And as 2026 approaches, dramatic changes to the global economy are making headlines around the world. United States and Japan sue China over rare earth elements. At the same time, inflation developments in the euro area are becoming increasingly divergent. U.S. President Donald Trump’s term as a Federal Reserve governor ends on January 31. All the while, he carries on his efforts with Venezuela and continues to plot his plans for Greenland.
Japan is quite upset over a recent U.S. provision. This provision establishes a prohibition of use of certain rare earth elements that are essential for manufacturing processes. The Japanese government called the move “totally unacceptable,” citing the vital role these materials play for their industrial economy. The diplomatic tension arises as both nations navigate their economic interdependence and strategic interests in technology and manufacturing.
In the euro area, inflation data still presents a mixed bag. For instance in December, France already had negative HICP inflation. It subsequently dropped to 0.7% year-over-year, down from 0.8% in November. Year-over-year euro area HICP inflation is projected to fall to 1.9% y/y in December. This is a drop from 2.1% last month. These numbers represent a continuing economic recalibration in the face of inflationary, pandemic, and labor market pressures.
Inflation Dynamics in Europe
The euro area economy demonstrated resilience at the close of 2025, with the average composite Purchasing Managers’ Index (PMI) for the fourth quarter significantly surpassing the third quarter’s performance. The December services PMI was nudged down a bit in final revision to 52.4. This revision, down from the previous flash estimate of 52.6, points to a more pessimistic view among those in the services sector.
Germany’s inflation figures for December provided a dramatic turnabout. HICP inflation fell to 2.0% y/y, showing continued easing inflationary pressures and surprising analysts with second straight month of a weaker than expected result. This worrying trend has prompted questions about consumer demand and the recovery in Europe’s largest economy.
Meanwhile, in France, HICP inflation has decreased significantly, reflecting a wider trend seen across the euro area. Elected officials are deeply concerned about upholding price stability while doing everything they can to spearhead sustainable economic growth. Inflation data mixed signals Continued cooling, but cost of living still a burden Central banks will need to tread with great caution in the conduct of monetary policy through an uncertain global economy.
U.S. Economic Landscape and Political Moves
President Trump will complete his term as a Federal Reserve governor on January 31. This event will be a watershed moment in the establishment debates over the direction of U.S. monetary policy. As he gets ready to leave this position behind, Trump is making headlines everywhere. His nontraditional approach to foreign affairs and energy policies sure has their attention.
The first of these is particularly interesting — Trump’s proposals to mint and sell up to 50 million barrels of hammered Venezuelan oil. This announcement has sparked a tremendous amount of interest. Venezuelan opposition leader Maria Corina Machado thanked Trump for his work to bring down Nicolás Maduro’s regime. These moves reflect the administration’s continuing focus on enhancing energy security and geopolitical strategy.
Trump’s quixotic pursuit of buying Greenland for the US reignited interest in acquiring the territory. He underscored national security interests linked to Arctic resource development and unexploited mineral bounty. This revival of interest reflects ongoing discussions about resource allocation and strategic territorial considerations amid global competition.
Global Market Reactions and Future Outlook
Global equities are off to a very positive start as strong momentum carries stocks higher for a third day in a row to start 2026. Amidst all of these simmering tensions with the world and at home, the investor class seems more optimistic than ever.
In Sweden, the November services PMI hit its highest reading since summer 2022, indicating that sector’s strength. This positive trend contrasts with potential concerns stemming from China’s recent ban on exporting dual-use items to Japan for military applications. Such measures have raised diplomatic tensions and could have effects on international supply chains.
Norway’s housing market remained stable, with house prices unchanged in December, falling short of Norges Bank’s December Monetary Policy Report estimate of a +0.8% increase. This degree of stability indicates that buyers are being measured and cautious in an uncertain and ever-changing economic landscape.
Federal Reserve Governor Stephen Miran Fellow advocates for courageous leadership in 2026. To stem the short-term focuses, he recommends more than 100 basis points rate cuts to react to current economic signal. His recommendations capture a broader, living debate about how to proceed now that inflation dynamics have changed.