Weekly Market Recap

The number of mortgages approved by British lenders for house purchases fell to 64,530 in November from 65,010 in October, Bank of England data showed. Halifax, a mortgage lender, said house prices unexpectedly fell 0.6% sequentially in December, after dipping 0.1% in November, as economic and tax uncertainty damped sentiment at the end of last year.

Last week saw several notable industry-level moves in response to a flurry of policy announcements from President Donald Trump. For example, stocks of aerospace and defence companies were hurt on Wednesday by comments that Trump “will not permit” them to pay dividends or repurchase shares unless they accelerate production of military hardware. The next day, defence stocks rallied after the administration proposed a sizable increase in military spending, as investors priced in the potential for higher government outlays.

Similarly, shares of homebuilders and related industries initially came under pressure after the administration said it would seek to restrict institutional purchases of single-family homes. However, the group rebounded later in the week after Trump announced he was instructing government-controlled mortgage companies Fannie Mae and Freddie Mac to buy USD 200 billion in mortgage bonds to help lower mortgage rates. Credit spreads in the agency mortgage-backed securities sector also tightened rapidly on the news.

The week also brought a heavy dose of economic data releases, including several labour market reports that generally surprised to the downside. Most notably, the Labor Department released its closely watched nonfarm payrolls report on Friday, which showed that US employers added a lighter-than-expected 50,000 jobs in December, while October’s and November’s readings were revised down by a combined 76,000. However, on the positive side, the unemployment rate fell to 4.4% from a revised 4.5% in the prior month.

The Labor Department’s Job Openings and Labor Turnover Summary for November provided another sign of cooling in the US labour market. According to the report, hires declined to 5.1 million in November, down from 5.4 million in October, while job openings fell to the lowest level since September 2024 at 7.1 million.

Elsewhere, private payroll processing firm ADP reported that private employers added 41,000 jobs in December, rebounding from a net loss in the prior month but falling short of estimates for around 47,000 jobs.

Data from the Institute for Supply Management (ISM) showed that economic activity in the US manufacturing sector contracted for the 10th consecutive month in December, as the ISM’s Manufacturing Purchasing Managers’ Index (PMI) declined by 0.3 points to 47.9, the lowest reading of 2025 (readings below 50 indicate contraction). The employment index remained in contraction for the 11th straight month, while the prices index stayed in expansion—indicating rising input prices—for the 15th consecutive month.

On the other hand, the ISM’s measure of services activity expanded for the 10th month in a row. Gains in new orders, business activity, and employment, which rebounded from contraction to expansion, helped push the Services PMI to its highest reading of the year. Price pressures also eased somewhat, although the services price index remained solidly in expansion territory.

The eurozone economy appeared to be strengthening toward the end of 2025 amid evidence that Germany may have turned a corner. Industrial production in Germany, France, and Spain came in better than forecast in November. German output increased sequentially by a seasonally adjusted 0.8%, rather than shrinking 0.5% as the consensus estimate predicted. This came on top of a jump in manufacturing orders, which grew 5.6% month over month (MoM), defying forecasts for a 1.3% decline. In Spain, non-seasonally adjusted production rose 1.0% sequentially, an acceleration from the 0.6% increase logged in October. France’s industrial output contracted by a seasonally adjusted 0.1% in November, which was less than the 0.2% predicted.

Separately, retail sales in the bloc grew in November by 0.2% versus the prior month, while the annual rate picked up to 2.3%, beating forecasts for 1.6% after a major upward revision to October’s numbers.

Headline annual inflation in the eurozone slowed to the European Central Bank’s (ECB’s) target of 2.0% in December, down a tick from November. The core rate, which excludes volatile food and energy costs, fell to 2.3% from 2.4%. But services inflation, which is closely watched by the ECB, eased only slightly to 3.4%.

Tomasz Wieladek, chief European macro strategist at T. Rowe Price, says services inflation continues to be stronger and more persistent than is consistent with the ECB’s target. In his view, this “will continue to worry” policymakers. “The ECB’s cutting cycle is certainly over.”

Inflation data showed that consumer price growth picked up in December, though producer prices fell for the 39th straight month. China’s consumer price index (CPI) rose 0.8% in December from a year ago, in line with forecasts, the country’s statistics bureau reported. The producer price index fell 1.9%, the smallest decrease in more than a year. The core CPI, which strips out food and energy, increased 1.2% for the third straight month.

Unlike most Western countries, China has struggled with deflation since the end of the pandemic, as a prolonged housing downturn and overproduction in several industries have weighed on domestic consumption and corporate profits. Inflation for the full calendar year was zero, the lowest level since 2009 and well below China’s official target of about 2%, Bloomberg reported, citing official data. The latest inflation report supported the view of some economists that China’s central bank will continue to ease policy in 2026.

Geopolitical and trade tensions between China and Japan failed to dent the stock markets’ advance. Technology companies continued to rally while yen weakness provided a boost to export-oriented companies and trading houses. The Japanese currency depreciated to JPY 157.9 against the US dollar, from JPY 156.8 at the end of the prior week. Investor concerns about the government’s massive spending plans to stimulate economic growth have weighed on the yen.

The yield on the 10-year Japanese government bond ticked up slightly to 2.09% from 2.06% at the end of the previous week. Upward pressure on yields continued to be exerted by expectations of further interest rate hikes by the Bank of Japan (BoJ) in 2026. BoJ Governor Kazuo Ueda said this week that the central bank would continue raising rates in line with improving economic conditions and inflation. He added that the mechanism linking moderate wage growth to inflation is likely to remain in place.

In the latest economic data, Japan’s household spending rose 2.9% year over year (YoY) in November, outpacing expectations of a 1.0% decline and following a 3.0% fall in October. The solid rebound in spending was primarily driven by increased household auto purchases. Even excluding the often-volatile category of auto spending, outlays on food and dining increased, boosted by the two November holidays, suggesting that a recovery in consumer spending is becoming more entrenched. This was despite a fall in households’ purchasing power in November, with real (inflation-adjusted) wages contracting 2.8% YoY.

Australia's headline CPI came in at 0.0% MoM in November 2025, taking the YoY growth to 3.4%—below the market expectation of 3.6% YoY. The monthly trimmed mean measure remained at 0.3% MoM in November, with the YoY figure easing to 3.2%. Compositionally, market services inflation (excluding volatile items) eased; housing inflation was stronger than expected; and domestic holiday travel and several durable-goods prices declined. Australia's trade balance narrowed in November to an AUD 2.9 billion surplus, below consensus expectations for a wider surplus, driven by a large decline in metal ore exports. The number of residential building approvals in Australia rose by more than 15% MoM in November, indicating a solid increase in new dwelling starts in the fourth quarter of 2025.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 1.5% (2.0% YTD).

The US S&P 500 Index ended its first full trading week of 2026 up 1.6% (1.8% YTD) as investors largely looked past mounting geopolitical tensions, pushing most major indexes to all-time highs. Growth stocks, which have led returns in recent years, underperformed value stocks, while small-cap stocks strongly outperformed large-cap stocks. The Russell 1000 Growth Index returned 0.9% (0.6% YTD), the Russell 1000 Value Index 2.5% (3.4% YTD), and the Russell 2000 Index 4.7% (5.8% YTD). An equal-weighted version of the S&P 500 Index outperformed its market cap-weighted counterpart. The technology-heavy Nasdaq Composite gained 1.9% (1.9% YTD).

In Europe, the MSCI Europe ex-UK Index added 2.3% (3.0% YTD) amid continued optimism about the economy, company earnings, and a favourable interest-rate backdrop. Major stock indexes advanced. Germany’s DAX Index rallied 2.9% (3.1% YTD), France’s CAC 40 Index added 2.0% (2.6% YTD), and Italy’s FTSE MIB Index put on 0.8% (1.7% YTD). Switzerland’s SMI ticked up 1.2% (1.2% YTD). The euro depreciated against the US dollar, closing the week at USD 1.16 for EUR, down from 1.17.

The FTSE 100 Index in the UK rose 1.8% (2.0% YTD), and the FTSE 250 Index climbed 2.8% (2.6% YTD). The British pound weakened against the US dollar, closing the week at USD 1.34 for GBP, down from 1.35.Japan’s stock markets registered strong gains over the week. The TOPIX Index jumped 3.1% (3.1% YTD), and the TOPIX Small Index surged 2.8% (2.8% YTD).

In Australia, the S&P/ASX 200 Index edged down -0.1% (flat YTD) amid mixed economic data releases. Australian government bond yields abated with the curve flattening modestly. The Australian dollar remained stable against the US dollar.

In Canada, the S&P/TSX Composite advanced 2.4% (2.9% YTD).

The MSCI Emerging Markets Index rose 1.6% (3.4% YTD), with markets in China, Taiwan, South Korea and Brazil contributing to the gains. 
The Indian stock market contributed negatively.Mainland Chinese stock markets gained. The onshore CSI 300 Index, the main onshore benchmark, jumped 2.8% (2.8% YTD), and the Shanghai Composite Index surged 3.8% (3.8% YTD). Hong Kong's benchmark Hang Seng Index shed -0.4% (2.3% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, added 0.3% (3.0% YTD). Optimism about the domestic tech sector fuelled the weekly advance. Turnover in China’s onshore market climbed to about CNY 2.8 trillion, roughly USD 400.6 billion, while outstanding loans taken out by investors to buy stocks hovered near a record, according to Bloomberg.

In Venezuela, on 3 January, the US carried out military action in Venezuela that resulted in the capture and removal of the country’s president, Nicolás Maduro, and his wife, Cilia Flores. They are facing criminal charges related to what prosecutors allege is their participation in a conspiracy to import illegal drugs into the US.

The capture of Maduro followed months of US pressure on Venezuela. In mid-December, US President Donald Trump wrote in a social media post that he had ordered a “total and complete blockade” of oil tankers travelling to and from Venezuela.

Venezuela’s new leader is Delcy Rodriguez, who was formerly Maduro’s vice president. However, Trump said that the US would “run” Venezuela until there is a “safe, proper, and judicious transition” of power in the country.

In the near term, oil market impacts appear somewhat limited, as production and export constraints remain subject to US sanctions and enforcement decisions, which could evolve. Venezuela currently produces under 1 million barrels of oil per day, representing less than 1% of global output.

Over the longer term, Venezuela’s oil sector would require significant capital, infrastructure rebuilding, and policy clarity before any meaningful changes in output could occur. According to the Organisation of the Petroleum Exporting Countries (OPEC), Venezuela has around 303 billion barrels of proven oil reserves—among the largest in the world.

The situation continues to evolve, and several uncertainties remain, including potential changes to US sanctions policy regarding PDVSA, the country’s state-owned oil and gas company, and the government of Venezuela. We at T. Rowe Price anticipate geopolitical uncertainty to remain a feature of markets in the year ahead. We continue to monitor this current development and potential implications.

In the Czech Republic, the government reported that headline inflation in December was -0.3% MoM and 2.1% YoY. Both readings were lower than expected. According to T. Rowe Price analysts, the downside surprise appears to be driven primarily by food prices, while core inflation remained unchanged at around 2.5%-2.6%.

With inflation likely to fall to the 1.0%-1.5% range in 2026, central bank officials may consider resuming interest rate reductions later this year. The two-week repo rate, which is the Czech National Bank’s main policy rate, has been at 3.50% since May 2025, when policymakers made a “very cautious” 25bps rate cut.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (0.2% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.3% (0.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -0.1% (-0.1% YTD).

US Treasuries were higher heading into Friday, with some long-term yields decreasing modestly and short-term yields inching higher. Treasuries rallied early in the week in response to weaker-than-expected economic data, but follow-through was limited, and overall trading activity was muted. Over the week, the 10-year Treasury yield declined by -2bps, ending at 4.17% from 4.19% (down -2bps YTD). The 2-year Treasury yield rose by 6bps, ending the week at 3.53% from 3.47% (up 6bps YTD).

US investment-grade corporate bonds also posted positive returns amid heavy issuance, which met solid demand, while high-yield bonds strengthened as trading activity picked up following the holiday lull, with investors focusing on new bond offerings and company-specific developments.

Over the week, the 10-year German Bund yield decreased by -4bps, ending at 2.86% from 2.90% (down -4bps YTD). The 10-year UK gilt yield decreased by -17bps, ending the week at 4.37% from 4.54% (down -17bps YTD).