Markets open the holiday-shortened week with risk assets leaning higher, liquidity thinning, and conviction narrowing rather than broadening.

Friday’s CPI relief and Micron’s earnings validation stabilized the tape and helped arrest the recent derating in select areas of technology. The rally that followed was orderly, incremental, and notably absent of urgency. That matters. It suggests positioning adjustment rather than renewed risk chase.

But the weekend delivered a reminder that macro gravity has not disappeared. It has simply shifted venues.

Gold and silver are making new highs. Japan is tightening into global easing expectations. The U.S. is escalating enforcement actions against Venezuelan oil flows. And the contest to replace Jerome Powell is no longer a quiet process happening behind closed doors.

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That posture tends to persist when liquidity thins and policy signals remain unresolved.

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Futures are indicating a higher open in early trading, with Nasdaq contracts leading and the S&P 500 set to extend last week’s grind higher.

The tone remains constructive but selective. Technology continues to carry the baton after Friday’s rebound, while small caps lag and defensives remain mixed. 

Participation is present, but leadership remains narrow. That combination is typical of late-December trading, where incremental capital favors familiarity over exploration.

Bitcoin is inching toward the $90,000 level but has yet to reclaim it decisively. The failure to push through that psychological threshold despite supportive equity tape reinforces a broader theme across risk assets: engagement without follow-through.

Rates are drifting higher at the margin. The 10-year Treasury has moved back toward 4.17 percent, reflecting spillover pressure from Japan rather than domestic growth concerns. Bond markets are not signaling stress, but they are no longer offering the tailwind they briefly provided following CPI.

The dollar is softer against several major currencies, particularly the pound and the yen, as FX markets digest widening central-bank divergence and the prospect of further U.S. easing next year.

Commodities are doing more of the talking. Gold and silver are at record levels. Oil is bid on Venezuela supply risk. Platinum and palladium are breaking higher. This is not inflation panic. It is capital choosing insurance alongside participation.

This is not a broad risk-on signal.
It is selective exposure with protection layered in.

Central-bank divergence continues to widen rather than converge.

In Japan, the Bank of Japan’s recent rate hike has pushed 10-year JGB yields above 2 percent for the first time since 1999. Former policymakers are now openly projecting a path toward 1.5 percent over the coming years, placing Japan closer to its estimated neutral rate than markets had expected even a month ago.

Yet the yen remains weak. That contradiction underscores the core issue facing Tokyo: fiscal credibility, not just monetary normalization. Markets are unconvinced that tightening will persist without political resistance as borrowing costs rise.

In the U.S., Fed officials continue to emphasize patience. Inflation is cooling, but not conclusively enough to force urgency. Policymakers remain focused on labor-market risk and longer-term credibility rather than near-term market comfort.

The backdrop is complicated further by the open contest to replace Jerome Powell. Markets are increasingly sensitive not just to rate paths, but to governance, independence, and communication discipline at the Fed.

Europe remains in pause mode. The ECB is holding with a cautious tone. The Bank of England has already cut. Policy paths are no longer synchronized, and global liquidity conditions are fragmenting accordingly.

For markets, this favors dispersion over direction. Yield gravity has returned, but unevenly. Capital is adjusting in kind.

Geopolitics is reasserting itself through enforcement rather than shock.

The U.S. seizure of a second oil tanker near Venezuela and the pursuit of additional vessels signals a sharp escalation in Washington’s pressure campaign against the Maduro regime. While officials frame the move as law enforcement rather than a formal blockade, the distinction matters less to markets than the message.

Shipping, not supply, is the choke point. Shadow fleets, false flags, and ship-to-ship transfers are now directly in the crosshairs.

Oil prices are responding, but not violently. Supply remains ample, and OPEC capacity is still a buffer. The more important signal is what this says about capital mobility in sanctioned environments. Enforcement is becoming more aggressive, more visible, and more unpredictable.

Elsewhere, Japan’s move toward restarting the Kashiwazaki-Kariwa nuclear plant marks a watershed moment in its energy strategy. With AI data centers driving future demand, energy security is once again a strategic asset rather than a background policy debate.

Taken together, these developments reinforce a broader theme: geopolitics is no longer just a volatility catalyst. It is shaping capital flows, infrastructure investment, and long-term cost curves.

These are not headline shocks.
They are slow-moving reallocations.

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Domestic policy risk continues to bleed directly into market structure.

The contest to replace Jerome Powell is now openly spilling across Wall Street and Washington. Kevin Hassett, Kevin Warsh, and Fed Governor Christopher Waller are all actively in contention, with industry leaders, donors, and political allies lobbying aggressively behind the scenes.

The issue is not personalities. It is credibility. Markets are increasingly sensitive to signals around Fed independence, how policy disagreements are resolved internally, and how much political gravity future decisions will carry.

Separately, California’s rollback of Medicaid coverage for undocumented immigrants underscores the fiscal limits confronting even the most ambitious policy experiments. Budget math is reasserting itself at the state level just as federal enforcement intensifies.

Immigration policy is set to tighten further in 2026, with workplace raids and funding expansions now openly discussed. That raises labor-market risks, wage pressure concerns, and potential political backlash that markets have not fully priced.

Meanwhile, New York’s decision to press ahead with AI regulation despite federal resistance highlights a growing tension between state-level action and national policy. For large technology platforms, compliance complexity is quietly becoming a cost of scale.

Policy risk is no longer episodic.
It is becoming structural.

Chicago Fed National Activity Index

No notable reports

Asia: Nikkei +1.81%, Shanghai +0.69%
Europe: FTSE 100 -0.49, DAX -0.04%

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Markets open the week supported, but unresolved.

Friday’s CPI relief and earnings validation restored near-term confidence, but gold’s breakout, Japan’s tightening trajectory, and escalating enforcement actions underscore that risk has not been extinguished. It has been redistributed.

Liquidity will thin rapidly into Christmas. Positioning is extended. Policy divergence is widening rather than narrowing.

The rally remains intact.
But it is being hedged.