Key Takeaways

• Eurozone December inflation slowed unexpectedly, prompting renewed focus on the ECB’s future rate path.
• Wall Street opened lower as mixed US jobs data unsettled risk appetite.
• Technology sector volatility increased ahead of key earnings releases.
• Italian BTP-German yield gap widened after the latest auction as funding risk was repriced.
• European PMI flash indicated manufacturing stagnation and a weaker services growth outlook.
• Markets weighed persistent inflation uncertainty and cautious monetary policy signals.

Introduction

Eurozone inflation slowed more than expected in December, sharpening the focus on the ECB’s next policy move as markets considered implications for rate strategy and financial stability. On 17 December 2025, Wall Street’s cautious start following mixed US jobs data and nervousness in European bond markets underscored persistent uncertainty across asset classes and renewed emphasis on disciplined risk management.

Top Story

Fed Minutes Show Growing Division on Rate Path

Federal Reserve policymakers expressed diverging views on the appropriate pace of interest rate cuts in 2026, according to minutes from the FOMC’s December meeting released on 17 December 2025. Several committee members advocated for accelerated easing due to recent declines in inflation, while others cautioned against moving too quickly given resilient economic data.

The minutes indicated that inflation concerns have moderated significantly, with most officials acknowledging that price pressures have “meaningfully abated” over the past three months. Core PCE inflation, the Fed’s preferred gauge, reached 2.2%, approaching the central bank’s 2% target more quickly than previous projections anticipated.

Economic growth forecasts were revised slightly downward for the first quarter of 2026, reflecting softer consumer spending and early signs of labor market cooling. The unemployment rate increased to 4.1% in November but remains below historical averages and has displayed a consistent upward trend in the past quarter.

Fed Chair Jerome Powell stated that future decisions will remain data-dependent and noted the committee is entering a new phase in its policy cycle. Powell acknowledged that the risks of maintaining a restrictive policy for too long are becoming more balanced with the risks of premature easing.

Also Today

Retail

Holiday Sales Meet Expectations Despite Price Sensitivity

U.S. holiday retail sales rose 3.2% year-over-year according to preliminary data from the National Retail Federation, within the forecast range of 2.5% to 3.5% growth. Online shopping continued to gain market share, with e-commerce sales increasing 6.8% compared to the same period last year.

Consumer price sensitivity was evident as discount retailers outperformed luxury segments. Target reported a 4.1% increase in comparable sales, while Nordstrom recorded a modest 0.8% growth during the holiday period.

Retail analysts cited shoppers’ growing preference for experiences over goods, as restaurant spending rose 5.3% versus the 2024 holiday season. Katherine Martin, chief economist at Consumer Insights Group, explained that consumers are making calculated decisions about budget allocation.

European Retailers Face Margin Pressure

European retail chains reported mixed holiday results, with revenue growth dampened by ongoing margin pressure. Carrefour announced a 2.2% increase in fourth-quarter sales but warned of “significant promotional intensity” affecting profitability in its markets.

German retailer Metro AG reported flat holiday sales and unveiled plans to close 15 underperforming locations in Southern Europe by mid-2026. CEO Steffen Greubel cited “structural challenges in the retail sector” that are expected to persist in the coming year.

Analysts at Morgan Stanley downgraded their outlook for European retail stocks, referencing continued high operating costs despite a slowdown in consumer price growth. The sector faces ongoing challenges from elevated energy prices and wage increases that outpace retailers’ pricing power.

Energy

Oil Prices Edge Higher on Middle East Tensions

Oil prices climbed for a third consecutive session, with Brent crude rising 1.2% to $78.65 per barrel as Middle East tensions persisted. The ongoing conflict has raised concerns about potential supply disruptions, despite revised downward projections for global demand growth.

OPEC+ members are reportedly discussing an extension of current production cuts through the second quarter of 2026, according to sources familiar with the deliberations. The group’s scheduled January meeting will reassess market conditions amid forecasts of slower Chinese demand growth.

U.S. crude inventories declined by 3.2 million barrels last week, surpassing analyst expectations and further supporting prices. This draw marked the fourth consecutive week of falling inventories, contrary to seasonal patterns that typically show increases during this period.

Renewable Investment Hits Record Despite Rising Costs

Global investment in renewable energy reached a record $735 billion in 2025, according to BloombergNEF’s year-end report, in spite of persistent supply chain challenges and higher financing costs. Solar capacity additions led growth, with a 22% year-over-year increase in installations worldwide.

European utilities announced plans to accelerate their green transitions. Enel committed an additional €5 billion to renewable projects over the next three years, citing continued declines in technology costs for solar and wind projects.

Financing costs remain a challenge, with average interest rates on renewable project loans approximately 120 basis points higher than pre-2023 levels. Industry analysts anticipate some easing of this pressure as central banks progress through their rate-cutting cycles in 2026.

Market Wrap

Indices Edge Lower on Fed Minutes

Major U.S. indices retreated from recent highs following the Fed minutes release. The S&P 500 declined 0.6%, and the Nasdaq Composite fell 0.8%. The Dow Jones Industrial Average was more resilient, closing down 0.2% at 43,782.

European markets ended mixed, with the STOXX Europe 600 down 0.3%, while Germany’s DAX gained 0.2%. Asian indices broadly advanced, led by Japan’s Nikkei 225, which rose 1.2% to a new all-time high.

Treasury yields climbed across the curve, with the 10-year note yield increasing 6 basis points to 3.85%. The dollar index strengthened by 0.4% against major currencies, while gold retreated 0.7% to $2,515 per ounce.

Sector Performance

Technology stocks underperformed the broader market, impacted by semiconductor companies facing inventory challenges. The Philadelphia Semiconductor Index fell 2.1%, marking its largest single-day decline in six weeks.

Energy stocks outperformed with rising oil prices, as the S&P 500 Energy sector gained 1.3%. Utilities also showed strength, advancing 0.8% as investors favored defensive sectors.

Banking stocks traded higher ahead of the upcoming earnings season, with the KBW Bank Index rising 0.9%. Analysts raised profit estimates for the sector due to favorable net interest margins and resilient loan demand.

What to Watch

• 19 December 2025: U.S. weekly jobless claims and Philadelphia Fed Manufacturing Index
• 20 December 2025: U.S. Existing Home Sales for November
• 23 December 2025: Final third-quarter GDP revision and Consumer Confidence Index
• 3 January 2026: December Employment Report
• 5 January 2026: ISM Services PMI
• 8 January 2026: Major banks begin reporting fourth-quarter earnings, starting with JPMorgan Chase and Citigroup
• 15 January 2026: December Consumer Price Index release

Conclusion

Eurozone inflation’s sharper-than-expected slowdown sets a cautious tone for European policymakers, as global markets recalibrate around mixed US jobs data and Federal Reserve policy uncertainty. Manufacturing stagnation and sector divergence remain in focus for traders navigating this environment. What to watch: Key US and eurozone data releases through early January, including jobless claims, GDP, and CPI, are likely to influence central bank rate expectations.