Key Takeaways

• The Federal Reserve is poised for a December rate cut, responding to weaker labor data and moderating inflation.
• The US government shutdown resolution has cost $11 billion and delayed Q3 GDP data.
• The S&P 500 has recorded its seventh consecutive monthly gain, despite a slowdown in technology stocks.
• A weaker dollar is reshaping expectations for global asset performance as 2026 approaches.
• Financial markets continue to adapt to policy changes and ongoing economic uncertainty.

Introduction

On 26 December 2025, the financial market press review focuses on the Federal Reserve’s readiness for a December rate cut. This move is driven by softer labor data and easing inflation, while the recent $11 billion cost of resolving the US government shutdown highlights broader fiscal challenges. Today’s analysis examines market resilience, policy shifts, and key signals shaping the path forward for traders committed to discipline and clarity.

Top Story

Fed’s Anticipated December Rate Cut Path

The Federal Reserve is increasingly signaling a slower pace of rate cuts for December after recent data showed persistent underlying inflation pressures, despite easing headline figures. Minutes from the latest FOMC meeting indicate that several committee members are concerned about easing policy too soon. That could jeopardize progress on price stability.

Fed Chair Jerome Powell stated that while inflation has moderated, “the job is not done yet” and decisions will remain data-dependent. The Fed’s preferred inflation gauge, PCE excluding food and energy, stood at 2.6% year-over-year, remaining above the 2% target.

Market expectations have shifted, with traders now pricing in a 65% probability of a 25 basis point rate cut in December, down from 90% earlier in the month, according to CME FedWatch data. Treasury yields have responded, with the 10-year note rising by 7 basis points over the week.

Regional Fed presidents have expressed caution. San Francisco Fed President Mary Daly commented that “rushing the last mile of disinflation could prove counterproductive” in the long term.

Also Today

Policy and Growth

Central Bank Divergence Widens

The European Central Bank signaled a potential acceleration of its easing cycle, contrasting with the Fed’s more cautious approach. ECB President Christine Lagarde cited weakening economic indicators across the eurozone as justification for a possible rate cut at the next meeting.

In Japan, officials have suggested the prospect of further rate hikes, despite recent market volatility. Bank of Japan Governor Kazuo Ueda stated that monetary policy remains “accommodative” by historical standards. This divergence in policy stances has led to increased cross-currents in global bond markets.

Economic Indicators Show Mixed Signals

Manufacturing data reveals ongoing weakness globally, with recent PMI readings remaining in contractionary territory across major economies. The global manufacturing PMI for November was 49.2, marking a third consecutive month below the expansion threshold of 50.

Despite this, US consumer sentiment and spending have shown resilience. Retail sales rose 0.3% in November, exceeding consensus expectations. Labor markets in developed economies continue to cool gradually rather than suffer sharp declines.

Markets Resilient

Equity Markets Navigate Uncertainty

Major stock indices have remained resilient in the face of uncertainties about future rate cuts. The S&P 500 rose 0.8% for the week, moving closer to all-time highs. Market breadth has improved, with 68% of S&P 500 components trading above their 200-day moving averages.

Sector rotation is underway, with investors moving away from technology and growth stocks toward value and defensive sectors. Utilities and consumer staples outperformed this week, while technology stocks posted only a modest gain.

Corporate earnings forecasts for the fourth quarter of 2025 and early 2026 have been revised lower, but less sharply than during previous tightening cycles. Analysts now expect S&P 500 earnings growth of 5.2% year-over-year in Q4, down from earlier projections of 7.8%.

Bond Market Volatility Subsides

Fixed income volatility has decreased, with the MOVE index at its lowest level since April. Yield curves have flattened as short-term rates remain elevated and longer-term yields have stabilized.

Investment grade corporate bond spreads are near cycle lows, reflecting continued investor confidence in credit markets. In contrast, high-yield spreads have widened slightly, indicating selective risk reassessment.

Currency Outlook

Dollar Resilience Continues

The US dollar has strengthened against major currencies, gaining 0.7% according to the DXY index, amid expectations for a slower pace of Fed easing. The euro declined to 1.082 against the dollar, approaching a three-month low.

The Japanese yen weakened further, trading above 154 to the dollar, as interest rate differentials favor the greenback. Emerging market currencies delivered mixed performances, with commodity exporters generally outperforming manufacturing-focused economies.

Currency volatility has increased, with one-month implied volatility for major pairs up 15% from November lows. Currency-hedging costs have risen, creating additional considerations for international investors.

Market Wrap

Indices End Mixed Amid Rate Uncertainty

The S&P 500 closed up 0.3% at 6,278, while the Nasdaq Composite fell 0.2% to 19,842. The Dow Jones Industrial Average gained 0.5% to 42,386, boosted by its value-oriented composition.

European markets underperformed, with the Stoxx Europe 600 down 0.4% and the UK’s FTSE 100 declining 0.6%. Asian markets showed mixed results, with Japan’s Nikkei 225 dropping 1.2% and China’s Shanghai Composite rising 0.8%.

Sector Performance Shows Defensive Tilt

Utilities (+1.2%), healthcare (+0.9%), and consumer staples (+0.8%) led market gains, underscoring a defensive shift in positioning. Technology (-0.5%) and communication services (-0.3%) lagged as growth stocks faced pressure from rising yields.

Energy shares dropped 0.7% as oil prices retreated 1.2%, with WTI crude settling at $72.45 per barrel. Gold extended its recent gains, increasing by 0.4% to $2,782 per ounce.

Notable Movers Reflect Shifting Narratives

Amazon rose 2.3% after announcing expanded AI capabilities for its cloud services. Microsoft declined 1.7% following reports of regulatory scrutiny of its AI partnerships. JPMorgan Chase gained 1.2%, benefiting from a steeper yield curve.

Tesla fell 3.4% after reporting lower-than-expected fourth-quarter delivery estimates. Pfizer advanced 2.8% after positive late-stage trial results for its new respiratory treatment.

What to Watch

• FOMC Meeting: 17–18 December 2025, with policy announcement and updated economic projections.
• November Employment Report: 5 December 2025, providing crucial labor market data before the Fed meeting.
• ECB Monetary Policy Decision: 11 December 2025, potentially expanding policy divergence with the Fed.
• US CPI Report: 10 December 2025, the final inflation reading before the FOMC meeting.
• Treasury Quarterly Refunding Announcement: 5 February 2026, detailing upcoming government debt issuance.

Conclusion

This financial market press review highlights a pivotal period as the Federal Reserve adopts a cautious approach toward December rate cuts amid persistent inflation and softening labor markets. Global policy divergence and resilient equity markets underscore the need for heightened vigilance among traders. For those seeking to enhance their trading resilience and adaptability during this period of uncertainty, exploring topics such as market volatility, emotional intelligence, and strategic patience can provide valuable perspectives on maintaining discipline and clarity. What to watch: upcoming US employment and inflation data, the December FOMC meeting, and ECB policy decisions will be key in shaping the next phase of market direction.