Monthly Market Outlook December 2025

The final month of 2026 is here. Throughout the year, tariffs, the independence of the Federal Reserve, rate cuts, political developments in France, the China–US trade deal, the US shutdown, and many other topics captured market attention. This busy year will likely end in a similar way with a heavily loaded December. 

Macro View 

There are many topics that will and could affect the market in a significant way in December. The number one priority may be the next Federal Reserve chair. Bessent stated that the next Fed chair will most likely be decided before Christmas. Candidates such as Hassett or Waller are all considered doves who support looser monetary policy, which is the main criterion for being Trump’s preferred candidate. However, Waller is still a board member, and although he is considered a normal dove, he supported rate hikes when needed. 

If Hassett wins the race and becomes the next president of the Federal Reserve, it would feel like Trump’s direct influence inside the Fed. Precious metals would likely be ecstatic if Hassett wins. 

Kugler resigned from the Fed and Miran was appointed temporarily to her seat. In 2026, Bostic plans to retire, so together with Waller, Trump’s team is expected to have three to four places in the FOMC. This is not enough to control policy, but enough to have an impact. With the announcement of the next Fed chair, market focus may shift back to concerns about Fed independence. 

For the moment, the main focus is the December rate cut. Currently, the market sees the odds at 82 percent, but throughout the month expectations have been volatile. Many members spoke against cuts or expressed uncertainty, and pricing fell to as low as 30 percent. Waller’s and Williams’ recent remarks changed sentiment again. In our view, it is still a fifty fifty situation. 

Many US data releases were delayed due to the shutdown, keeping markets and the FOMC in the dark. Some October data will be lost permanently. Based on what is currently available, total jobless claims seem to have plateaued below 2 million since June. If correct, the US labor market does not appear to require a panic rate cut, but signs of weakness are clearly emerging. Much like late 2025, 2026 might see several close calls for the Fed, especially with stronger political influence. 

In our view, despite all attention on the December rate cut, the race for Powell’s position has more potential to become the main driver of markets this month. 

Behind the scenes, a mild liquidity crunch is present. High demand in repo markets pushed repo rates above interest on reserves. The US shutdown and quantitative tightening are the main reasons. The end of the shutdown eased the pressure slightly with new liquidity entering markets, but the issue is not fully resolved. 

With the Fed deciding to end QT in December, the situation will likely improve. During periods of low liquidity, the dollar tends to appreciate, so if the issue is not resolved with the reopening of government and the end of QT, the dollar may dominate December. In our view, this will not be a major structural problem but something worth monitoring due to the risk it carries. 

A new situation is brewing in Japan, the home of the biggest carry trade. Japan typically has very low rates and inflation. After the pandemic and massive quantitative easing, inflation is now above 2 percent for nearly four years. The Bank of Japan is trying to reduce its balance sheet and is slowly raising rates. 

In this environment, Takaichi, a fiscal dove, was selected as prime minister and announced a large extra budget. 

Government bond yields are rising in Japan. The 10 year yield has climbed above 1.8 percent. The large yield gap that supported carry trades is now narrowing, and the only offset is the weak yen. US–Japan yield differentials have returned to 2022 levels. 

Entering 2026, there is a risk of a reverse carry trade if Japanese yields continue to rise. This could result in a stronger yen, a weaker dollar, and persistently high yields elsewhere. For now, it is wise to monitor developments and the Bank of Japan’s rate decisions. 

PMI data shows that the US is still holding its edge. Black Friday sales growth confirms that US consumers are still spending. Retail sales excluding autos increased 4.1 percent, higher than last year’s 3.4 percent. 

Eurozone stable activity growth continues despite a small PMI retreat. Activity has been growing steadily since January. 

In the UK, PMI fell to 50.5 with the budget talks in focus, but the bond market appears satisfied with the new budget. 

China’s PMI fell below 50 for the first time since early 2023. The ongoing real estate crisis remains unresolved, and tariffs are showing negative effects despite relative resilience. If China manages to get through the next few months with limited damage, a strong recovery is possible in the second half of 2026. 

Central Bank Meeting Calendar 

Technical View 

US 10 year bond yields have stabilized around 4 percent. The positive impact from stablecoins seems to have run its course. With the Fed signaling a possible hold, downside pressure has eased. If crypto does not rebound, it will be a negative factor, and if Japanese yields continue to rise, it will also pressure bonds. Market attention will be on the selection of the next Fed chair for a potential downward break in yields. 

Brent crude oil continues to hold near 60 despite the record expected deficit in 2026. The downtrend from June is being tested for a breakout. If it breaks upward, oil may see a bounce, although it could remain short lived. On the downside, attention is on Ukraine–Russia peace talks. Any progress could bring new oil supply into the market. 

Precious metals continue to rally despite concerns over a possible Fed hold. Most of the rally began at the end of the month. Silver led the move with a huge 16 percent return. Gold rose 5.9 percent and platinum gained 6.13 percent.

Gold broke out of the pennant formation on the last day of November, with strong upside momentum coming from silver. However, the final day was problematic due to the holiday and CME server issues. Confirmation may be needed this week, but the technical outlook is positive. 

In a positive scenario, gold could surge toward 4700 unless it fails to hold 4000 as support. 

Silver is surging. Last month, we expected a downward reaction based on past patterns, but the market disagreed. Silver recorded its first monthly close above the massive 50 level. A second close at year end could confirm long term bullish conditions. 

The gold silver ratio has fallen to 75, testing its three year support zone. Gold may attempt to catch up in December, but when silver accelerates at this pace, it sometimes continues in an uncontrollable wave. 

The dollar index continues to test the 99.60 to 100.80 resistance, but it is still holding. The resistance above and the long term trendline from 2011 below have left dollar traders undecided. We expect a mild bearish move in December as long as the resistance continues to hold. 

Global equities were mostly flat in November, with the MSCI World Index rising only 0.18 percent. The Nasdaq diverged negatively due to concerns about overextension and overinvestment in the artificial intelligence sector, falling as much as 8 percent before recovering after strong earnings. The DAX could show negative divergence in early December if German data continues to weaken. 

The VIX fell to 16.35 as stocks recovered, but both October and November saw sudden spikes in volatility. This shows that despite the bullish trend, fears of overextension remain. Each small retreat triggers acceleration and sharp selloff concerns. The level of 30 remains the signal for a major selloff, and above 55 is the dip buying signal. 

The S&P 500 experienced volatility between 6500 and 7000. The main topic remains AI, with both bulls and bears presenting strong arguments, causing sharp moves in a narrow range. If the recent lower low and lower high pattern ends and 7000 is broken, another rally may follow. Bears, however, are trying to take control, especially after news of Nvidia share sales by SoftBank and comments from Burry. 

The FX market was mostly calm in November due to low dollar index volatility. EURUSD fell 0.4 percent, while GBPUSD diverged negatively with a 0.77 percent drop. The most notable move came from JPY due to fiscal easing and China–Japan tensions. 

EURUSD continues to form lower highs while downward moves remain limited due to strong support at 1.15. In December, EURUSD will likely decide whether to break 1.15 and move lower or pass the recent high and use the 50 day moving average as new support. 

USDJPY changed its trajectory starting in October. The Takaichi victory was the catalyst, and the move continues. We expect a major turnaround in 2026, but for now the upward trend is still intact. JPY is approaching intervention territory. The 158.50 level could be important to watch.