Global DM 2025 W49 Recap
With US economic data sending mixed signals and China's momentum fading, can investor optimism for a Federal Reserve pivot continue to propel markets against a challenging macroeconomic backdrop?
Market Narrative
Macro
- Diverging economic signals in the U.S. as the ISM manufacturing PMI contracted for the ninth consecutive month in November to 48.2%, while the services PMI expanded at its fastest pace in nine months to 52.6%. The labor market also showed mixed data: ADP private payrolls dropped by 32,000, but initial unemployment claims fell to a low of 191,000. The PCE inflation measure was stable at 2.8% year-over-year in September.
- In Europe, the picture is mixed. Eurozone headline inflation for November ticked up slightly to 2.2%, while Q3 GDP growth was revised higher to 0.3%. Germany's factory orders provided a positive surprise, rising 1.5% in October.
- China's economy continues to lose momentum. Both the official manufacturing PMI (49.2) and the non-manufacturing PMI (49.5) were in contractionary territory in November, with the services gauge contracting for the first time in nearly three years. The ongoing property crisis remains a significant risk to the economy.
- Japan's household spending weakened significantly, contracting 3.0% year-over-year in October, far worse than consensus expectations for an increase.
Policy
- Markets are focused on upcoming central bank meetings. In the U.S., investors are awaiting the final Federal Reserve meeting of the year with hopes for a potential interest rate cut.
- The BoJ turned hawkish. Governor Kazuo Ueda's recent speech strongly signaled a potential policy rate hike at the December 18–19 meeting, stating that the likelihood of the bank's baseline scenario being realized is "gradually increasing." This has pushed up JGB yields and strengthened the yen.
- The ECB remains vigilant as headline inflation ticked up to 2.2%, slightly above its 2% target, though the core rate held steady at 2.4%.
- In China, despite the economic slowdown, analysts largely believe the country will meet its annual growth target of about 5% without significant new policy actions this year, even as the "three red lines" policy continues to weigh on the property sector.
