Global Macro Monitor

A great piece from The Economist ranking the performance of global economies.  Here is a concise summary. 

Despite fears of a trade-war-induced recession, the global economy proved resilient in 2025. With global GDP growth steady at 3% and unemployment remaining low, the primary concern shifted toward sticky inflation, which remains above the 2% target across the OECD.

Top Performers and Surprises

The star of the year is Portugal, which combined robust GDP growth with low inflation and a thriving stock market. Southern Europe’s streak continues, as Spain and Greece also ranked near the top. Israel saw the world’s best stock market returns, driven by its banking sector, while Ireland’s growth remained spectacular, though distorted by multinational accounting.

Regional Divergence

• The Laggards: Northern European nations like Estonia, Finland, and Slovakia struggled.

• The Giants: The United States landed in the middle, hindered by higher inflation despite a respectable job market.

• Deflation Risks: Countries like Sweden faced the opposite problem—anaemic inflation, which raises concerns about long-term spending and debt burdens.

Ultimately, 2025 favored economies that managed to balance tourism and tax incentives against the pressures of high interest rates and global trade friction.

Global risk sentiment stayed constructive this week despite a sharp back-up in global bond yields and lingering growth concerns. Higher long-end yields across 19 bond markets—led by a 27 bp rise in Canada—coincide with markets pricing an 80–90% chance of a 25 bp Fed cut, but limited conviction on further easing into March. Equities ground higher in the U.S. and Europe, with transports, cyclicals, and small caps outperforming as investors rotate toward rate-sensitive and economically geared sectors.

Data continue to paint a mixed global picture: U.S. manufacturing remains in contraction while services expand at the fastest pace in nine months; labor indicators are softening at the margin, but initial jobless claims sit at a three-year low. Eurozone inflation has ticked up slightly above 2%, reinforcing an ECB-on-hold stance, while Japan edges closer to BoJ rate normalization as JGB yields hit multi-year highs. China’s PMIs underline weak domestic demand, even as exports and tech/AI themes support local equities. Across EM, policy is drifting more dovish, with India and several Asian and EEMEA central banks cutting rates. Overall, valuations look increasingly stretched, leaving the rally vulnerable to rates, earnings, or policy surprises.

Regional Economic Insights

United States

• Mixed labor data: ADP showed the largest job loss in two years while jobless claims hit multi-year lows.

• Stock performance supported by weaker inflation (core PCE below expectations) and Fed-cut optimism.

• Oil, yields, and gold moved in response to shifting expectations for next week’s FOMC call.

Eurozone

• Market sentiment influenced by inflation divergence—CPI roughly aligned with expectations while PPI remains firm (from broader template structure).

Japan

• JGB yields rising, interacting with U.S. yields and potentially altering risk sentiment next week.

China

• No new macro updates in Week_Dec5; monitoring holiday-related demand trends (per document structure).

Inflation: CPI–PPI Dynamics

• U.S. core PCE inflation cooled slightly in the latest release (0.1% below expectations), helping maintain the disinflation narrative.

• Producer prices (PPI) due next Thursday are a potential catalyst for volatility.

Markets

Equities

• Strongest sectors: consumer durables, transportation, and manufacturing.

• Dow Transports had an outsized weekly gain, breaking into leadership territory and signaling cyclical momentum.

Bonds

• Yields fell on weak ADP data but reversed higher on cooling inflation expectations and anticipation of the FOMC meeting.

Energy, Metals & Crypto

• Oil: Rose mid-week on geopolitical tensions, then moderated on inventory builds.

• Gold: Softened after the prior week’s 3.8% rally.

• Crypto: Bitcoin and Ethereum whipsawed; ETH boosted temporarily by its Fusaka upgrade.

United States Outlook (Week Ahead)

Key releases include JOLTS, ECI, PPI, crude oil inventories, and the FOMC decision on Dec. 10.

Central Bank Actions

The FOMC is expected to cut rates by 25 bps, though committee dissents are likely; guidance suggests fewer cuts ahead.

Risks & Outlook

• Volatility expected in the latter half of next week due to Fed messaging and Oracle earnings—a binary catalyst for AI-linked sentiment.

• Rising JGB yields may pressure U.S. long rates and shift the market tone.

More than Luck of the Irish!

Nvidia endured a sharp and unsettling 8% reversal today, and when combined with Bitcoin’s continued slide, the pressure spread quickly across the broader market. By the close, the S&P 500 had fallen 3.5% from its intraday high, marking a swift and sizable retreat.

Within the Fab 7, only Apple and Alphabet have avoided double-digit declines from their recent highs. The rest have already fallen double-digits, with several either in or nearing bear-market territory—a drop of 20 percent or more.

No one can foresee what comes next, but the speed and severity of today’s reversal invite a moment of reflection. For some investors, the abrupt shift echoes the unsettling tone of the 2018 “Nightmare Before Christmas” bear market. That episode only finally came to an end on Christmas Eve, when Fed Chairman Jay Powell—after months of relentless pressure from President Trump—stepped back and began to ease up on monetary policy, effectively marking the capitulation that turned the tide.