EU Gets a 1, 2 and 3 Punch...
- Marc Bentin
- Dec 22, 2025
- 11 min read
Updated: Dec 28, 2025
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The EU Commission was dealt a 1, 2 and 3 punch last week.
- First, it had to backtrack under the economic pressure of a collapsing car industry, on its ban of fossil fueled cars by 2035. This was by itself a monumental policy inflection imposed on the EU green (and as such incredibly self-harming) agenda compounding the productivity blow imposed by the very high energy prices now prevailing in Europe vs. its major competitors ….and essentially the rest of the world.
Then came Friday’s twin thunder bolts hitting the Berlaymont Building;
- Under the pressure of 500 tractors gathered in Brussels from all over Europe on the occasion of the EU Summit, the Commission was forced yesterday to “delay” a vote regarding the adoption of an extended Mercosur Accord which if adopted would/would have flood(ed) the European markets with cheap farm products from Latin America, not meeting the stringent EU sanitary rules resulting in an unfair competition, extremely harmful to local farmers. A delay is not a voting down and the mobilized farmers could choose to stay on their tractors until a more clear-cut decision is taken.
- The overnight news that, following 16 hours of discussions, EU leaders, could only agree to use taxpayers funds rather than Russia’s now “permanently frozen” cash sitting at Euroclear Bank was as the FT put it , “a political blow to German Chancellor Merz and EU Commission President Ursula von der leyen who had championed the reparation loan and sought to pressure Belgium’s Prime minister Bart de Wever to lift his objections”.
The 90bn agreement still delivered a life line to Ukraine enabling it to avoid bankruptcy and continue to maintain war efforts for possibly another 2 years (assuming the situation on the ground permits it which is far from assured).
However, it will be financed at EU citizens’ tax expense, the same ones who are already pressured by very high tax rates and promised reductions in social security and pension outlays, among otherwise grim economic and job prospects.
This promises to turn the heat further on the social and political boiling kettle constituting Europe.
Last week showed a step in the right direction to urgently reign in a Commission pursuing self-harming policies which now include drifting away from Democracy towards an authoritarian regime baffling what Europe was created to stand for, namely the creation of a common EU market, the pursuit of peace, the respect of the rule of law and human rights.
On that note, and referring to the now confirmed placement of J. Baud, (who is a worldwide recognized expert and long time serving Colonel of the Swiss army who served on several peace keeping missions for NATO) on the list of EU sanctioned individuals (which implies debanking, the impossibility to work, to travel in/out of the EU and even to feed himself or pay his rent without the complicit support of anybody who would choose to support him, exposing him/herself to similar sanctions), it has to be said that punishment without crime, hearing, judgment or appeal (which this decision amounts to as it is a political and administrative decision) is the signature of the worst dictatorships which makes the EU complicit of violating the cardinal values it pretends to stand for which include the pursuit of peace, the rule of law and basic human rights.
This autocratic and increasingly totalitarian drift (which I am sure will turn out to be another big political error for its Initiator with a big “M”) should be unanimously condemned and the Swiss government should (and I am sure will outside of the blogosphere) come to the rescue of its soldier, citizen and worldwide recognized geopolitical expert or face the shame of cowardice with all the political consequences for the future Swiss people’s vote regarding ongoing negotiations with the EU (see this week end’s German speaking interview in Weltwoche , English speaking interview of MEP Michael v.d. Schulenburg and the previous Weltwoche interview in German with J. Baud).
Europe is fast becoming a pariah on the international scene. It needs to straighten itself up or be left to its own demise and self-destructing course.
US stocks closed the week with minor losses despite rallying on Thursday and Friday (surprisingly as bonds fell) on year-end trading dynamics, seemingly supported on Thursday by a suspiciously tame inflation report that did not account for missing data points related to the US government shutdown.
Friday’s further rally was led by tech gains on more ambitious AI spending plans that lifted Nvidia and other large megacaps including ORCL which surged about 6.5% , lifting the MAG7 from a three weeks low (following a 2.5% decline on Wednesday). The volume on the exchanges also climbed 50% above the 12-month average amidst what Citigroup estimated was $7.1 trillion of notional open interest expiration on Friday’s triple witching.
US bond yields declined slightly (-4bps) last week even after climbing on Friday as New York Fed President J. Williams signaled no urgency to cut interest rates again, citing recent employment and inflation data while Cleveland Fed President Beth Hammack echoed a similar sentiment in a WSJ interview.
This contrasted with yields increasing in Europe and Japan.
In Europe, pan-European bond issuance expectations rose following the EU decision to reject the outright seizure of Russian assets held at Euroclear, raising the prospects for even more debt supply next year. In Japan, the prospect for more interest rate hike also continued to take its toll on Japanese bonds (including this morning).
One of our major macro forecasts for 2026 is for German 10Y long-term yields to climb and converge towards US long term yields (around 4%-4.5%) as more pressure to fund war efforts and rebuild the military should make it more difficult (if not impossible) to reign in structural deficits and bring back under control current fast deteriorating debt dynamics. We expect the ECB to perhaps roll over QE plans (alongside the US), similarly to what happened during the Covid era, and government initiatives to be taken to force feed debt issuance domestically, tapping the captive part of the EU large internal savings pool.
This will also cloud the outlook for the euro, in our view, forcing a realignment vs. CNY (our second strongest view for 2026) and to a lesser extent against the USD (and JPY). Part of this new money will also continue to be channeled into shares of the military complex, reviving a trade that made most of the EU stocks outperformance (along with bank shares) in the early part of 2025.
As regards private credit, Bloomberg reported that the Financial Stability Board, which monitors global risks, has high-level concerns about the potential for ‘ratings shopping’ in private markets. These firms can seek grades on transactions from multiple providers and opt for the most favorable one, one of the people familiar with the supervisor’s work said which is also concerned that ratings in private credit are not subject to the same rules as securitization, where safeguards introduced after the global financial crisis typically mandate the use of multiple independent credit ratings and strict management of conflict of interests.
In currencies, the dollar index gained slightly by 0.3% while gold and silver continued their march higher.
In Geopolitics, the WSJ reported that “German Chancellor Friedrich Merz compared Russian President Vladimir Putin’s strategy in Ukraine to that of Hitler in 1938, when he seized the German-speaking Sudetenland region of Czechoslovakia before pressing on to conquer a large chunk of the continent. ‘If Ukraine falls, he won’t stop. Just like the Sudetenland wasn’t enough in 1938,’ Merz told a party conference…”
Politico reported that “Russian President Vladimir Putin called European leaders ‘little pigs’ who wanted to profit from the collapse of Russia. In the comments, made on the eve of a critical meeting of EU leaders to hash out a deal to secure funding for Ukraine, the Russian leader said Europe wanted to get back ‘something they’ve lost in previous historic periods and to take revenge’ on Russia…”
Earlier last week, D. Trump lambasted EU leaders as ‘weak’ and issued a security strategy that called for ‘cultivating resistance’ on the continent, reflecting disdain for European institutions that his officials see as ‘adverse’ to US interests and bent on ‘civilisational suicide’. The co-ordinated attack on the EU this month… prompted widespread shock inside the European Commission and disagreement over how to respond, according to officials.”
Despite all this, last week’s events delivered a refreshing wind of change …
Over the past week, the S&P500 dropped -0,2% (16,1% YTD) while the Nasdaq100 gained 0,6% (20,7% YTD). The US small cap index dropped -1,2% (13,5% YTD). AAPL dropped -1,7% (9,3%).
The Equally Weighed SP500 dropped -0,3% (10,1% YTD), underperforming the S&P500 by-0,1%.. The median SP500 YTD return closed the week at 8,4%.
Cboe Volatility Index sold off by -5,3% (-14,1% YTD) to 14,91.
The Eurostoxx50 gained 0,7% (20,9% ), outperforming the S&P500 by 0,8%.
Diversified EM equities (VWO) dropped -1,5% (20,6%), underperforming the S&P500 by-1,4%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,4% (-4,6% ) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,0% (6,5% ).
10Y US Treasuries rallied -4bps (-42bps) to 4,15%. 10Y Bunds climbed 4bps (53bps ) to 2,90%. 10Y Italian BTPs climbed 4bps (6bps) to 3,59%, matching Bunds.
10Y French OAT's dropped 4bps (42bps ) to 3,61%, matching Bunds.
US High Yield (HY) Average Spread over Treasuries climbed 0bps (-12bps) to 2,75%. US Investment Grade Average OAS climbed 1bps (-2bps) to 0,85%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -1bps (-9bps) to 0,55%.
Gold gained 0,9% (65,3%) while Silver rallied 8,4% (132,4%). Major Gold Mines (GDX) rallied 2,5% (158,9%).
Goldman Sachs Commodity Index dropped -0,3% (6,9%). WTI Crude dropped -1,6% (-21,2%).
Overnight in Asia…
Ø S&P future +16 points; Hong Kong +0.2%; Nikkei+1.9%; China +0.7%
Ø Asian stocks rallied, tracking Friday’s US gains on hopes of further year end gains. US stock futures also advanced.
Ø Chinese shares also traded higher as Chinese chipmakers rush to the IPO market, to raise funds that are essential to China’s goal of technological self-reliance (and dominance), Bloomberg reported. The surge in listings is coming on the back of two blockbuster trading debuts in Shanghai that signaled insatiable demand for future national champions that analysts say could one day even rival the likes of Nvidia, Bloomberg also noted. “China is catching up very quickly in the chip war. It wouldn’t surprise me if in 2026 or 2027 we have a DeepSeek moment for chips where a low-cost competitive chip is being produced by China”, said a Barclays analyst.
Ø On a more cautionary note, Creditors of China Vanke are voting on whether to give the company more time to forestall a default on a 2 billion yuan bond. If the creditors do not agree to an extension, Vanke could be tipped into default, making it the last major Chinese real estate firm to renege on its debts amid the current crisis, Bloomberg reported. Fitch recently wrote that “The case suggests that authorities see limited systemic contagion risk from a debt restructuring or default at Vanke, a large, flagship mixed-ownership developer. We believe policymakers’ primary objective remains the completion of unfinished housing projects, and that this is a key driver of banks’ extension of credit to developers.”
Ø Gold and silver rose to a record overnight on heightened geopolitical tensions, bets on more Fed cuts and continued central bank buying, with gold surging USD62, well past its previous October all-time high, and silver adding 3% (to USD69). Platinum also rose for an eighth session, surging 4.5%.
Ø Oil gained 0,9% overnight following a 1% gain on Friday as President Donald Trump intensified a blockade on Venezuela, with US forces boarding one tanker and pursuing another within weeks of first capturing a vessel. There were also heightened tensions around supplies from OPEC+ after Ukraine hit an oil tanker from Russia’s shadow fleet in the Mediterranean Sea with drones for the first time, Bloomberg reported. Brent climbed toward $61 a barrel, after two weekly declines, while West Texas Intermediate was near $57.
Ø JPY gained slightly to 157.39 (from 157.80), paying some attention to the nation’s chief currency official sending another warning on recent moves. Local authorities have showed little interest to add action to words, justifying a muted market reaction. With the exception of the time bomb of an ailing bond market (mainly held locally), JPY is by far the cheapest currency among developed currencies that might (should) accompany CNY appreciation next year, in our view.
Ø US special envoy Steve Witkoff said Trump administration officials held “productive and constructive” meetings with Ukrainian and European counterparts in Florida as part of ongoing efforts to end the war.
Ø Bloomberg reported that the EU ESG framework, is drawing renewed threats from the US. At issue is the extraterritoriality of the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The EU just struck a deal to exempt more than 80% of companies once in scope. But it’s also agreed that the rules will continue to apply to large foreign firms doing business in the bloc. The US has made its displeasure clear with President Donald Trump’s top trade negotiator, Jamieson Greer, characterizing the EU’s ESG deal as inadequate. He also says the trans-Atlantic tariff agreement struck this year, which includes assurances from the EU that its ESG regulations won’t impede trade, would be at stake if more concessions aren’t forthcoming.
Ø EU Commission President Ursula v.d. Leyen had been expected at a summit in Brazil to sign the EU-Mercosur deal. She abruptly canceled her trip after the EU didn’t muster the votes to approve it. European officials are now aiming for a mid-January ratification. Italian Prime Minister Giorgia Meloni, who holds the key vote, told Lula she’s confident she can support the agreement if she gets more time to rally domestic support.
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