Fed Injects Liquidity, Markets Remain Muted

Market Overview

On December 31, 2025, the Federal Reserve expanded its Standing Repo Facility (SRF) operations to USD 74.6 billion, marking a sizable year-end liquidity injection. However, both risk assets and precious metals delivered muted performances, largely reflecting routine seasonal balance-sheet adjustments rather than a shift in underlying market sentiment. All four major U.S. equity indices closed lower:

• S&P 500 Index: −0.74%

• Dow Jones Industrial Average: −0.63%

• Nasdaq Composite: −0.76%

• Philadelphia Semiconductor Index: −1.20%

In commodities, silver faced heavy profit-taking pressure, plunging more than 10%, while gold declined by 1.80%.

The U.S. Dollar Index traded within a narrow range. After briefly testing the 98 level, it failed to sustain upside momentum and pulled back to 97.88, forming a sideways consolidation pattern.

Meanwhile, the offshore Chinese yuan (CNH) broke above the 7.00 psychological level, reaching its strongest level in 15 months. Since April last year, the renminbi has entered a sustained appreciation cycle against the U.S. dollar, with cumulative gains of approximately 6%, decisively ending the range-bound consolidation that dominated the past two years. According to Barrons, this appreciation is not only reshaping financial market dynamics but is also exerting a meaningful impact on corporate trade flows and hedging strategies.

Key Themes to Watch1. Fed Delivers Record Year-End Liquidity Injection

On the final trading day of 2025, the Federal Reserve extended USD 74.6 billion in loans to financial institutions through its Standing Repo Facility, significantly exceeding the previous peak of USD 50.35 billion. Market participants broadly view this move as a seasonal liquidity operation, driven by banks year-end balance-sheet management and regulatory settlement needs. Despite the scale of liquidity support, risk assets such as Bitcoin showed limited reaction, underscoring the technical and temporary nature of the operation.

2. Power Constraints Emerge as a Bottleneck for AI Expansion

Facing the reality that public grid expansion can take up to a decade, leading U.S. AI players including OpenAI, xAI, and Google are increasingly bypassing traditional grids by building their own natural gas power plants. The objective is straightforward: bring computing capacity online as quickly as possible. At the core, as AI enters the phase of hyperscale deployment, electricity availability has shifted from a cost consideration to a first-order constraint that directly determines whether computing power can be deployed on schedule.

Events in Focus

• 22:45 — U.S. December S&P Global Manufacturing PMI

• 23:00 — U.S. November Construction Spending (MoM)