Daily Commentary

MarketMinder’s View: Eurozone officials are currently embroiled in a review of EU banking regulations surrounding capital requirements, aiming to simplify a morass they say makes their institutions less competitive globally with American, British and other banks outside their jurisdiction. One key issue under debate: How conflicting rules complicate capital requirements, to the point that even if an institution is judged to hold excess high-quality capital, it may not be able to boost dividends, lend more aggressively, etc., because that capital is also tabbed for another, conflicting capital requirement. Germany’s central bank, the Bundesbank, is pitching a controversial “fix” to this: Simplifying all capital rules into two sleeves, one for “going concerns” and one for “gone concerns”—to be used in winding down failed institutions. The issue? “The first bunch would only include capital that is easiest to absorb losses with, consisting largely of shareholders equity and retained earnings. The second bunch would include [Additional Tier 1] AT1 bonds along with other forms of subordinated debt such as Tier 2 instruments, which can have maturity dates. That has raised concerns that banks which rely on AT1 debt could face capital shortfalls to meet their so-called going concern requirements. But even countries where banks don’t use a lot of AT1 debt are pushing back, because the German proposal could end up forcing them to raise it to meet the requirements of the second pillar.” This would effectively change the definition of AT1 debt under regulatory rules, which has been a contentious point for many years in the bloc, highlighted when UBS’s acquisition of Credit Suisse in 2023 wiped AT1 bondholders before stockholders. This re-regulation is far from a done deal and may never happen. But it is worth monitoring the debate to see if an effort to boost eurozone competitiveness carries unintended consequences.

MarketMinder’s View: “Euro zone inflation stood at 2.2% in November, marking a slight rise from the previous month, flash data from data agency Eurostat showed Tuesday. The latest consumer price index reading is just a shade above the European Central Bank's 2% target. … Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, was at 2.4% in November, unchanged from the previous month.” It is the slightest of rises, actually, with the year-on-year rate rising 0.1 percentage point while monthly prices fell, suggesting the titular rise is even more hollow than the tiny uptick itself suggests. While these figures are preliminary and offer little detail, there is nothing here that suggests inflation is a problem in Europe today. These rates more or less match the ECB’s 2% y/y target, and there are no tools to fine tune inflation to the decimal point. The speculation in the back part of this surrounding future policy and whether cuts are off the table is needless. Inflation is the last war in Europe, cuts are largely a fait accompli and there is little sign further tweaks are needed for growth and bull market to persist.

MarketMinder’s View: And, to continue the titular statement, the Organization for Economic Cooperation and Development expects 2.9% global GDP growth next year. Now, these are both just forecasts—although the 2025 figure is coming into sharper focus, given where we are in the year. But these forecasts both reflect and influence sentiment, which has warmed considerably since the April correction low, as dealmaking, exemptions and a lack of major retaliation have muted tariffs’ effects on both the US and world economies. Markets’ rise this year is likely in part their gradually pricing in this better-than-feared outcome, but it does lift expectations entering 2026. Only one illustration, but sentiment is always important to gauge as one forms a forecast and these big, supranational bodies’ forecasts can sway that noticeably.