Global Markets Weekly Update

U.S.

Major U.S. stock indexes finished the first week of December higher, adding to the prior week’s gains, amid investor hopes for an interest rate cut from the Federal Reserve at its upcoming meeting. The technology-heavy Nasdaq Composite led the major indexes higher, advancing 0.91%, followed by the small-cap Russell 2000 Index, which rose 0.84%. The S&P 500 Index lagged but still posted a modest gain for the week. T. Rowe Price traders also noted that trading volumes were relatively light throughout much of the week.

Manufacturing activity continues to slide; services expand at fastest pace since February

Activity in the manufacturing sector contracted for the ninth consecutive month in November, according to data from the Institute for Supply Management (ISM). On Monday, the ISM reported that its manufacturing Purchasing Managers’ Index (PMI) declined to 48.2%, down from 48.7% in October (readings below 50% indicate contraction, while readings above 50% signal expansion). Pullbacks in supplier deliveries, new orders, and employment drove the overall decline, while input prices increased for the 14th consecutive month and at a faster rate than in October. 

On the other hand, November services activity expanded at a slightly faster pace than in October, with the services PMI rising 0.2 percentage points to 52.6%, the highest in nine months. The prices index saw a 4.6-percentage-point drop to 65.4%, the lowest reading since April, indicating prices paid by services organizations increased at a slower rate than in October. 

Private payrolls drop by most since 2023

On Wednesday, payroll processing firm ADP reported that private sector payrolls decreased by 32,000 in November, a sharp reversal from October’s revised gain of 47,000. November’s reading marked the largest monthly drop since March 2023. According to ADP Chief Economist Nela Richardson, “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment. And while November's slowdown was broad-based, it was led by a pullback among small businesses.”

Consulting firm Challenger, Gray & Christmas also released a report during the week showing that U.S.-based employers announced more than 71,000 job cuts in November, the most for the month since 2022. The November figure brought the year-to-date total to about 1.17 million job cuts, the highest level since 2020.

Meanwhile, the Labor Department reported that initial claims for unemployment benefits for the week ended November 29 unexpectedly declined to 191,000—a decrease of 27,000 from the previous week's revised level and the lowest since September 2022.  

September inflation little changed; consumer sentiment shows modest improvement

The Bureau of Economic Analysis (BEA) reported on Friday that the Fed’s preferred inflation measure—the personal consumption expenditures (PCE) index—rose 0.3% month over month in September, in line with August’s reading. Core PCE—which excludes volatile food and energy prices—rose 0.2%, also in line with the prior month. Both measures increased 2.8% on a year-over-year basis. The original release of the September data was delayed due to the federal government shutdown, and the BEA has not yet announced a rescheduled release date for October’s data.

Friday morning also brought a preliminary reading of the University of Michigan’s December Index of Consumer Sentiment, which improved 2.3 points from November to 53.3. The increase was largely driven by improved expectations for personal finances, although overall views remained “broadly somber, as consumers continue to cite the burden of high prices,” according to the report. Expected inflation in the year ahead decreased to 4.1% from 4.5% in the prior month, the lowest reading since January 2025 and the fourth consecutive month of declines.

Treasuries underperform amid increase in long-term yields

U.S. Treasuries generated negative returns as yields generally increased across most maturities, although some short-term yields decreased slightly. (Bond prices and yields move in opposite directions.) Municipal bonds also posted losses, although the muni market outperformed Treasuries as demand remained steady despite a substantial new issuance calendar.

Meanwhile, high yield bonds generated gains, supported by a firmer macroeconomic backdrop, and volumes were above average as liquidity conditions returned to normal after Thanksgiving, according to T. Rowe Price traders.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.41% higher on hopes of interest rate cuts in the U.S. and UK. Major stock indexes posted mixed returns. Germany’s DAX added 0.80%, while Italy’s FTSE MIB ticked up 0.17%. France’s CAC 40 Index was down modestly. The UK’s FTSE 100 Index finished 0.55% lower.

Eurozone inflation picks up, GDP revised higher, labor market still tight

A preliminary estimate showed that annual headline inflation in the eurozone ticked up to 2.2% in November from 2.1% in October, above economists’ forecasts in a FactSet poll but still close to the European Central Bank’s 2% target. Higher services costs were partly offset by falling energy prices. The core rate, which excludes volatile food and fuel costs, remained at 2.4%.

According to the latest data, euro area gross domestic product increased by 0.3% in the third quarter, as a rebound in fixed investment contributed to an upward revision from the previous estimate of 0.2%. France and Spain drove the expansion, while Germany’s economy stagnated.

The seasonally adjusted unemployment rate in the euro area remained at 6.4% in November. Retail sales volumes came in flat versus September, but year over year they grew 1.5%, which was faster than the 1.0% estimate in a FactSet survey of analysts and the prior reading of 1.2%. 

German manufacturing orders rise more than expected

Germany’s factory orders in October rose 1.5% sequentially, marking a second consecutive monthly increase. The latest figure exceeded a consensus forecast of 0.5%, thanks to substantially higher orders for aircraft, ships, trains, and military vehicles, together with an 11.9% rise in metal production and processing. 

UK housing market resilient despite budget worries

House prices remained relatively stable in November despite stamp duty changes, worries about possible taxes in the fall budget, and record real estate prices. The Nationwide Building Society’s house price index rose 0.3% sequentially, beating forecasts for no growth and up from 0.2% in October. Bank of England data showed underlying mortgage demand remained solid. Net mortgage approvals for house purchases fell slightly to 65,018 in October from a revised 65,647 in September.

Japan

Japan’s stock markets registered mixed performance over the week, with the Nikkei 225 Index gaining 0.47% and the broader TOPIX Index down 0.47%. Stocks faced pressure from rising global bond yields and a speech by Bank of Japan (BoJ) Governor Kazuo Ueda that was perceived as hawkish, which increased expectations for a December rate hike and pushed Japanese government bond (JGB) yields and the yen higher. The 10-year JGB yield climbed to 1.93% from 1.82% the prior week, its highest level since 2007. The yen strengthened to the upper end of the JPY 154 range against the U.S. dollar, from around JPY 156 the previous week.

BoJ Governor Ueda said that the bank’s basic assessment that the country’s economy has recovered moderately remains unchanged. Prices of not only food products but also goods and services have risen moderately. On the conduct of monetary policy, if the bank’s outlook for economic activity and prices is realized, it will continue to raise the policy interest rate.

Crucially, Governor Ueda asserted that the likelihood of this baseline scenario being realized is gradually increasing, given factors such as the recent decline in uncertainties surrounding the U.S. economy and tariff policies. At its December 18–19 monetary policy meeting, the BoJ will consider the pros and cons of raising its policy rate and make decisions as appropriate. Market takeaways from Governor Ueda’s speech were hawkish, and it was seen as paving the way for further monetary tightening, with investors increasingly converging around the view that the BoJ is now likely to raise rates in December.

In economic data developments, Japan’s household spending shrunk in October by the most since January 2024. Spending contracted 3.0% year over year, more than consensus forecasts of a 1.0% increase and compared with September’s 1.8% gain. The contraction was attributed to weaker household spending on food, entertainment, and automobiles, in the face of persistent cost pressures. 

China

Mainland Chinese stock markets advanced as enthusiasm for domestic technology and artificial intelligence trades eclipsed data pointing to an economic slowdown. The CSI 300 Index, the main onshore benchmark, rose 1.28%, and the Shanghai Composite Index added 0.37%, according to FactSet. In Hong Kong, the benchmark Hang Seng Index gained 0.87%.

On the economics front, China’s official manufacturing PMI improved to 49.2 in November from 49.0 in October. But November’s reading marked the eighth straight month that the factory gauge stayed below 50, the level that separates growth from contraction, a record-long stretch of declines, according to Bloomberg. The official nonmanufacturing measure of construction and services activity fell to 49.5 in November from 50.1 in October, its first contraction in nearly three years, due to weakness in the real estate and residential services sectors.

The latest PMI readings added to evidence that China’s economy lost momentum in the fourth quarter. An ongoing property crisis, which began in 2020 when Beijing unveiled its “three red lines” campaign aimed at clamping down on excessive borrowing by developers and a growing real estate bubble, has emerged as perhaps the biggest risk to the economy, discouraging consumption and fueling deflationary pressures. Nevertheless, most analysts believe that China will meet its annual growth goal of about 5% without further policy actions this year.

Other key markets

Poland

Continued decrease in inflation allows another interest rate reduction

On Tuesday and Wednesday, Poland’s central bank held its scheduled monetary policy meeting, and policymakers decided to reduce the key interest rate, the reference rate, by 25 basis points (0.25%), from 4.25% to 4.00%. 

According to the relatively short post-meeting statement, the annualized third-quarter preliminary economic growth rate was 3.8% versus 3.3% in the second quarter. Policymakers attributed the growth pickup to “an increase in domestic demand, including consumption and investment.” In October, they observed “a rise in retail sales, industrial output and construction and assembly production in annual terms” but noted a “slowdown” in wage growth and “a further fall in employment in the enterprise sector.”

Regarding inflation, central bank officials noted that annual consumer price index (CPI) inflation decreased from 2.8% in October to 2.4% in November. They also estimated that inflation net of food and energy prices decreased again. This decline in inflation provided policymakers with the justification to reduce interest rates again.

Türkiye (Turkey)

Policymakers hold rates steady but leave “room for potential rate cuts”

The Turkish government recently reported that the economy expanded at a quarter-over-quarter rate of 1.1% in the third quarter. While this is softer than the 1.6% quarter-over-quarter growth in the second quarter, the economy is projected to expand 3.5% for the full year versus earlier expectations of 3.0%.

According to T. Rowe Price emerging markets credit analyst Peter Botoucharov, this pace of economic growth gives the government a good basis for extending its macroeconomic adjustment program. He believes that both tight monetary policy and fiscal adjustments will continue at least through the first half of 2026 and that the central bank will likely continue a slow rate-cutting cycle as inflation trends lower.

In the near future, Botoucharov will be watching for the government’s announcement of minimum wage increases for 2026. Initial indications suggest that wages could rise 20% to 25%, which would be in line with 12-month forward-looking inflation projections.