GDP growth exceeds expectations vs. confidence index continues to decline; behind the new highs in U.S. stocks, undercurrents are surging

The US economic data presents a mixed picture. The third quarter GDP grew at an annualized rate of 4.3% quarter-over-quarter, far exceeding market expectations of 3.3% and marking the fastest pace in two years, with household consumption contributing significantly. Data center investments hit a record high, business investments increased by 2.8%, and core personal consumption expenditures(Core PCE) rose by 2.9% quarter-over-quarter. However, by contrast, the US Consumer Confidence Index has declined for the fifth consecutive month, dropping to 89.1 in December, the lowest since February 2021.

The current index plummeted to 116.8, with the public’s assessment of the business and employment markets turning notably pessimistic, and concerns over inflation, tariffs, trade, and political factors intensifying. The expectations index has been below 80 for 11 consecutive months, indicating a recession cloud looming. This set of data creates a contradiction—economic growth is leading, but consumers are pulling back.

Stock markets hit new highs, forex markets adjust

Boosted by GDP data, US stocks continued to rise. The S&P 500 index increased by 0.46%, reaching a new all-time closing high; the Dow Jones rose by 0.16%; the Nasdaq gained 0.57%. Large tech stocks led the rally, with Nvidia climbing 3.01% to revisit mid-November highs, with a total market cap surpassing $4.6 trillion; Amazon rose 1.6%; Alphabet rebounded 1.5%. Copper-related stocks strengthened, with LME copper futures breaking the $12,000 per ton mark for the first time in history.

The US dollar index fell below 98.0 to 97.88, hitting a two-and-a-half-month low, down 0.37%. USD/JPY declined by 0.51%, EUR/USD rose by 0.27%. WTI crude oil increased for the third consecutive day, closing at $57.47 per barrel, up 0.9%; gold rose 0.9% to $4,483.9 per ounce.

Crypto markets showed slight weakness, with Bitcoin at $87,407, down 1.27% in 24 hours; Ethereum at $2,966, down 1.4% in 24 hours.

European stock markets were mixed; the UK FTSE 100 rose 0.24%, Germany DAX 30 increased 0.23%, France CAC 40 declined 0.21%. The US 10-year Treasury yield was around 4.16%, unchanged from the previous trading day.

Policy divergence: Trump and Haskett push dovish directions

Trump stated that anyone who disagrees with his views on monetary policy cannot serve as Federal Reserve Chair. He hopes the new Chair will lower interest rates when markets perform well, rather than raising them due to potential inflation expectations. Trump emphasized that inflation will self-regulate and believes rate cuts should be prioritized to stimulate the economy.

White House National Economic Council Director Haskett said that despite the third quarter’s economic growth exceeding expectations, the Fed’s rate cuts are still too slow, and the US lags behind global central banks in easing. He attributed the 1.5% growth to Trump’s tariff policies and believes AI development is also driving economic growth and putting pressure on inflation. The Fed cut interest rates by 25 bps on December 10 but hinted that future rate hikes might slow down.

Treasury Secretary Bissett suggested that once inflation steadily declines and re-anchors at 2%, the Fed should change its 2% inflation target to a range, such as 1.5%-2.5% or 1%-3%. He considers precise decimal-based targets to be overly rigid.

Bank of Canada remains cautious, yen faces depreciation pressure

The Bank of Canada released the December policy meeting summary, indicating that officials are uncertain whether the next rate decision will be a cut or a hike. They expressed concerns over the upcoming review of the US-Mexico-Canada Agreement, believing that uncertainty before and after negotiations could pressure business investments. The Bank maintained the overnight rate at 2.25%.

Former Bank of Japan Governor Ando Seiji said that due to market concerns over Japan’s expansionary fiscal policies, the yen might face further depreciation. Despite the rate hike to 0.75% last Sunday, the yen still fell, reflecting investors’ demand for higher premiums to compensate for Japan’s fiscal risks. He expects the BOJ to eventually raise rates to 1.5%, with the next hike possibly in July next year.

Industry developments and litigation

Amazon’s autonomous driving company Zoox will recall 332 vehicles in the US due to software errors. NHTSA stated that the vehicles might cross yellow center lines at intersections, increasing collision risks, and has issued a free software update.

Several authors, including Pulitzer Prize winners, have sued Anthropic, Google, OpenAI, Meta, xAI, and Perplexity for copyright infringement, alleging that their training models used books without compensation. Plaintiffs seek damages of up to $150,000 per infringing work.

The US Trade Representative’s Office announced that imposing tariffs on Chinese semiconductors is appropriate, with an initial rate of 0%, to be increased to a level to be announced in June 2027. This respects the US-China trade truce but hints at potential future escalation.

Market overview

The contrast between strong economic data and declining consumer confidence highlights market expectations’ complexity. The dovish tilt in policy temporarily supports risk assets, but weakening consumer sentiment signals ongoing recession risks. Trade uncertainties, geopolitical factors, and inflation outlooks will be the three major variables influencing future markets.