Global Economy & Markets, Weekly Roundup 22/12/25
2025 marks robust global equity gains due to P/E expansion, placing corporate earnings at the forefront for 2026
Global equity markets have traded largely sideways in recent sessions, reflecting a tug of war between profit taking after the MSCI ACWI’s circa 20% year to date gains, sustained concerns around elevated AI related valuations and a renewed risk appetite driven by expectations of further policy easing, particularly from the Federal Reserve.
Indeed, fed funds rate futures currently price-in roughly equal chances for two or three interest rates cuts to 3.00% or 3.25% by end-2026 from 3.75% currently (upper range), whereas the median estimate of 19 participants in the Federal Open Market Committee (FOMC) points to just one.
US Treasury bond yields declined modestly by c. -5 bps to 4.15%, as job growth posted further signs of weak impetus and CPI inflation surprised to the downside, albeit data should be treated with caution due to methodological issues following the end of the government shutdown.
Monetary policy decisions varied significantly in the past week due to different growth and inflation trajectories. The ECB stood pat, as expected, with the Deposit Facility Rate at 2.00%. President Lagarde reiterated that monetary policy is “in a good place”. The outlook for headline inflation remained in line with the 2% target, albeit the core CPI projection for 2026 was revised up by 0.3 pps to +2.2% due to stronger-than-envisaged wage gains resulting in higher services inflation.
Euro area growth estimates were revised up throughout the forecasting horizon. The ECB foresees euro area real GDP growth of +1.2% in 2026 (up +0.2 pps compared with the September projections) and +1.4% in 2027 (+0.1 pps higher). Reduced trade policy uncertainty, stronger foreign demand and lower energy commodity prices were the key factors contributing to higher GDP projections.
President Lagarde highlighted that higher government spending on infrastructure and defense, presents upside risks to growth and inflation, indicating that the threshold for an interest rate cut remains very elevated. Bund yields inched modestly higher across the curve by 2-4 bps (10-Yead: 2.90%), with euro area periphery spreads broadly unchanged (GGB/Bund: 57 bps).
The Bank of England reduced the Bank Rate by -0.25% to 3.75%, as inflation provided a signal of having moved past its peak, as previous boosting temporary factors start to fade. Nevertheless, five BoE members were in favor, versus four who voted for no change, suggesting that the room for further monetary easing may be limited.
The annual growth of UK CPI decelerated by -0.4 pps mom to +3.2% in November, undershooting both consensus (+3.5%) and the BoE’s estimates (+3.4% for the headline).
The Bank of Japan (BoJ) increased its reference rate by +0.25% to a 30-year high of +0.75%. With a c.80% chance for such an event being priced-in, Japanese government bond yields posted some upward reaction, with the 10-year up by c. +5 bps to a 26-year high of +2.02%.
Note that inflation (CPI excluding fresh food) remained at +3.0% in November, above the 2% target. At the same time, the BoJ’s range of estimates for the neutral rate stands at +1.0% to +2.5%. In that context, the Governor of BoJ Ueda pointed to the prospect of further interest rate hikes, albeit refraining from providing any guidance on the respective timing and extent.
Global equity markets have traded largely sideways in recent sessions, reflecting a tug of war between profit taking after the MSCI ACWI’s circa 20% year to date gains, sustained concerns around elevated AI related valuations and a renewed risk appetite driven by expectations of further policy easing, particularly from the Federal Reserve.
Indeed, fed funds rate futures currently price-in roughly equal chances for two or three interest rates cuts to 3.00% or 3.25% by end-2026 from 3.75% currently (upper range), whereas the median estimate of 19 participants in the Federal Open Market Committee (FOMC) points to just one.
US Treasury bond yields declined modestly by c. -5 bps to 4.15%, as job growth posted further signs of weak impetus and CPI inflation surprised to the downside, albeit data should be treated with caution due to methodological issues following the end of the government shutdown.
Monetary policy decisions varied significantly in the past week due to different growth and inflation trajectories. The ECB stood pat, as expected, with the Deposit Facility Rate at 2.00%. President Lagarde reiterated that monetary policy is “in a good place”. The outlook for headline inflation remained in line with the 2% target, albeit the core CPI projection for 2026 was revised up by 0.3 pps to +2.2% due to stronger-than-envisaged wage gains resulting in higher services inflation.
Euro area growth estimates were revised up throughout the forecasting horizon. The ECB foresees euro area real GDP growth of +1.2% in 2026 (up +0.2 pps compared with the September projections) and +1.4% in 2027 (+0.1 pps higher). Reduced trade policy uncertainty, stronger foreign demand and lower energy commodity prices were the key factors contributing to higher GDP projections.
President Lagarde highlighted that higher government spending on infrastructure and defense, presents upside risks to growth and inflation, indicating that the threshold for an interest rate cut remains very elevated. Bund yields inched modestly higher across the curve by 2-4 bps (10-Yead: 2.90%), with euro area periphery spreads broadly unchanged (GGB/Bund: 57 bps).
The Bank of England reduced the Bank Rate by -0.25% to 3.75%, as inflation provided a signal of having moved past its peak, as previous boosting temporary factors start to fade. Nevertheless, five BoE members were in favor, versus four who voted for no change, suggesting that the room for further monetary easing may be limited.
The annual growth of UK CPI decelerated by -0.4 pps mom to +3.2% in November, undershooting both consensus (+3.5%) and the BoE’s estimates (+3.4% for the headline).
The Bank of Japan (BoJ) increased its reference rate by +0.25% to a 30-year high of +0.75%. With a c.80% chance for such an event being priced-in, Japanese government bond yields posted some upward reaction, with the 10-year up by c. +5 bps to a 26-year high of +2.02%.
Note that inflation (CPI excluding fresh food) remained at +3.0% in November, above the 2% target. At the same time, the BoJ’s range of estimates for the neutral rate stands at +1.0% to +2.5%. In that context, the Governor of BoJ Ueda pointed to the prospect of further interest rate hikes, albeit refraining from providing any guidance on the respective timing and extent.