This past week delivered a masterclass in tension across global markets. As investors head toward the holidays, optimism around fading inflation collided with a far more uncomfortable reality: global growth remains uneven, fragile, and in some places structurally impaired.
What made this week exceptional was not just volatility, but the scale of monetary policy shifts compressed into the final full trading week of the year. Japan exited ultra-easy policy for the first time in decades. The United States received its clearest inflation relief in years. And the United Kingdom surprised almost everyone with a sharp dovish pivot. None of these moves happened in unison — and that divergence is now the defining feature of the global monetary landscape heading into 2026.
This Weekly Market Update breaks down what actually mattered across the US, Europe and the UK, Japan, and China — and highlights the five critical risks to monitor during the low-liquidity holiday period.
United States: Inflation Relief Collides With Labor Market Stress
US equity indices told a nuanced story. The S&P 500 finished modestly higher, and the Nasdaq gained 0.48%, supported by high-quality, earnings-resilient technology names. Beneath the surface, however, caution was unmistakable. The Russell 2000 fell 0.86%, signaling pressure on smaller companies more exposed to domestic growth and financing costs.
This selectivity reflects concentrated risk appetite rather than broad confidence.
The biggest headline of the week came from inflation. November CPI rose just 2.7% year over year, well below expectations. More importantly, core CPI fell to 2.6%, the slowest pace since March 2021. Even shelter inflation — long the Fed’s most stubborn problem — eased meaningfully to 3.0%.
For the Federal Reserve, this was the clearest confirmation yet that disinflation has momentum.
That relief was quickly tempered by labor market weakness. November payrolls rose by 64,000, technically beating forecasts, but the unemployment rate jumped sharply to 4.6%, the highest level since early 2021. That move suggests underlying labor demand may be softening faster than expected.
Business sentiment reinforced the concern. The S&P Global flash PMI slipped to a six-month low of 53.0, with firms reporting weaker hiring plans and renewed pricing pressure — a classic margin squeeze environment.
The central question now confronting markets is whether this labor market cooling represents a necessary cost of restoring price stability, or the first real crack pointing toward a hard landing. Rate-cut expectations are rising, but they are being driven by weakness, not strength — a subtle but important distinction.
Europe and the UK: Policy Divergence Takes Center Stage
European markets rallied on central bank optimism. The STOXX Europe 600 gained 1.6% for the week, even as the European Central Bank maintained its cautious stance, holding rates steady for the fourth consecutive meeting.
President Lagarde reiterated that inflation is unlikely to stabilize near target before 2028, reinforcing the ECB’s reluctance to declare victory. Patience remains the dominant theme in Frankfurt.
London, however, broke ranks decisively. The Bank of England surprised markets with a 25-basis-point rate cut, lowering its benchmark rate to 3.75%. The justification was straightforward: inflation has fallen to 3.2%, while unemployment has climbed to 5.1%. Growth risks forced action.
The vote, however, was far from unanimous. The decision passed by a narrow 5–4 margin, highlighting deep internal disagreement. The dissenters were focused on persistent wage pressures, fearing that easing too early could reignite inflation and force painful tightening later.
Elsewhere in Europe, Sweden and Norway held rates steady, citing lingering inflation risks. The result is a highly fragmented policy landscape where country-specific signals matter far more than regional averages.
Japan: A Historic Exit From Ultra-Easy Policy
Asia delivered the week’s most dramatic policy event. The Bank of Japan raised its benchmark rate to 0.75%, marking the first meaningful tightening move since 1995. This officially ends Japan’s decades-long experiment with ultra-easy monetary policy.
The decision was driven by core CPI holding firm at 3.0%, signaling that inflation is no longer transitory. Yet markets reacted skeptically. Despite the rate hike, the yen weakened to 157.3 per dollar.
This apparent paradox reflects doubts about the pace of future tightening. Governor Ueda emphasized caution, signaling a gradual approach to normalization to avoid choking off a fragile recovery. Investors interpreted this as hesitation rather than conviction, weakening currency support.
Exporters benefited from the weaker yen, with exports rising 6.1% year over year, driven largely by US demand. But the currency remains a double-edged sword: it boosts corporate profits while eroding household purchasing power, slowing domestic recovery.
Japan’s policy shift is historic — but credibility, not symbolism, will determine its long-term impact.
China: Consumer Weakness and Structural Adjustment
China’s recovery narrative continues to struggle. The CSI 300 edged lower as data highlighted deepening consumer fragility.
Retail sales grew just 1.3% year over year in November — the weakest pace since the height of the pandemic. Household confidence remains severely impaired. Even more concerning, fixed asset investment fell 2.6% year to date, putting China on track for its first annual contraction in investment since 1998.
This is not a cyclical slowdown. It signals a structural unwinding of China’s debt-driven growth model without a strong consumer sector ready to replace it.
Industrial production also missed expectations, rising only 4.8%. Despite promises of “flexible policy tools” at the Central Economic Work Conference, Beijing avoided bold consumer-focused stimulus. Growth remains heavily reliant on exports, leaving the domestic economy vulnerable.
The Week Ahead: December 23–24, 2025
Holiday trading will be thin, but the US calendar remains critical.
Tuesday, December 23
– Q3 GDP (second estimate)
– Durable goods orders
– Consumer confidence
Wednesday, December 24
– Weekly jobless claims
Markets are closed on Thursday, December 25. No major releases are scheduled for Europe, the UK, Japan, or China.
Low liquidity does not mean low risk. With fewer participants, even modest data surprises or forced trades can trigger outsized price moves.
Top Five Risks to Watch
US growth disappointment
A weak Q3 GDP revision could reignite recession fears and overwhelm recent inflation optimism.Sticky core inflation
Despite recent relief, persistent wage or service inflation could delay easing — especially in Europe.China’s consumer slump deepens
Continued weakness in retail spending risks dragging commodities and emerging markets lower.Bank of Japan credibility test
If the yen remains weak post-hike, the BoJ may face pressure to act more aggressively, destabilizing bond markets.Geopolitical shock in low liquidity
With thin holiday trading, any geopolitical escalation could cause disproportionately violent market moves.
Final Insight: Hope, Fragmentation, and Holiday Risk
US inflation relief has breathed new life into the soft-landing narrative. But the global picture remains fragmented. Japan is tightening. China is struggling with structural demand weakness. Europe is easing — but at different speeds and with deep internal disagreements.
As markets slow for the holidays, fundamentals may quiet down, but risk does not disappear. Low liquidity amplifies shocks. This is precisely the environment where vigilance matters most.
Do not let the calm fool you. When markets sleep, volatility does not.
Happy holidays — and we’ll be back in the new year to unpack whatever comes next.
Frequently Asked Questions
Why did US small caps underperform despite easing inflation?
Because small caps are more exposed to domestic growth and financing costs, which are now under pressure from labor market weakness.
Why did the yen weaken after a rate hike?
Markets doubt the pace and commitment of future tightening by the Bank of Japan.
Why is China’s investment contraction so important?
It signals a structural shift away from debt-driven growth without a strong consumer sector to replace it.
Why does low liquidity increase risk?
Fewer buyers and sellers mean smaller trades can cause much larger price swings.
Is global easing now synchronized?
No. Monetary policy is increasingly fragmented across regions.
Hashtags
#WeeklyMarketUpdate #GlobalMarkets #Inflation #CentralBanks #FederalReserve #ECB #BankOfEngland #BankOfJapan #ChinaEconomy #MonetaryPolicy #InterestRates #MacroOutlook #InvestmentStrategy #MarketVolatility
Subscribe to our Newsletter
Discover more
