2025 Weekly Update

Market update

The S&P 500 closed the week at 6,602.99, -1.95% lower. The Dow Jones closed at 46,245.41, -1.91%, with the Nasdaq lower by -2.74%. The volatility index VIX closed the week at 23.43, up from 19.83. The Euro Stoxx 600 fell -2.21%.

The 10-year UST closed at 4.06%, down from 4.15% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 23bps. US Corporate Bond spreads: Investment Grade spreads widened +1bp at 85bps and High Yield spreads widened +11bps at 363bps. German 10-year Bunds yield closed at 2.70% down from 2.72% a week before. In Europe, Corporate Investment Grade spreads widened +1bp at 93bps and High Yield widened +5bps at 317bps.

The US Dollar Index (DXY) appreciated +0.89% last week and closed at 100.18. The Euro closed at 1.1513 (-0.93%); the Yen depreciated -1.20%, closing at 156.41 and the Swiss Franc depreciated -1.80%, closing at 0.8083. Gold closed at $4,065.14, depreciating -0.46%. Oil was lower, Brent closed at $62.56 (-2.84%) and WTI at $58.06 (-3.38%).

Macroeconomy

Labor market

Delayed Sept. data came out from the Bureau of Labor Statistics showing that nonfarm payrolls were up +119k (vs. +51k expected), which took the 3-month average back up to +62k. Plus the broader U6 measure of underemployment fell back to 8.0%. However, there was more negative news in -33k of revisions, and the unemployment rate, which ticked up to 4.4% (vs. 4.3% expected), and it nearly rounded up further given it was at 4.44% to two decimal places. That could partly be explained by a higher participation rate, which unexpectedly moved up to 62.4% (vs. 62.3% expected), but it was still the highest unemployment rate in nearly four years. Also, the Department of Labor released the backlog of weekly initial jobless claims over recent weeks. That came in lower than expected at 220k in the week ending Nov. 15 (vs. 227k expected). So, while the jobs report only went up to September, the initial claims data reassured investors that the labor market had broadly held up through the shutdown too. However, an uptick in continuing claims (1,974k vs 1,950k expected) diluted this more positive take a bit.

US data

The Empire State manufacturing survey from the NY Fed grabbed attention given the lingering data backlog from the shutdown - normally this is a second-tier release. The headline index surged to 18.7 in Nov. (vs. 5.8 expected), its highest in a year, reinforcing the view that the US economy has held up well.

Fed minutes

The minutes of the Oct. FOMC meeting showed “many” officials leaning against a Dec. rate cut. While “several participants” said that a Dec. rate cut “could well be appropriate”, “many participants suggested that… it would likely be appropriate to keep” rates steady into year-end. “Several” policymakers were even against the Oct. rate cut itself, although in the end only Kansas Fed President Schmid dissented in favor of keeping rates on hold. The Fed minutes also confirmed that “almost all participants” supported the impending end to QT announced at the Oct. meeting following recent tightening in money market conditions but showed little discussion on the future path of reserve management.

UK

In Oct., headline CPI eased to 3.6% y-o-y, in line with the BoE forecast, driven by a slowdown in energy and services prices, while core goods prices remained unchanged, and food prices saw some increase. The BoE will find reassurance in this report, confirming that the disinflationary trend is continuing. Coupled with further signs of weakening in the labor market, this strengthens the case for a rate cut in Dec. Policymakers (and markets) will remain highly focused on this week budget, as it could significantly influence the medium-term outlook. Recent media reports have suggested a U-turn on plans to raise the income tax rate due to apparently improved forecasts from the OBR (Office for Budget Responsibility), as such a measure would have constituted a breach of election promises with unknown political consequences. The government could still likely increase its fiscal headroom by delivering non-inflationary tax hikes, although these measures may be perceived as less credible by markets.

Ukraine war

Over the weekend, the news flow escalated very quickly. After news broke on Thursday of a 28-point peace plan that was aligned following meetings between US envoy Witkoff and Kirill Dmitriev, head of Russia’s sovereign wealth fund, politicians and diplomats have been scrambling after being caught off guard. Trump appeared to give Kyiv a deadline of Thanksgiving (this Thursday) to accept the proposals, though later said that it was “not my final offer”. Last night we heard positive comments from Secretary of State Marco Rubio after talks with Ukrainian officials in Geneva, with the sides drafting “an updated and refined peace framework” and agreeing “to continue intensive work” in the coming days. Meanwhile, European leaders met on the sidelines of the G20 conference in South Africa, with outlets including Reuters reporting a European counterproposal that pushes back on elements of the US draft such as territorial concessions. So, plenty of diplomatic moving parts to watch in the next few days.

Japan

Japanese Prime Minister Sanae Takaichi's cabinet have sanctioned a 21.3 trillion yen ($135.5 billion) economic stimulus package, representing the first significant policy action under the new leadership, which has committed to implementing expansionary fiscal policies. This package encompasses general account expenditures of 17.7 trillion yen, significantly surpassing the previous year's 13.9 trillion yen and marking the largest stimulus since the COVID pandemic. It will also feature 2.7 trillion yen in tax reductions. This stimulus initiative has raised concerns about exacerbating Japan's already substantial debt burden, resulting in government bond yields reaching unprecedented levels earlier this week and the yen depreciating against the dollar. Also, Junko Koeda, a board member of the BOJ, provided one of the most explicit hawkish indications from the central bank in recent months, suggesting the potential for a rate increase as early as next month. This is in response to the yen reaching its lowest value in 10 months. Lastly, core inflation in Oct. increased by +3.0% y-o-y, marking its highest rate since July but aligning with market expectations. The headline inflation rate also rose to +3.0%, remaining above the BOJ’s 2% target for 43 consecutive months, but again in line with consensus.

Highlights

On rates

Last week, US Treasuries rallied across maturities, as volatility increased in the equity market. The 2-year yield fell by 9.8bps to 3.51%, the 10-year yield declined by 8.4bps to 4.06%, and the longer 30-year yield dropped by 3.5bps to 4.71%, reflecting a risk-off sentiment among investors. Expectations for Fed rate cuts experienced significant fluctuations due to shifting market sentiment. Investors are now pricing in a stronger likelihood of Fed rate cuts, with a December cut being 63% priced in, up from 43% the previous week. Earlier in the week, this probability was as low as 27%, following the BLS announcement that there would be no October payrolls report, and that the November report would be delayed until December 16. The decline rate cut expectations during the week came despite slightly dovish remarks from Vice Chair Jefferson, who saw the “balance of risks in the economy as having shifted in recent months with increased downside risks to employment compared to the upside risks to inflation, which have likely declined somewhat recently”. That said, he left Dec. open as a data dependent decision. More clearly on the dovish side of the FOMC, we heard from Fed Governor Waller, who repeated the view that the Fed should cut rate again in Dec., saying that this would “provide additional insurance against an acceleration in the weakening of the labor market”. Finally, the rate cut pricing ticked up on Friday after NY Fed President Williams said he saw room for another cut “in the near term”. In Europe, sovereign yields followed the downward trend, with 10-year Bunds down 1.7bps and BTPs declining by 1.4bps while OATs rose by 1.4bps. Italy received an upgrade from Moody’s after the Friday close, reflecting the country’s fiscal progress. Gilt yields also fell by 2.8bps as investors awaited the Autumn budget announcement later this week. Over in Asia, JGBs ended the week 6.8bps higher at 1.77%, reaching a multi-decade high following signals from Prime Minister Kishida for additional fiscal stimulus.

Earnings

As the earnings season winds down for this quarter, 95% of the companies in the S&P 500 have reported their actual results for Q3 2025. Of these, 83% have reported actual EPS above estimates, exceeding the 5-year and 10-year averages of 78% and 75%, respectively. It will represent the highest percentage of S&P 500 companies reporting a positive EPS surprise for a quarter since Q3 2021. On average, companies are reporting earnings and revenues that are 7.0% and 2.1% above estimates respectively. Consequently, the blended earnings growth rate for the index currently stands at 13.4%, the fourth consecutive quarter of double-digit earnings growth. In terms of revenues, 76% of S&P 500 companies are reporting actual revenues above estimates with a growth rate at 8.4%. It will mark the highest revenue growth rate for the index since Q3 2022 (11.0%). At the sector level, all eleven sectors are reporting y-o-y revenue growth, with three sectors—Information Technology, Health Care, and Communication Services—achieving double-digit revenue growth. The forward 12-month P/E ratio for the S&P 500 is 21.5, above both the 5-year average (20.0) and the 10-year average (18.7). With Nvidia reporting much awaited actual results for Q3 last week, all the companies in the “Magnificent 7” have now reported earnings for the third quarter. These companies reported actual earnings growth of 18.4% for the quarter, which is below their average earnings growth rate of 28.8% over the previous four quarters. In fact, this is the lowest earnings growth rate reported by the “Magnificent 7” since Q1 2022. In Europe, over 90% of Stoxx 600 companies have reported Q3 earnings, with 57% surpassing EPS estimates, delivering a positive surprise of 3% and achieving EPS growth of 1% y-o-y. At the sector level, Financials, Technology, and Real Estate are leading in earnings growth. Excluding Consumer Discretionary, where Autos experienced another weak quarter, European EPS growth improves to 6% y-o-y. Looking ahead, corporate earnings season continues with the last tech names such as Alibaba, Analog Devices, Dell, HP, Workday, and Zscaler.

What to watch

• Monday: US Chicago and Dallas Fed Activity Index; Germany IFO
• Tuesday: US Retail Sales, PPI, and Conference Board Consumer Survey; HK October Exports
• Wednesday: US Initial Jobless Claims, Q3 GDP, PCE and Fed Beige Book; UK Autumn 2025 budget; Australia CPI; RBNZ Cash Rate
• Thursday: Germany GfK Consumer Confidence; China Industrial Profits; Korea Policy Rate
• Friday: ECB 1Y and 3Y Inflation Expectations; Japan Job-to-applicant Ratio, Tokyo CPI; Q3 GDP for Taiwan and India

* Previous U.S. federal data releases are currently being rescheduled. Q3 GDP and PCE will not be released as per schedule.