Chocolate Drops

The Grocer magazine recently reported that Sainsbury’s and Morrisons were selling White Chocolate Maltesers at a higher price per kilogram than sirloin steak! This rise follows record levels of cocoa inflation.

A supply shock in 2022 sent global cocoa prices soaring, and the London price of cocoa, which had tripled in 2024, remained elevated during the first half of 2025. The good news is that cocoa prices are currently down over 50% from the 2025 peak, although this may take a while to feed through into chocolate prices for consumers. The price fall reflects expectations of a better cocoa crop due to improved weather and higher state-guaranteed prices for farmers in West Africa.

The earlier supply shock arose in Ghana and the Ivory Coast, which supply around 60% of the world’s cocoa. Dry weather, disease and under-investment by farmers, who were unable to afford fertilisers, sent cocoa prices soaring. However, the supply outlook is much improved, with better rainfall having reduced the risk of another failed crop. Forecasters expect the 2025-2026 cocoa harvest to produce a surplus of supply over demand. Unfortunately, farmers are not producing more cocoa, but consumer demand has fallen due to the higher price of chocolate. The growing availability of weight-loss drugs may also have impacted demand, as users are less likely to indulge in high-calorie snacks such as chocolate.

The longer-term outlook for cocoa prices is worrying. According to the European Cocoa Forum, over a third of cocoa production in the Ivory Coast could be lost by 2050 due to climate change and the cacao swollen shoot virus. In addition, supply remains tight due to ageing cacao trees that need to be replaced.

Trump calls global warming a scam, but clearly the world’s natural resources, such as cocoa, are being affected by more extreme weather. While cocoa prices have fallen from the recent peak, they remain high, forcing chocolate manufacturers into a series of unpopular choices: shrinkflation, price increases, or reducing the cocoa content of products. Sadly, for chocoholics, the recent fall in the cocoa price has come too late to impact Christmas assortments produced and priced months ago. However, if cocoa prices stabilise around these levels, at least things might look better for chocolate Easter eggs!

 

What have we been watching?

 

As markets start to wind down ahead of the Christmas break, they remain driven by US interest rates, the independence of the Fed and AI investment bubble concerns.

Markets received a boost from the Federal Reserve (Fed) which delivered the expected 0.25% interest rate cut and the S&P 500 index hit a record high. However, US tech shares then wobbled and the rush to hedge against potential defaults within the sector continued to gather pace. Credit default swaps tied to a handful of the biggest US tech groups have climbed 90% since early September, according to the FT. Fears have been raised by the latest results from cloud computing giant Oracle and chipmaker Broadcom, where revenue growth came up short of expectations. These results, together with concerns that an increasing number of AI companies have been tapping debt markets to cover their mounting capital investment programmes have driven credit default swaps higher. Meta, Amazon, Alphabet and Oracle have raised $88bn over the autumn to fund AI capital investment.

Given many AI stocks are priced for perfection, it is little wonder that a small revenue miss can be penalised.  Perhaps the market view is starting to shift, with the AI trade changing from anything AI being a winner to selecting the winners and losers? Could this trend continue into 2026, where the AI investment story will result in further divergence? For markets overall it will depend on whether one of the mega-cap US tech stocks gets on the right or the wrong side of the AI winners and losers equation.

President Trump granted NVIDIA permission to export its H200 AI chips to China, although these will incur a 25% export tariff, and shipments will only be allowed to approved customers. The move is seen as a step by Trump to lower trade tensions with China following the latter’s decision to lift controls on its critical rare earth exports.

EU countries are fast-tracking a decision to indefinitely immobilise up to €210bn in Russian sovereign assets to fund a Ukraine reparations loan in an attempt to bypass Hungary. Meanwhile, Trump appears to be playing to the Russian narrative in driving a peace deal in Ukraine. President Zelensky has said he is ready for elections after Trump repeated claims that Kyiv was ‘using war’ to avoid holding them. Trump then held a joint call with some European leaders who he had called ‘weak,’ suggesting the US could scale back support for Ukraine. Trump later said, ‘we discussed Ukraine in pretty strong words’, admitting there were ‘some little disputes about people.’ While ‘inching towards a deal,’ a key sticking point remains the potential sacrifice of Ukrainian territory.

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In the UK, November retail sales were weaker than expected. The British Retail Consortium said, ‘Pre-budget jitters among shoppers meant the month of Black Friday did not deliver as strongly as retailers had hoped for or, the economy needed.’ The UK economy shrank unexpectedly in October by 0.1%. The Bank of England is expected to cut interest rates by 0.25% at its next meeting on Thursday.

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The European Central Bank (ECB) president Christine Lagarde suggested that the central bank will probably lift its economic growth forecasts for the Eurozone at its next meeting on Thursday. ‘The Eurozone area is resisting better than what we had anticipated back in April.’ The ECB is expected to keep interest rates on hold. However, following these comments, markets initially priced in a 40% chance of a 0.25% interest rate hike by the ECB by the end of 2026, but on further reflection, this dropped to 28%.

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 In the US, the Fed delivered the third consecutive interest rate cut that takes the Fed funds rate down to 3.5%-3.75%. This was a 9-3 decision, with one member voting for a 0.5% cut and two for no change. The cut was accompanied by implicit signals that the Fed could remain on hold in early 2026. However, the Fed revised its US GDP forecasts higher across the 2025-2027 period and edged its PCE inflation estimate marginally lower. The Fed also announced a liquidity programme that will buy T-Bills (4-week maturities) due to volatility in the short-term funding market. So, will this be the last Fed cut under Fed Chair Jerome Powell’s tenure, or will continued labour market weakness prompt it to cut again in the next few months? Markets currently suggest a 52% chance of a 0.25% cut by March. Meanwhile, Trump favourite Kevin Hassett is still thought to be in pole position to replace current Fed Chair Jerome Powell. Markets are currently pricing in a 52% chance of Hassett becoming the new Fed Chair.

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Comments from the governor of the Bank of Japan appeared to support market views that the central bank will raise interest rates by 0.25% to 0.75% at its next meeting in December. If it does, it would take Japanese interest rates to a 30-year high.

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In China, consumer prices rebounded, led by food costs rising sharply higher. Headline annualised CPI climbed 1.2%. However, producer prices remain in deflation. Meanwhile, the head of the IMF said China must fix ’significant’ imbalances in its economy, including deflation that has driven a depreciation of the renminbi and boosted exports. Beijing is pledging monetary support and more proactive fiscal measures to support its economy in an effort to maintain the 5% GDP growth target. Economic data remains weak, with November retail sales growth coming in below expectation at 1.3%, while new home prices continue to slide, with prices marginally lower in November.

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Brent oil slipped back to $61 as the IEA said it continues to expect a global oil supply surplus in 2026.

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Finally, what will Alpha Bites be getting for Christmas? A well-earned break, but have no fear, Alpha Bites will be back in the New Year with the usual quirky take on the mad, mad, mad world that we live in.

Given this is the last Alpha Bites of 2025, thank you for your continued support during the year, and may we wish all our readers a very Merry Christmas and a prosperous 2026*.

(Subject to the actions of Trump, Xi Jinping, Putin, Starmer and Reeves) *

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.