The last week before Christmas is usually a big central bank week and this year was no exception with central bank meetings in the euro zone, UK, Japan, Norway and Sweden (plus a few others). Most interesting was the ECB meeting. While they kept rates unchanged as expected, the ECB revised up projections for both GDP growth as well as inflation. ECB president Lagarde signalled a neutral outlook for rates at the press conference, though, and bond yields ended broadly unchanged after a short initial spike. The Bank of England delivered a rate cut of 25bp as expected, while Bank of Japan went the other way and raised rates 25bp. They also come from different starting points with rates in Japan now at 0.75% while the cut in UK moved rates to 3.75%. Both Norges Bank and the Riksbank left rates unchanged as expected.
On the data front, Euro zone indicators softened in November with a small decline in the composite PMI from 52.8 to 51.9 (consensus 52.6) and a similar move lower in the German ifo business confidence. The pace of growth thus seemed to moderate a bit towards the end of 2025, but the indicators still underpin continued cruising speed growth in line with our expectations for 2026.
In the US, the most noteworthy data was inflation for November, which showed a big drop to 2.6% y/y from 3.0% y/y in September (inflation for October was not recorded due to the US government shutdown). The data may have been distorted by the shutdown, though. US also released the employment report, which was a mixed bag. The employment picture looked better with job gains around 75k over the past three months outside the government sector, while the unemployment rate increased to the highest level in four years at 4.6%. The increase was due to a lift in the labour force, though. With US GDP growth being robust above 3% in the second half of 2025, we expect the labour market to improve moderately going into 2026. US retail sales showed continued brisk consumer spending with a rise of 0.8% m/m in core sales in November. The data support continued moderate easing by the Fed, and we still look for rate cuts in March and June. It is broadly in line with market pricing, although the market sees the cuts stretched out over a longer period to September.
In the German bond market, upward pressure continued on 30-year bond yields related to changing regulation for Dutch pension funds and record German issuance outlook, while we saw a moderate decline in the short end. US yields traded slightly lower during the week. Equities were on the backfoot the whole week as AI bubble concerns lingered. We continue to see the macro environment as benign for equities in coming quarters with US growth being solid and the euro zone cruising ahead but occasional wobbles related to AI concerns will likely continue given the stretched valuations.
The next interesting data will come on the other side of Christmas with Japanese inflation on 26 December, Chinese PMI on 31 December, Euro Flash CPI on 7 January and the US employment report on 9 January.
