Global markets weekly update

U.S. stocks finished the week mixed, as the Dow Jones Industrial Average and S&P 500 Index posted modest gains while the Nasdaq Composite, S&P MidCap 400, and small-cap Russell 2000 indexes lost ground. Stocks were mostly lower through Thursday, as concerns regarding elevated valuations and increased scrutiny around artificial intelligence spending seemed to help drive a rotation away from many of the growth-oriented stocks that have helped propel indexes to recent all-time highs. However, a volatile trading session on Friday with limited major headlines led to some indexes recovering their losses and closing the week higher.

In more positive news, the longest U.S. government shutdown on record came to an end on Wednesday night after President Donald Trump signed a spending bill that will keep the government funded through January 30. While the news helped remove a major headwind for markets, stocks traded sharply lower on Thursday as questions still remain around how long it will take for conditions to return to normal.

Economic data in particular remained a focal point. White House representatives stated that October jobs and inflation reports may never be released, and the Bureau of Labor Statistics (BLS) noted that “it may take time to fully assess the situation” with regard to finalizing data release dates. On Friday afternoon, the BLS announced that it will release its September jobs report on Thursday, November 20.

Hawkish commentary from several Federal Reserve policymakers also appeared to weigh on equity markets. Speaking Wednesday, Atlanta Fed President Raphael Bostic stated that he considers “signals from the labor market as ambiguous and difficult to interpret” and believes that they are “not clear enough to warrant an aggressive monetary policy response when weighed against the more straightforward risk of ongoing inflationary pressures.” He also believes current monetary policy is “marginally restrictive” and favors keeping interest rates steady “until we see clear evidence that inflation is again moving meaningfully toward” the central bank’s 2% target.

Meanwhile, St. Louis Fed President Alberto Musalem said he believes policymakers “need to proceed and tread with caution,” while Cleveland Fed President Beth Hammack said she believes that monetary policy needs to “remain somewhat restrictive” due to concerns about persistently high inflation.

The probability of a rate cut following the Fed’s December meeting declined to around 46% as of Friday afternoon, down from about 67% the prior Friday and close to 95% a month ago, according to the CME FedWatch tool. Small-cap stocks, which can be more sensitive to interest rate movements, underperformed for the week, with the Russell 2000 Index dropping 1.83%.

U.S. Treasuries posted negative returns. After fluctuating throughout the week, yields were modestly higher across most maturities. (Bond prices and yields move in opposite directions.) T. Rowe Price traders noted that the benchmark 10-year U.S. Treasury note yield continued to oscillate within a roughly 10 basis point (0.1 percentage point) range around 4.1%, where it has remained since the Fed’s October rate cut.

Municipal bonds outperformed Treasuries. Our traders noted that new issuance in the muni market ramped up on Wednesday following the market’s closure in observance of Veterans Day on Tuesday, and new offerings were generally oversubscribed. Meanwhile, high yield bonds advanced on idiosyncratic news and earnings reports before partially retracing gains amid a weaker macro backdrop, according to our traders.

In local currency terms, the pan-European STOXX Europe 600 Index ended 1.77% higher on relief that the U.S. federal government reopened. However, cooling sentiment on artificial intelligence curbed the market’s gains. Most major stock indexes rose. Germany’s DAX tacked on 1.30%, France’s CAC 40 Index advanced 2.77%, and Italy’s FTSE MIB climbed 2.51%. The UK’s FTSE 100 Index was little changed.

A weaker-than-expected set of UK labor market and economic growth data disappointed investors, who, in turn, sharply raised their bets on the Bank of England cutting interest rates in December. Unemployment in the three months through September increased to 5% for the first time since January 2021. Wage growth also slowed in the third quarter, with the annual growth rate in weekly earnings, excluding bonuses, easing to 4.6% from 4.8% in the prior period.

Gross domestic product (GDP) growth slowed more than forecast to 0.1% in the third quarter—below a consensus estimate of 0.2% forecast. GDP contracted in September by 0.1% sequentially. The slowdown was partly due to a 28.6% decline in car production in September, driven by a shutdown at Jaguar Land Rover after it suffered a cyberattack.

After dropping 1.1% in August, eurozone industrial production in September ticked up 0.2% versus the prior month—well below the 0.9% forecast in a FactSet market survey. Irish output decreased sharply in contrast to above-average increases in Germany, Italy, and France.

Investor sentiment fell unexpectedly in Germany, according to the ZEW economic research institute. ZEW President Achim Wambach said: “The overall mood is characterized by a fall in confidence in the capacity of Germany’s economic policy to tackle the pressing issues.” 

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 0.20% and the broader TOPIX Index up 1.85%. Sentiment globally was supported by the U.S. ending the country’s longest government shutdown in history. Conversely, continued concerns about overstretched valuations of companies with revenue streams linked to artificial intelligence weighed on Japan’s technology sector.

Expectations of policy changes under Japan’s new prime minister, Sanae Takaichi, with her administration set to pursue loose fiscal policy and appearing to favor the Bank of Japan (BoJ) moving cautiously on raising interest rates, pressured the yen. The Japanese currency weakened to around JPY 154.6 against the U.S. dollar, from about JPY 153.4 at the end of the prior week. Takaichi recently sought to allow for more flexible spending by reconsidering the government’s current single-year fiscal discipline target and announcing plans to set a new fiscal target extending through several years. She shared her concept that responsible, yet aggressive, fiscal spending is required to boost economic growth.

The yield on the 10-year Japanese government bond rose to 1.70% from the previous week’s 1.68%. Investors pared back their expectations of the BoJ raising interest rates in December, with many converging around the view that a January rate hike now looks more likely. BoJ Governor Kazuo Ueda suggested that Japan is progressing in meeting the conditions for raising interest rates. The central bank looks at underlying inflation, which strips away temporary factors, and that is gradually accelerating toward its 2% target.

A monthly poll, the Reuters Tankan, which tracks the BoJ’s quarterly tankan business survey, showed that confidence among Japan’s manufacturers rose to its highest level in nearly four years in November. The poll showed that the manufacturers’ sentiment index increased to +17, from October’s +8. Exporters, particularly those in the electronics and auto sectors, benefited from the weak yen boosting demand.

Mainland Chinese stock markets retreated as investors pocketed gains a week after the leading domestic benchmark rose to its highest level in almost four years. The CSI 300 Index, the main onshore benchmark, fell 1.08% and the Shanghai Composite Index shed 0.18%, according to FactSet. In Hong Kong, the benchmark Hang Seng Index added 1.26%.

The latest batch of official indicators showed that China’s economy lost steam as it entered the fourth quarter. Fixed asset investment shrank 1.7% in the first 10 months of the year, a record drop for the period, according to China’s statistics bureau. Industrial production rose a weaker-than-expected 4.9% in October from a year ago, while retail sales rose 2.9%, the fifth straight month of slower growth.

Other data showed that China’s housing market, now in its fourth year of a slump, remained under pressure. New home prices in 70 cities, excluding state-subsidized housing, fell 0.45% in October from September, the steepest decline in a year, while existing home values fell 0.66%, the biggest drop in 13 months, Bloomberg reported. The ongoing malaise in China’s property market has been a major growth headwind, making consumers reluctant to spend and worsening the deflation that has stalked China’s economy since early 2023.

While the data showed that China’s economy weakened more than expected in October, most economists believe that Beijing’s official growth target of about 5% this year is still manageable, particularly after the U.S. and China struck a one-year trade truce at talks in South Korea last month. Moreover, the central government has approved stimulus totaling RMB 1 trillion since the end of September to bolster capital expenditure, and economists believe the effects of the stimulus should start to materialize in the near term.

The government recently reported that headline inflation in October increased 0.2% month over month, which was slightly above expectations of a 0.1% increase, while the year-over-year rate of 5.5% matched broad expectations. Core inflation was measured at a month-over-month rate of 0.3% and a year-over-year rate of 5.3% versus expectations of 0.2% and 5.1%, respectively, driven by entertainment, health, and housing cost increases.

According to Aaron Gifford, T. Rowe Price’s associate director of global sovereign research, the annual figures rose considerably but were due to base effects, as sequential inflation even on the core side is flat, if not slightly lower, for the month. He believes that the data will keep central bank officials cautious but probably not enough to prompt them to raise interest rates.

On Wednesday, central bank officials held their scheduled policy meeting and decided to keep the monetary policy rate at 6.50%. They also decided to keep the Lombard lending facility rate at 7.50% and the deposit facility rate at 5.50%.

In their post-meeting statement, policymakers noted the elevated annual inflation readings in Romania in recent months: 9.76% in October, 9.88% in September, and 9.85% in August. They also noted that inflation is well above the June reading of 5.66% due to the end of the “electricity price capping scheme” on July 1 and the increases in value-added tax rates and excise duties starting August 1.

According to the central bank’s forecasts in the November 2025 Inflation Report, the annual inflation rate is expected to experience a “modest decline” over the next three quarters before having “a steep downward correction” in the third quarter of 2026. That drop is anticipated as the “direct effects” of recent supply-side shocks stemming from the government’s recent “corrective fiscal and budgetary measures” fade away.

Given the currently elevated inflation and the “high uncertainties and risks to the outlook for economic activity,” policymakers decided to keep interest rates steady. They believe that the country’s current “balanced macroeconomic policy mix and the implementation of structural reforms,” coupled with European Union funds to “foster” the economy’s long-term growth potential, are needed to preserve “a stable macroeconomic framework” and to strengthen the economy so that it can “withstand adverse developments.”