Markets Look Toward Federal Reserve’s Final Meeting of the Year
U.S.

U.S. equity markets ended the first week of December with further gains, extending the momentum from late November as investors positioned themselves ahead of the Federal Reserve’s final policy meeting of the year. The Nasdaq Composite led the major benchmarks with a rise of 0.91%, followed by the small-cap Russell 2000 Index, which advanced 0.84%. The S&P 500 also moved higher, though its increase was more subdued. According to traders at T. Rowe Price, overall trading volumes remained relatively muted throughout much of the period.

Manufacturing Weakens Again as Services Activity Quickens

Data from the Institute for Supply Management (ISM) revealed continued softness in the manufacturing sector. The ISM manufacturing PMI slipped to 48.2% in November from 48.7% in October, marking the ninth straight month below the 50% threshold that separates expansion from contraction. Slower supplier deliveries, weaker new orders, and softer employment contributed to the overall decline. Meanwhile, input prices rose for the 14th consecutive month and did so at a faster pace than in October.

In contrast, the services sector showed moderate improvement. The ISM services PMI increased to 52.6%, up 0.2 percentage points and reaching its strongest level in nine months. The services prices index fell to 65.4%, a 4.6-point drop that brought the measure to its lowest level since April, indicating that costs faced by services providers grew at a slower pace.

Private-Sector Hiring Sees Sharpest Drop Since 2023

Mid-week labor data from ADP showed that private employers cut 32,000 jobs in November, reversing the prior month’s revised gain of 47,000. The decline represented the biggest drop since March 2023. ADP Chief Economist Nela Richardson noted that the recent hiring environment has been inconsistent as employers react to softer consumer spending and broad economic uncertainty. The contraction in November was widespread, but small businesses experienced the most significant retreat.

Separately, Challenger, Gray & Christmas reported that U.S. companies announced over 71,000 layoffs during November, the highest for that month since 2022. Year-to-date layoffs reached roughly 1.17 million, the largest total since 2020.

Despite these developments, the Labor Department reported that initial jobless claims unexpectedly fell to 191,000 for the week ending November 29, a drop of 27,000 from the previous week’s revised level. This marked the lowest reading since September 2022.

Inflation Stable While Consumers Report Slightly Better Sentiment

The Bureau of Economic Analysis indicated that the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index, increased 0.3% in September, matching August’s rate. Core PCE, which excludes food and energy categories, rose 0.2% for a second consecutive month. Both measures climbed 2.8% compared with a year earlier. The September release had been delayed due to the government shutdown, and the BEA has not yet provided updated timing for the October publication.

Consumer sentiment displayed modest improvement. The preliminary December reading from the University of Michigan’s Index of Consumer Sentiment rose 2.3 points to 53.3. Improved expectations for personal finances contributed most to the increase, though broader views remained generally cautious as households continued to highlight elevated price pressures. One-year inflation expectations eased to 4.1% from 4.5%, the lowest since January 2025 and the fourth decline in a row.

Treasury Performance Softens as Yields Move Higher

U.S. Treasury securities registered negative returns for the week, with yields rising across much of the curve, although some short-term maturities saw slight declines. Municipal bonds also fell but continued to outperform Treasuries as steady demand helped absorb a heavy supply calendar. High yield bonds recorded gains, supported by firmer macroeconomic conditions, and trading activity rose above typical levels as post-holiday liquidity normalized.

Below is the unchanged table:

Europe

European markets presented a mixed picture. The STOXX Europe 600 Index rose 0.41% in local currency terms as expectations for policy easing in the U.S. and UK supported sentiment. Germany’s DAX gained 0.80%, Italy’s FTSE MIB edged up 0.17%, France’s CAC 40 slipped modestly, and the UK’s FTSE 100 declined 0.55%.

Eurozone Inflation Edges Up; Output Revised Higher; Labor Market Stable

A preliminary estimate showed eurozone headline inflation rising to 2.2% year over year in November, slightly above forecasts but still close to the European Central Bank’s target. Core inflation was unchanged at 2.4%. Declines in energy prices offset some of the upward pressure from services.

Revised data indicated that eurozone GDP grew 0.3% in the third quarter compared with an earlier estimate of 0.2%, aided by stronger fixed investment. France and Spain were the primary contributors to the expansion, while Germany’s output showed little improvement.

The unemployment rate held steady at 6.4% in November. Retail sales were flat compared with September, but the year-over-year increase reached 1.5%, above the consensus expectation of 1.0% and the previous 1.2% reading.

German Factory Orders Exceed Expectations

Germany’s industrial orders advanced 1.5% in October, beating expectations of a 0.5% increase. Higher demand for transport-related goods such as aircraft, ships, trains, and defense vehicles, along with an 11.9% jump in metal production and processing orders, drove the improvement.

UK Housing Market Shows Steady Conditions Despite Budget Concerns

UK housing prices remained relatively stable despite uncertainty surrounding potential tax measures in the autumn budget and record property valuations. Nationwide reported that its home price index rose 0.3% month over month in November, above forecasts for no change and up from 0.2% in October. Mortgage demand held firm, with net approvals reaching 65,018 in October compared with 65,647 in September.

Japan

Japanese equity markets delivered mixed results. The Nikkei 225 Index recorded a 0.47% increase, while the TOPIX Index declined 0.47%. Rising global bond yields and comments from Bank of Japan (BoJ) Governor Kazuo Ueda weighed on sentiment. His remarks were interpreted as leaning more hawkish, prompting expectations of a possible rate increase in December. Japanese government bond yields rose accordingly, with the 10-year JGB yield climbing from 1.82% to 1.93%, the highest level since 2007. The yen appreciated to the upper JPY 154 range per U.S. dollar from around JPY 156 a week earlier.

Ueda reaffirmed that Japan’s economy continues to recover moderately and noted broad increases in prices across goods and services. He stated that if the BoJ’s outlook for activity and inflation is realized, additional policy rate hikes would be appropriate. He also indicated that the likelihood of this scenario has been increasing, supported by declining uncertainties regarding the U.S. economy and trade policies. Investors viewed these comments as laying the groundwork for additional tightening, with the December 18–19 meeting seen as a likely point for action.

Japan’s household spending fell 3.0% year over year in October, the sharpest contraction since January 2024, reflecting reduced spending on food, leisure, and automobiles amid persistent cost pressures.

China

China’s stock markets advanced as enthusiasm for domestic technology and artificial intelligence-related sectors outweighed economic concerns. The CSI 300 Index rose 1.28%, and the Shanghai Composite Index gained 0.37%. The Hang Seng Index in Hong Kong increased 0.87%.

China’s manufacturing PMI improved slightly to 49.2 in November from 49.0 in October but remained below the 50 threshold for an eighth consecutive month, representing the longest contraction streak on record. The nonmanufacturing PMI fell to 49.5 from 50.1, reflecting softening conditions in real estate and residential services.

These indicators added to evidence of weakening momentum in the fourth quarter. The ongoing property downturn, which began with the “three red lines” policy in 2020, continues to restrain demand and contribute to deflationary pressures. Despite these challenges, most analysts expect China to achieve its roughly 5% annual growth target without additional policy intervention.

Other Key Markets

Poland: Another Rate Cut as Inflation Declines

Poland’s central bank reduced its benchmark interest rate by 25 basis points, from 4.25% to 4.00%. Policymakers cited stronger domestic demand as the main driver of improved GDP performance, with third-quarter growth rising to 3.8% from 3.3%. They also highlighted increases in retail sales, industrial production, and construction activity. Inflation slowed from 2.8% in October to 2.4% in November, supporting the decision to ease policy.

Türkiye

The Turkish economy grew 1.1% quarter over quarter in the third quarter, slightly below the 1.6% expansion recorded in the second quarter. Full-year growth is projected at 3.5%, ahead of earlier expectations of 3.0%. T. Rowe Price analyst Peter Botoucharov noted that the economic performance supports the continuation of Turkey’s broader adjustment program. He expects that tight financial conditions will persist through at least the first half of 2026, with the central bank maintaining a gradual rate-cutting path as inflation cools. Upcoming announcements on minimum wage adjustments for 2026 will be closely watched, with early estimates suggesting increases of 20% to 25%, aligned with forward inflation expectations.