If you followed markets this past week, the one ending December 5, 2025, it likely felt like the entire global financial system was holding its breath. The dominant force wasn’t a blockbuster data print or a sudden shock headline. It was hope — focused on one high-stakes question: is the Federal Reserve finally ready to pivot?
That tension showed up everywhere. Investors cheered resilient tech earnings and signs of easing inflation, but the underlying economic signals were mixed. More importantly, the expectation of a rate cut became the week’s true puppeteer — moving risk assets more powerfully than the fundamentals themselves.
Let’s unpack what happened across the US, Europe, the UK, Japan, and China — and then map the critical week ahead, where the Fed takes center stage.
United States: Soft-Landing Dreams, But Yields Rise Anyway
US equities posted modest gains, but the tone was entirely forward-looking. The S&P 500 edged up 0.31%, while the NASDAQ outperformed sharply. The market’s focus was not “growth is accelerating,” but rather “the Fed is about to blink.”
The week’s most market-moving datapoint was a classic case of “bad news is good news.” The ADP private payrolls report showed private sector jobs declining by 32,000 in November — the sharpest drop since early 2023. On its face, that is concerning. But in the current regime, it reads as policy fuel: labor cooling gives the Fed room to ease.
At the same time, inflation data reinforced the soft-landing narrative. Core PCE — the Fed’s preferred inflation measure — held at 2.8% year over year, the lowest since early 2021, extending a multi-month downtrend. Meanwhile, activity did not collapse: the ISM services index rose to 52.6, its strongest since February, signaling resilience in the part of the economy investors most feared might roll over.
So the market’s preferred story wrote itself: cooling labor, cooling inflation, services holding up — the “soft landing” script.
And yet, the week delivered a major puzzle: Treasury yields rose sharply. The 10-year yield jumped to 4.14%, its highest in a month — a move that typically clashes with rate-cut optimism.
The explanation is structural. Investors were buying risk assets, but they were not chasing long-duration Treasuries. Two forces mattered most: uncertainty (investors still want more compensation to lock money away for a decade) and supply (heavy Treasury issuance keeps pressure on bond prices, limiting how far yields can fall even when the Fed narrative turns dovish).
The result was an unusual combination: risk appetite rising while long-end yields climbed — a reminder that policy expectations can be bullish for equities without automatically producing a bond rally.
Europe and the UK: A Small Inflation Tick, A Bigger Policy Headache
European markets were mixed, with the STOXX 600 up about 0.41%. The headline story was an unwelcome inflation surprise: Eurozone headline inflation ticked up to 2.2% in November. It wasn’t a dramatic move, but it complicates the ECB’s messaging because Europe’s mandate is narrower and more inflation-centric than the Fed’s. Even a small upside surprise makes it harder for policymakers to sound confidently dovish.
Beyond inflation, the growth picture looked less fragile than feared. Q3 GDP was revised up to 0.3%, helped by France and Spain. Germany delivered an upside surprise too: factory orders rose 1.5% month over month in October, well above expectations — a sign the industrial engine is not fully stalling.
In the UK, the housing market continued to defy gravity. Nationwide reported a 0.3% rise in house prices in November — the third consecutive monthly increase — and mortgage approvals remained solid around 65,000 in October. That resilience matters because it suggests households are absorbing higher borrowing costs better than expected.
Still, clouds remain. With fiscal tightening risks looming (spending cuts or tax hikes), uncertainty can restrain business investment even if housing looks stable.
Asia: The Great Divergence Goes Global (Japan Tightens, China Slows)
This is where the global central bank story fractured.
Japan: A Hawkish BoJ Shockwave
Japan delivered one of the biggest macro surprises of the week. Markets reacted to what felt like a genuinely hawkish turn from the Bank of Japan. Governor Ueda hinted that a rate hike in December is on the table — a historic shift after years of Japan anchoring global easy money.
The market reaction was immediate: the 10-year JGB yield spiked to 1.93%, a 16-year high, and the yen strengthened into the 154 per dollar range.
But the BoJ is walking a tightrope. Household spending fell 3.0% year over year, highlighting fragile consumer confidence. Japan faces a dilemma: a hike can support the yen and reduce import-driven inflation pressure, but it risks pushing consumers deeper into retrenchment. Ueda is balancing a currency problem against a confidence problem — and neither is forgiving.
China: Tech Gains Mask a Broader Confidence Slump
China’s CSI 300 gained over 1%, led by AI and chip stocks. But underneath the surface, macro momentum remains weak.
The official manufacturing PMI stayed in contraction at 49.2 — the eighth straight month below 50. More worrying, the non-manufacturing PMI slipped below 50 for the first time since early 2023, signaling that weakness is spreading from industry into services.
This points to a deeper confidence problem, heavily tied to the property downturn. When real estate pressure traps household wealth, spending slows, deflationary forces build, and the economy becomes harder to restart. Tech optimism can lift indices for a while, but it cannot fully offset a broad-based confidence slide.
The Week Ahead: December 8–12, 2025
This coming week is packed — and Wednesday is the axis point.
United States
Wednesday: Fed policy decision + Chair Powell press conference
Tuesday: JOLTS job openings
Thursday: Weekly jobless claims
These releases will determine whether the ADP decline was noise or the start of a real labor-market cooling trend — and whether the Fed feels confident enough to validate the pivot narrative.
Europe and UK
Tuesday: Germany trade balance
Friday: UK GDP
China
Monday: Trade balance
Wednesday: Inflation data (right before the Fed)
Japan
No major scheduled releases — which means any move will likely come from deliberate messaging, keeping speculation elevated.
Top Five Risks to Watch
Fed Pivot vs. Powell Caution
Markets are heavily positioned for dovish confirmation. If Powell signals restraint or emphasizes inflation risks, risk assets could reprice fast.US Labor Market Cracks Deepen
ADP was weak. JOLTS and jobless claims now matter more than usual. If slack accelerates, the narrative can flip from soft landing to recession risk quickly.A Bank of Japan Rate-Hike Surprise
A December hike would be historic and could spark volatility in global FX and bond markets. A rapidly strengthening yen would ripple through risk assets worldwide.China’s Deflation Risks Intensify
Wednesday’s inflation data is critical. Another weak print could revive global growth concerns and pressure cyclicals, commodities, and EM sentiment.Sticky Eurozone Inflation Delays ECB Easing
Even a small inflation uptick can delay the ECB’s path, shifting more of the global easing burden onto the Fed — raising the odds of a policy misstep.
Final Insight: A Multipolar Central Bank World Is Back
Yes, the Fed remains the week’s headline driver — but the deeper story may be that global markets are no longer anchored by a single policy center.
Japan is flirting with tightening while others prepare to ease. China is slowing in ways that can’t be solved by sentiment alone. Europe is constrained by inflation optics. This is what a multipolar central bank world looks like: divergent policies, unfamiliar cross-asset reactions, and new sources of volatility.
In that world, Japanese bond yields may become as important as US Treasuries for signaling the next global regime shift.
Frequently Asked Questions
Why did equities rise if the data was mixed?
Because markets traded the expectation of a Fed pivot. Policy optimism outweighed the ambiguity in growth signals.
Why did the 10-year Treasury yield rise if rate cuts are expected?
Because long-duration bonds faced supply pressure from heavy issuance and investors demanded higher compensation for long-term uncertainty.
Why does a small Eurozone inflation uptick matter so much?
The ECB is more constrained by its inflation mandate. Even small surprises can delay easing and shift expectations quickly.
Is Japan really close to hiking rates?
The BoJ’s tone turned noticeably more hawkish, and markets reacted immediately. But weak household spending shows the BoJ faces real domestic fragility.
Why is China’s stock market rising if PMIs are weak?
Because the rally is selective — driven by AI/chip names — while broad macro confidence is deteriorating, especially as property weakness feeds deflation risks.
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