Given the performance of the stock markets since April 2020, it is not surprising that profit-taking is now occurring after another successful year in 2025.
Given the high level of liquidity, the introduction of new debt programmes to finance new infrastructure and upgrades, and the expected productivity boost from the application of AI, the outlook for the stock markets over the coming year is positive.
The fact that foreign investors are now selling up in Europe is causing the USD to strengthen slightly against the euro, but this trend is evident worldwide. In recent days, most currencies have weakened against the USD, including the Swiss franc, which has also weakened slightly against the euro. This suggests that a period of consolidation is more likely than a major stock market crash. If market participants were concerned, they would buy CHF rather than sell it.
Currencies in Central and Eastern Europe (CEE) and the Euro Are Aligned Against the USD
As a major currency, the euro is somewhat sluggish. This means that it rises against CEE when the USD rises, but falls against CEE when the USD weakens.
In economic terms, the CEE currencies are performing somewhat more dynamically than those of the central Eurozone countries, Austria and Germany. If the German economy picks up, this is also expected to benefit the CEE region in the new year. A ceasefire in Ukraine remains likely and would stimulate growth in all of its neighbouring countries.
Russia is Proceeding Cautiously and Testing the West’s Commitment
The idea that Ukraine could push back the Russian army is illusory. This suggests that Russia is in no hurry to end the war. Although the war is costly, there is no significant domestic resistance and it seems affordable so far. The new oil sanctions are, at best, a nuisance. Trump was unable to persuade Japan to stop buying gas from Russia. That says a lot. The Japanese also have leverage: they are not only the largest state financier of the US, but also a major investor in Russia. Withdrawal of Japanese investment funds would have a devastating impact on the USD and its interest rates.
However, the high death toll and growing reliance on China suggest that Russia will not be able to sustain the war for much longer. Russia has also probably recognised that the extraction and refining of rare earths, in addition to oil, could become an important asset. Russia has the necessary resources and expertise for refining.
Turkey is Making Progress
Inflation continues to fall, and the Turkish National Bank — which has recently adopted a disciplined approach — is following this trend by making small cuts to interest rates.
Inflation has recently fallen slightly below 33%. This trend is continuing to stabilise. At the same time, depreciation against the US dollar is slowing down and has recently virtually stopped. The current strength of the USD is even helping to strengthen the TRY slightly against the euro. With interest rates falling, Turkish bonds are in such high demand that they are currently not being traded. Those who have them in their portfolios are holding on to them, and because Turkey is not heavily indebted, there is hardly any supply.
If inflation falls below 30% this year, the depreciation of the Turkish lira (TRY) will probably come to a definitive halt, giving way to slight appreciation next year.
