers, energy storage, and power-related stocks. The China Golden Dragon Index rose 0.39%. Tech stocks showed mixed performance: Meta surged over 3% on news of significant cost cuts, Nvidia gained over 2%, while Amazon and Apple fell more than 1%. Computer hardware and crypto mining companies led gains—SanDisk up over 9%, Hut 8 nearly 7%, Dell Technologies over 4%, and HP nearly 3%.

US Debt Falls into a “Sandbar” Trap

The US Treasury’s sovereign debt has surpassed $30 trillion for the first time, doubling since 2018. As of November, the total of outstanding Treasury bills, medium-term bonds, and long-term bonds reached $30.2 trillion, constituting the main part of US federal debt. Including obligations to Social Security trust funds, savings bond holders, and others, the total national debt has reached $38.4 trillion.

Worse still, despite the fiscal deficit shrinking from $3 trillion in 2020 to approximately $1.78 trillion in fiscal year 2025, debt interest payments alone amount to $1.2 trillion—becoming the fastest-growing part of federal expenditures. Citigroup rate strategist Jason Williams compared the current situation to a “sandbar” dilemma: even increasing tariffs revenue by $300-400 billion is far below current debt interest payments, unable to reverse the sinking trend of debt.

Meta’s Metaverse Strategy Major Adjustment, 30% Budget Cut

Meta CEO Mark Zuckerberg plans to significantly reduce investments in the Metaverse. Sources say management has discussed cutting the Metaverse division’s budget by up to 30% next year, covering Meta Horizon Worlds virtual environment and Quest virtual reality business. If implemented, layoffs could start as early as January next year.

This strategic shift marks a departure from Zuckerberg’s previous vision of the Metaverse as the company’s future and the driver behind Facebook’s rebranding. The reason is that Meta has not seen the anticipated surge of competition driven by Metaverse technology across the industry. The cuts are part of the 2026 budget plan, and Zuckerberg has also asked Meta executives to seek a 10% overall budget reduction—standard practice in recent budget cycles.

Commodities and Forex Market Trends

Commodity markets are mixed. Gold rose 0.13% to $4,205.6 per ounce. WTI crude oil rose over 1% (Note: the original data shows WTI down 1.0% at $58.7 per barrel; based on the original, it should be a decline), at $58.7 per barrel. Mercuria has issued a notice to extract over 40,000 tons of copper from the London Metal Exchange’s Asian warehouses due to expected supply shortages, valued at $460 million at current prices. This move helps increase the spot copper premium over the three-month futures.

In the forex market, the US dollar index rose 0.2% to 99.0, ending a nine-day losing streak. USD/JPY rose 0.03%, temporarily stabilizing around 155. EUR/USD fell 0.23%.

Cryptocurrency markets remain under pressure: Bitcoin fell 1.41% in 24 hours, currently at $92,166. Ethereum declined 1.71% in 24 hours, now at $3,133.9. Hong Kong Hang Seng Index night session futures closed at 25,900 points, down 36 points from yesterday’s close.

Slow Progress in Ukraine Peace Talks, Territorial Control Focus

Russian President Vladimir Putin stated that certain terms of the US-supported peace plan are unacceptable to Moscow. According to Russian state media TASS, Putin said negotiations are difficult, and Moscow disagrees with some of the US proposals. Although Trump envoy Witkoff and son-in-law Kushner’s meeting with Putin in Moscow last Tuesday was described as “very beneficial” by the Kremlin, Foreign Policy Advisor Ushaakov said no compromise has been reached on key territorial control issues. Ukraine’s chief negotiator Umerov has led a team to the US for a new round of talks, and the outcome of Moscow’s negotiations may become a primary topic.

Corporate and Retail Sector Developments

Ulta Beauty’s third-quarter performance exceeded expectations. Net profit reached $230.9 million, with earnings of $5.14 per share, above analyst estimates of $4.61. Revenue grew 13% to $2.86 billion, surpassing the forecast of $2.71 billion. Same-store sales increased 6.3%, well above Wall Street’s 3.5% forecast. The company raised its full-year EPS guidance to $25.2–$25.5 and expects full-year sales to reach $12.3 billion.

White House officials announced on Thursday that the US government plans to increase holdings in key mineral companies. Critical minerals such as gallium and cobalt, widely used in smartphones, industrial magnets, and defense systems, are also essential raw materials for batteries and decarbonization technologies. Over the past year, the government has invested more than $1 billion in related companies.