Global Markets Weekly Update

U.S.

U.S. stocks declined during the holiday-shortened week, although most indexes closed out 2025 on Wednesday having generated double-digit gains for the third year in a row. The Nasdaq Composite performed worst for the week, followed by the Russell 2000 and S&P 500 indexes. The Dow Jones Industrial Average and S&P MidCap 400 Index held up best but still shed 0.67% and 0.71%, respectively. Within the S&P 500 Index, the energy sector was one of the few segments to post positive returns for the week as heightened geopolitical tensions drove oil prices higher, particularly early in the week. 

U.S. markets were closed Thursday in observance of the New Year’s Day holiday, and T. Rowe Price traders noted that trading volumes were relatively light throughout much of the week. 

Lower mortgage rates and wage growth fuel homebuyer momentum 

On Monday, the National Association of Realtors (NAR) reported that its Pending Home Sales Index—a leading indicator of housing activity—rose 3.3% in November, marking the largest month-over-month jump since February 2023. “Homebuyer momentum is building…. Improving housing affordability—driven by lower mortgage rates and wage growth rising faster than home prices—is helping buyers test the market,” according to NAR Chief Economist Lawrence Yun. 

Meanwhile, the Federal Housing Finance Agency reported that U.S. house prices rose 0.4% month over month in October, rebounding from a modest decline in the prior month. On a year-over-year basis, house prices increased 1.7%, with the strongest growth coming in the Middle Atlantic and East North Central regions.

Fed minutes highlight divisions among policymakers

On Tuesday, the Federal Reserve released the minutes from its December 9–10 policy meeting, during which policymakers voted to lower the federal funds rate target range by 25 basis points (0.25 percentage points). The minutes revealed that while most central bank officials believed further rate cuts “would likely be appropriate if inflation declined over time as expected,” some members felt their economic outlooks suggested “it would likely be appropriate to keep the target range unchanged for some time” following the December cut. Market reactions to the minutes were muted, with stock indexes closing modestly lower on the day and the probability of a January rate cut remaining around 15%, near where it ended the prior week, according to the CME FedWatch tool.

Jobless claims lower for third straight week 

The Labor Department reported that applications for unemployment benefits during the week ended December 27 totaled 199,000, a decrease of 16,000 from the prior week’s revised level. This was one of the lowest readings of the year and the third consecutive week with fewer claims than the prior week. 

Continuing unemployment claims also decreased from the prior week, coming in at 1.866 million versus 1.913 million in the prior week. 

High yield bonds outperform on light trading volumes

U.S. Treasury performance was mixed, with shorter-term yields changing little and longer-term yields generally increasing. (Bond prices and yields move in opposite directions.) Municipal bonds modestly trailed Treasuries, with minimal activity in both the new issue and secondary markets.

Investment-grade corporate bonds generated negative returns, while high yield bonds outperformed amid significantly below-average trading volumes, according to T. Rowe Price traders.   

Europe

In local currency terms, the pan-European STOXX Europe 600 Index hit a new high during the week and ended 1.26% higher, buoyed by an improving economic backdrop. The benchmark closed 2025 with an annual price return of almost 17%, its strongest yearly performance since 2021. Major stock indexes also rose. Germany’s DAX gained 0.82%, France’s CAC 40 Index added 1.13%, and Italy’s FTSE MIB climbed 1.72%. The UK’s FTSE 100 tacked on 0.82% and earlier in the week rose above 10,000 points for the first time.

Inflation slows in Spain

Inflation eased in December due to a drop in fuel prices and slower increases in leisure activity costs. The preliminary European Union-harmonized nonseasonally adjusted annual inflation rate fell to 3.0% from 3.2% in November, the national statistics office said. However, the core measure, which excludes volatile fuel and food prices, stayed at 2.6%.

French registered unemployment falls

The number of registered unemployed in mainland France fell by 21,500 to 3.129 million in November, down from a seven-month high of 3.151 million in October, official data showed. However, the figure was 197,300 higher year over year. 

UK house prices weaken unexpectedly

The Nationwide Building Society’s house price index declined in December by 0.4% sequentially, having risen 0.3% in November. Analysts polled by Reuters had forecast an increase of 0.1%. 

Riksbank likely to stay on hold in 2026

Swedish central bank Governor Erik Thedeen said in the minutes of the December policy meeting that the key interest rate was likely to remain at 1.75% through 2026 and then gradually increase. Policymakers had left the rate unchanged in December and forecast no change “for some time to come.”

Japan

In a holiday-shortened week, Japan’s stock markets declined, with the Nikkei 225 Index falling 0.8% and the broader TOPIX Index down 0.4%. The markets advanced strongly over 2025, marking the third consecutive annual gain. The rally was driven largely by chipmakers and technology companies levered to artificial intelligence (AI), as well as construction stocks. Despite uncertainty about the pace of monetary policy tightening by the Bank of Japan (BoJ), stocks were supported during 2025 by a favorable domestic economic backdrop, strength in corporate earnings, and a lesser-than-feared impact of U.S. tariffs on Japanese companies.

The yen traded within the JPY 156 range against the U.S. dollar over the week. With the Japanese currency remaining at its weakest levels since January 2025, expectations grew that monetary authorities could intervene in the foreign exchange markets to prop up the yen. Verbal interventions to date, which have emphasized authorities’ freedom to act against excessive moves in the yen, have had a limited effect in bringing about sustained yen appreciation. 

JGB yield hits highest level since 1999 

The yield on the 10-year Japanese government bond (JGB) rose to 2.07% from 2.04% at the end of the previous week. JGB yields have risen to levels last seen in 1999 on expectations of continued gradual interest rate increases by the BoJ, while concerns about the government’s planned fiscal expansion have also exerted upward pressure on yields.

The Summary of Opinions at the BoJ’s December monetary policy meeting showed that members of the policy board believed it appropriate to raise interest rates, citing receding U.S. tariff risks, high corporate profit growth, and wage momentum as factors contributing to the increased likelihood of the central bank’s baseline scenario being achieved. The BoJ raised its key interest rate by 25 basis points (0.25 percentage points) to 0.75% at its December meeting, having last raised rates in January 2025.

China

Mainland Chinese stock markets ended a holiday-shortened week on a mixed note. The CSI 300 Index, the main onshore benchmark, declined slightly and the Shanghai Composite Index edged higher. In Hong Kong, the benchmark Hang Seng Index rose about 2.0%, according to FactSet. 

On Wednesday, official data showed that China’s manufacturing purchasing managers’ index rose to 50.1 in December from 49.2 in November, ending an eight-month contraction streak, Bloomberg reported. The modest improvement in manufacturing supports the view of many economists that Beijing will likely take a measured approach to stimulus in 2026, although some analysts think that the government should roll out more aggressive measures to revive domestic consumption.Other key markets

Other key markets

Colombia

Significant minimum wage boost could lead to higher inflation and interest rates

Columbian assets were under some pressure this week in response to President Gustavo Petro’s minimum wage announcement for 2026. As reported by Reuters, Petro announced an increase of approximately 22.7%. This is higher than many expected. While Petro claimed that this will “democratize wealth so that working people…can live better,” our analysts believe that this could lead to higher inflation and inflation expectations and could prompt the Colombian central bank to raise interest rates starting sometime in early 2026. 

South Korea

Export data lift equities as the new year begins

The South Korean stock market was one of the strongest world equity markets in 2025, rising nearly 101%, according to RIMES/MSCI data.

The market started the new year on a strong note, lifted in part by government data indicating that the country’s exports reached a new all-time annual high of about USD 710 billion for all of 2025. According to the Ministry of Trade, Industry and Resources, South Korea’s exports “continued to be driven by its core industries—including semiconductors, automobiles, and ships—while electrical equipment, agricultural and fishery products, and cosmetics each recorded their highest export values on record, emerging as new growth drivers.”