Global equities closed the first week of December in positive territory, supported by rising expectations of a Fed rate cut, while the bond market experienced rate volatility. Attention now turns to the Federal Reserve, which is expected to deliver a 25-bp interest rate cut on Wednesday. A still-supportive backdrop continues to underpin equities, with fiscal stimulus measures, easing monetary policy and structural growth drivers encouraging investors to keep a broader perspective.
Market recap
Beyond the numbers
Macroeconomics
US data sent mixed signals last week. On the one hand, private payrolls fell by 32,000 in November, highlighting the growing strains in employment despite initial jobless claims remaining near multi-year lows; on the other, business surveys continued to point to solid underlying momentum. The November PMI and ISM services indices (54.1 and 52.6, respectively) indicated continued expansion, though elevated input prices signal persistent cost pressures, even if they remain below cycle peaks. Manufacturing surveys were on the weaker side (52.2 and 48.2, respectively) as new orders softened, most notably in the ISM, but production measures improved.
Inflation dynamics remain supportive of policy easing. Core personal consumption expenditure (PCE) inflation decelerated to 2.8% y/y in November, while consumer confidence surveys rebounded and showed easing one year ahead, with price expectations falling from 4.5% to 4.1%. Together, these developments should give the Federal Reserve sufficient confidence to proceed with a rate cut this week.
In the eurozone, activity indicators improved modestly. The composite PMI was revised up from 52.4 to 52.8, confirming services as the primary growth driver, underpinned by resilient domestic demand even as external conditions remain challenging. The situation strengthened in France and Germany, while southern economies continue to outperform.
Inflation printed at 2.2% y/y and core inflation at 2.4%, while services’ inflation momentum eased over the month, consistent with wage indicators pointing to further deceleration into 2026.
Attention now turns to the Federal Reserve, which is expected to deliver a 25-bp rate cut on Wednesday despite a divided committee. The updated dot plot will take centre stage: the median projection is likely to signal just one additional cut in 2026, a more cautious path than that implied by market pricing. Upcoming data include JOLTS, NFIB small-business optimism, and PPI in the US, alongside the final reading of eurozone inflation. The Swiss National Bank (SNB) is set to meet on Thursday and is expected to leave its policy rate unchanged.
Asset allocation: strategic views as at December 2025
Equities
Global equities finished the first week of December higher (MSCI ACWI total return +0.6%), with the risk-on mood fuelled by growing Fed rate cut expectations which climbed above 90% following weaker-than-expected US macro data, particularly in relation to employment.
While global technology stocks led the gains (+1.7%, Magnificent 7 +1.4%), there was also notable appetite for cyclical areas of the market, which similarly outperformed the broader market (industrials, consumer discretionary, energy, and financials +0.9% on average). Meanwhile, traditionally defensive areas of the market lagged behind the most (utilities -2.9%, healthcare -1.9%, real estate -1.2%).
US equities (S&P 500) are now just 0.7% below their all-time highs reached at the end of October, having rebounded from November’s mild -5% correction. While this week’s Fed rate decision could trigger a ‘sell on the news’ moment after markets had heavily ‘bought on the rumour’ over the past two weeks, investors looking at the bigger picture can find reassurance in a still-supportive backdrop for the asset class heading into 2026, such as fiscal stimulus measures, easing monetary policy, and structural growth drivers.
Global technology stocks led the advance (+1.7%), with the Magnificent 7 up +1.4%.
Fixed income
The week was marked by rate volatility. 10-year Treasuries moved up 12 bps to 4.14%, the largest weekly upward move since April (in the aftermath of ‘Liberation Day’-induced volatility), and are now approaching the higher end of the 3.95–4.20% range they have traded in since September. The upswing in rates was global and influenced by further hawkish news regarding the Bank of Japan’s (BoJ) December rate decision (a hike of 25 bps has been fully priced for 19 December). The upward movement in rates translated into investment grade being down 0.2% for the week, while high yield and emerging markets were both up 0.1% and AT1s were up 0.3% on the back of spread compression.
In industry-specific news, the Trump administration rolled back stringent fuel-efficiency targets, which, together with a de-emphasis on electric vehicles, materially cuts the capex burden on US automakers and consequently improves their cash-flow profile. These are all positives for the credit metrics of GM, Ford, Stellantis and Hyundai.
The Wednesday FOMC meeting will be the market’s main focus this week. The implied probability of a cut has wavered significantly over the past month and is now assigned a 92% probability of a 25-bp cut after soft jobs (ADP) and inflation (core PCE at 22.8% y/y) reports.
The probability of a Fed cut on Wednesday now stands at 92% for a 25-bp reduction
Forex & Commodities
The USD weakened last week following the release of ADP employment data, which showed that private sector employers shed around 32,000 jobs in December. The US Dollar Index (DXY) traded modestly lower. The main event for the coming week is the FOMC meeting on Wednesday, where markets anticipate that the Fed will cut its Fed funds rate by 25 bps, taking it to 3.75%. Investors will focus on Fed Chair Powell’s comments on inflation and the wider economic outlook. Overall, we do not expect drastic USD movements over the coming week, given already rich pricing at the front end of the curve.
The JPY appreciated last week as the BoJ’s governor gave a strong signal that a deposit rate hike may be forthcoming at this week’s MPC meeting. Governor Ueda noted that ‘the Bank considers that the likelihood of the baseline scenario for economic activity and prices being realised is gradually increasing’. We note that the USD/JPY is trading well above levels implied by both short- and long-term bond yield differentials, which will limit the scope for JPY weakness over the coming week.
CHF exchange rates were generally stable over the last week, and we expect more of the same following this week’s Swiss National Bank (SNB) meeting. The SNB is highly likely to keep rates on hold at 0.00%, though we note that there is some chance that it will reduce its conditional inflation forecast for 2026 and 2027. Overall, we anticipate ongoing ratcheting CHF appreciation over the coming year.
Last, gold has stabilised at levels of around USD 4,200 per oz. We do not expect severe upward moves in December, given already rich front-end rate pricing in the US. Silver has maintained its break above USD 57 per oz and we do not expect large upward moves over the coming week given the large rise in recent weeks and the apparent stabilisation of the gold price.
We do not expect sharp upward moves in December on gold, as US front-end rates are already priced at elevated levels
The opinions expressed herein are correct as at 08 December 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
