2025 Weekly Update

Market update

The S&P 500 closed the week at 6,870.4, +0.31% higher. The Dow Jones closed at 47,954.99, +0.50%, with the Nasdaq higher by +0.91%. The volatility index VIX closed the week at 15.41, down from 16.35. The Euro Stoxx 600 rose +0.41%.

The 10-year UST closed at 4.14%, up from 4.01% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 43bps. US Corporate Bond spreads: Investment Grade spreads narrowed -2bps at 81bps and High Yield spreads narrowed -13bps at 334bps. German 10-year Bunds yield closed at +2.80% up from +2.69% a week before. In Europe, Corporate Investment Grade spreads narrowed -4bps at 89bps and High Yield narrowed -6bps at 306bps.

The US Dollar Index (DXY) depreciated -0.47% last week and closed at 98.99. The Euro closed at 1.1642 (+0.38%); the Yen appreciated +0.54%, closing at 155.33 and the Swiss Franc depreciated -0.10%, closing at 0.8048. Gold closed at $4197.78, depreciating -0.98%. Oil was higher, Brent closed at $63.75 (+0.87%) and WTI at $60.08 (+2.61%).

Macroeconomy

Jobs data

We saw conflicting data out of the US with alternative data (ADP) continuing to point to negative hiring while the Department of Labor’s jobless claims reached a new low during the Thanksgiving holiday period. While the shutdown promoted the use of alternative data, and while methodology continues to evolve and frequency improves, it is important to keep in mind the sometimes lack of correlation between this data and official releases. The ADP report showed US private payrolls falling by 32k in November (vs. +10k expected) driven by highest job losses for small businesses since the pandemic (-120k). On the other hand, the weekly initial jobless claims fell to just 191k in the week ending November 29 (vs. 220k expected). The 4-week moving average fell to its lowest since January, at just 214.75k. Lastly on alternative data, the report on announced layoffs from Challenger, Gray & Christmas found there were fewer layoffs than expected, with a rise of +23.5% y-o-y in November (vs. +48.0% expected).

Consumer news

The Personal Consumption Expenditures (PCE) Price Index increased 0.3% in September, matching August's gain. It advanced 2.8% y-o-y. That was the largest yearly advance since April 2024 and followed a 2.7% rise in August. Goods prices jumped 0.5% in September, pushed up by more expensive furnishings and durable household equipment as well as clothing and footwear, all likely related to tariffs. The prices of gasoline and other energy products soared 3.6%. Prices for services rose by a marginal 0.2%, keeping underlying inflation under control. Excluding the volatile food and energy components, the PCE Price Index gained 0.2% after rising by the same margin in August. In the 12 months through September, the so-called core inflation index increased 2.8% after rising by 2.9% for two straight months. Consumer spending increased moderately in September after three straight months of solid gains. Sept. consumer spending, which accounts for more than two-thirds of economic activity, rose 0.3% after a downwardly revised 0.5% gain in August. Spending on services increased 0.4%, led by housing and utilities. Consumers also boosted spending on healthcare, financial services and insurance as well as hotel and motel rooms, and transportation services like airline tickets. The University of Michigan consumer sentiment (53.3 vs. 51.0 expected) rebounded from its November slump as 5-10 year inflation expectations (3.2% vs 3.4% expected) fell to their lowest since January.

US data

Nov. ISM services headline measure was a bit stronger than expected at 52.6 (vs. 52.0 expected). The prices paid component fell to a 7-month low of 65.4 (vs. 68.0 expected), which eased concerns about tariff-driven inflation. The employment component remained in contractionary territory at 48.9. ISM manufacturing remained in contraction territory at 48.2 (vs. 49.0 expected).Fed preview Markets expect a 25bps rate cut to 3.75%-3.5% at the December 10th FOMC meeting with a 93% probability. Much attention will be placed into the potential dissents that should lean into the hawkish camp as per recent speeches. We will also have the updated Summary of Economic Projections (SEP) with consensus expecting only modest revisions. Growth forecasts for 2025 and 2026 are likely to be nudged higher, consistent with the October staff update, while inflation projections should be trimmed for this year and next. The unemployment path is expected to remain broadly unchanged. The dot plot should continue to point to one cut per year over the next two years, reinforcing the message that policy is approaching the neutral range (3.5–3.75%). Lastly, on the search for a new Fed Chair, President Trump said they‘d be announcing the new Chair “probably early next year” with the Polymarket probability of NEC Director Kevin Hassett getting the job moved higher after an initial drop, reaching 87%.

European data

Euro area Nov. PMIs were revised higher, with the final composite PMI for the Euro Area at 52.8 (vs. flash 52.4) reaching its highest level since Q2 2023. Services remain the main engine of growth, underpinned by resilient domestic demand, while external demand remains a headwind. Sentiment improved in Germany and France, but the periphery — especially Spain — continues to outperform. Overall, survey data signal an acceleration in euro area GDP growth in Q4. The Euro Area manufacturing PMI revised down a tenth from the flash reading to 49.6, so still in contractionary territory. Euro area Nov. headline inflation (flash estimate) edged up to 2.2% y-o-y, while core inflation remained steady at 2.4%. Since spring, inflation has been fluctuating close to the 2.0% target and is likely to hover around that level in the near term, before slightly dipping below. The Euro Area unemployment rate came in at 6.4% in October (vs. 6.3% expected). Lastly, ECB Chief Economist Lane, who discussed how the ECB should react to medium-sized inflation shocks, and energy price shocks in particular. He argued that inflation risk wasn’t one-way and that the bank had recently seen some upside surprises, so his comments offered support for the view that rates are likely to be kept on hold through the energy-induced inflation undershoot in 2026.

Swiss data

The Swiss Nov. CPI was the last major input ahead of next week’s Swiss National Bank meeting. It surprised again to the downside, falling 0.1pp to 0.0% y-o-y, below 0.1% expectations. This marks the lowest inflation print since May 2025, when CPI briefly dipped to -0.1% y-o-y. Underlying inflation also softened materially, with core inflation easing to 0.4% y-o-y, the weakest level since August 2021. The downside surprise was mainly driven by domestic inflation. We still expect inflation to tick up marginally in December, though from a lower base and to a lower level than previously expected. The Swiss National Bank (SNB) is expected to meet on Thursday. The average Q4 inflation print so far (October–November) is well below the SNB’s official projection of a 0.4% rebound. The string of weak inflation data keeps pressure on the SNB, but investors expect policymakers to look through this softness and remain on hold. The SNB has been quite vocal about the hurdle for returning to negative rates is very high.

Japan data

The revised annualized Q3 growth contraction was reported at -2.3%, compared to an earlier estimate of -1.8% and a market forecast of a -2.0% decline. On a q-o-q basis, GDP decreased by -0.6%, which is steeper than the initial -0.4% contraction and exceeded the forecast of a -0.5% decline. Separately, real wages fell by -0.7% in October compared to the previous year, a slower decline than the revised -1.3% drop in September, but it extended a losing streak that began in January. Average nominal wages, or total cash earnings, rose by +2.6% y-o-y in October, marking a three-month high that followed a +2.1% increase in the previous month.

China data

Outbound shipments increased by +5.9% y-o-y in November, surpassing market expectations for +4.0% growth, marking a recovery from an unexpected -1.1% decline in October — the first contraction since March 2024. Imports rose by +1.9% last month, falling short of the anticipated +3.0% increase, as a prolonged housing downturn and rising job insecurity continued to hinder domestic consumption. This growth was an improvement compared to the 1% recorded in October. Lastly, a private survey indicated that growth in the services sector has slowed to a five-month low in November, with the services PMI declining to 52.1 from 52.6. This slowdown is attributed to weaker new orders and ongoing job contractions, despite the improvement in export activity.

Highlights

On rates

Last week we saw a raise in yields across the globe. It was triggered by the repricing of future Fed rate cuts and the anticipation of higher rates in Japan. In the US, both the mixed labor data and the fact that the prices paid component of the ISM services survey fell to a 7-month low of 65.4, increased the odds of a rate cut in the upcoming Wednesday Fed meeting. That prices paid component has been strongly correlated to inflation with a lag, so the bigger-than-expected decline helped solidify expectations for a Fed rate cut. At the same time, the number of rate cuts priced by end-2026 declined by -9.3bps with still three 25bps cuts priced in during 2026. This led to a rise in Treasury yields, with the 2yr yield up +7.0bps to 3.56%, while the 10yr saw its biggest weekly sell-off since April (+12.1bps to 4.14%). Higher yields were also driven by news from Japan, as comments from BoJ Governor Ueda led investors to anticipate a December rate hike. 10-year JGB yields rose by +13.5bps to a post-2008 high of 1.94% and 30-year yields by +1.5bps to 3.35%, its highest since the tenor was introduced in the late-1990s. In Europe, 10yr German bunds (+10.9bps), French OATs (+11.4bps), and Italian BTPs (+8.5bps) joined the global bond sell-off. That came as the Euro Area flash CPI for November was higher than expected, while the composite PMI was revised up to its highest in two-and-a-half years. This morning, yields on the 10-year Australian government bonds reached 4.71%, marking the highest level in two years in anticipation of the central bank RBA meeting tomorrow.

What to watch

• Monday: US Personal Spending & Income, PCE Price Index and PPI; Germany Industrial Production; Japan Cash Earning & GDP; China Exports
• Tuesday: US NFIB Small Business Optimism and JOLTs Job Openings; Australia RBA Cash Rate; Taiwan Exports
• Wednesday: US FOMC; Canada BOC Rate Decision
• Thursday: US Initial Jobless Claims; China CPI and PPI
• Friday: Switzerland SNB Policy Rate; Australia Employment