This week delivered a remarkable wave of optimism across global markets. Investors were not just giving thanks for the US holiday — they were celebrating a powerful rally driven by one dominant idea: the growing belief that the Federal Reserve has finished hiking rates and could even cut as soon as December.
This is a dramatic shift from just a few weeks ago. Dovish central bank commentary, cooling inflation signals, and early signs of a softer labor market created a powerful cocktail of confidence. Equities surged worldwide — even as underlying data revealed some concerning contradictions.
Below, you’ll find the rapid-fire recap of what drove markets region by region, followed by the key events ahead and the top five risks that could define the coming week.
United States: A Dovish Pivot Sparks a Broad Market Surge
US markets roared back this week. The S&P 500 jumped 3.73%, the NASDAQ soared 4.91%, and — most importantly — small caps led the entire rally. The Russell 2000 surged 5.52%, a clear signal that investors are betting on lower borrowing costs.
This rally wasn’t driven by strong data. It was driven by belief — belief that the Fed is done tightening.
Labor data was the perfect example of the "two economies" dynamic now unfolding:
Jobless claims fell to a seven-month low, signaling employers are still holding onto workers.
Retail sales, however, told the opposite story. The crucial control group sales number — a direct input into US GDP — fell for the month, indicating consumer pullback.
So the labor market looks strong, but consumer demand looks weak. And the Fed’s Beige Book confirmed this tension: modest price gains, soft hiring in several regions, and persistent cost pressures due to tariffs.
Bond markets picked a side. Yields fell across the curve as investors priced in the end of the hiking cycle. Treasuries rallied. Rate-cut bets strengthened.
Bottom line: the US rally is built on policy hopes — not economic strength. That makes it powerful, but fragile.
Europe: Inflation Relief, But Fragile Foundations
Europe joined the rally, with the STOXX 600 rising 2.35%. The biggest tailwind? Disinflation.
France, Spain, and Italy all reported softer price pressures, and the Eurozone flash CPI is expected to land near 2.2% — almost exactly the ECB’s target. That gives policymakers breathing room to pause comfortably.
But beneath the surface, the story is fragile.
Germany showed a sharp divergence:
The Ifo Business Climate Index fell unexpectedly, signaling rising corporate pessimism and recession fears.
Consumer confidence, meanwhile, edged higher.
Executives see contraction risks. Households feel slightly better thanks to easing energy costs. It’s an uneasy split.
The UK delivered the biggest shock. The Chancellor unveiled a £26 billion package of tax and spending cuts — effectively austerity under another name. The Office for Budget Responsibility warned the changes will drag down long-term growth and drive the tax burden to a 30-year high by 2030.
This casts a long shadow over the UK’s fragile recovery.
Asia: Japan’s Breakout and China’s Tech Disconnect
Japan: Preparing for Life After Deflation
Japan’s Nikkei surged 3.35% as markets positioned for the end of the deflation era.
Tokyo CPI held at 2.8%, keeping inflation pressure on the Bank of Japan. Retail sales and industrial production both beat expectations, adding strength to the outlook.
The 10-year JGB yield climbed to 1.82%, nearing 17-year highs — fueling speculation of a rate hike as soon as December.
But Japan faces a confusing policy mix. A massive ¥21.3 trillion fiscal stimulus package was unveiled just weeks before a potential hike. Monetary tightening and aggressive fiscal expansion rarely move in tandem. Investors love the momentum, but question the sustainability.
China: Market Gains Without Economic Strength
Despite gloomy data, Chinese equities climbed — the CSI 300 gained 1.64%. The rally is driven almost entirely by AI and tech enthusiasm, mirroring US sentiment.
But the macro reality is deteriorating:
Industrial profits fell 5.5% in October.
Retail sales slowed for the fifth consecutive month.
The property sector remains under heavy pressure, with falling prices and rising developer stress.
Most analysts still expect China to hit its 5% 2025 growth target — but that expectation relies heavily on future stimulus and a government backstop.
If industrial data continues to weaken, the tech rally will face real vulnerability.
The Week Ahead: A Critical Test for the Rally
The first week of December will determine whether November’s optimism was justified — or wishful thinking. Friday is the key event.
United States
Monday: ISM Manufacturing
Wednesday: ISM Services
Friday: Core PCE (the Fed’s preferred inflation gauge), personal income, personal spending, and consumer sentiment
Europe
Tuesday: Eurozone flash CPI
Friday: Manufacturing and services data
China
Monday: NBS Manufacturing PMI & Caixin PMI
Japan
Watching for commentary as JGB yields rise ahead of December’s meeting
This is one of the most consequential data weeks in months.
Top Five Risks to Watch This Week
A Federal Reserve Flip-Flop
Markets expect early rate cuts. One hot PCE print on Friday could shatter that narrative instantly.Eurozone Inflation Surprise
If flash CPI comes in above expectations, the ECB may need to resume hawkish messaging — hurting European equities.China PMI Weakness
A soft PMI reading on Monday would expose the fragile foundation of China’s tech-led rally and pressure global cyclicals.A BoJ Policy Shift
Rising Japanese yields could signal an earlier-than-expected rate hike, strengthening the yen and rattling global flows.US Consumer Fatigue
Friday’s personal spending data will be the definitive test of whether the US consumer is finally pulling back — a major risk for Q4 earnings.
Frequently Asked Questions
Why are small caps surging if the economy is slowing?
Because small caps are extremely sensitive to interest rates. Rate-cut hopes outweigh weak data — for now.
If jobless claims hit a seven-month low, why is consumer spending falling?
Labor data lags. Spending reflects real-time pressure on households. The signals are diverging.
Is Europe really recovering?
Inflation is easing, but business sentiment — especially in Germany — suggests deep structural concerns.
Why is China’s market rising when profits are falling?
AI and tech enthusiasm is driving sentiment. But the macro fundamentals remain weak.
Is Japan really about to hike rates?
Markets increasingly believe so. Inflation, higher wages, and rising JGB yields all point in that direction.
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