We have now entered the final month of the year and, despite being just 20 days away from Christmas the festive spirit has not quite yet hit markets. This week, the fallout from the UK’s autumn budget continues, marked by the resignation of the Chairman of the Office for Budget Responsibility (OBR) after a critical error led to the budget being published early.
The Bank of England (BoE) is set to meet for the final time this month, and markets are largely pricing in a 25bps (0.25%) rate cut. This expectation follows the autumn budget and October’s inflation reading, which fell to 3.6%, reinforcing the view that price pressures have peaked. However, it’s worth noting the narrow 5–4 split at the previous meeting, where rates were held. This week, policymaker Megan Greene emphasised that she needs clear evidence of a weakening labour market and slowing consumption before supporting a cut. Ahead of the BoE decision, upcoming labour market and inflation data could prove decisive in tipping the balance.
On Tuesday, Eurozone inflation came in at 2.2% for November, a slight uptick from October’s 2.1%. Core inflation, which excludes food and energy, held steady at 2.4%. Since mid-2024, the European Central Bank (ECB) has delivered eight rate cuts, halving rates from 4% to 2%, before pausing for the past three meetings. These cuts were driven by inflation falling faster than in other economies, alongside trade tensions and geopolitical uncertainty weighing on growth. Markets expect the ECB to maintain its pause at the final meeting of the year, though the risk of a reflationary trend remains one to watch.
In Japan, political and monetary battles have dominated recent months, culminating in Takaichi becoming the leader of the LDP and the country’s first female prime minister. This week, Bank of Japan (BoJ) Governor Ueda won his battle securing support for a December rate hike, persuading Takaichi of the need for action. Inflation has picked up, rising to 3% in October, while the yen has remained weak throughout the year, key factors in Ueda’s case. Markets now see near certainty of a 25bps (0.25%) increase, taking rates to 0.75%, a level not seen in three decades. Takaichi, a known advocate of Abenomics will recognise that Japan face different market conditions, and Finance Minister Katayama confirmed alignment with Ueda’s stance—a positive sign that the government will not stand in the way.
US data is still being drip fed through to markets as a result of the government shutdown, and as such there is no release of Non-Farm Payrolls data today. However, the ADP non-farm employment change data was released on Wednesday and showed weakness, surprising markets and actually contracting. This further supports the narrative of a weakening US labour market and boosts the probability of an interest rate cut this month, with a small probability of an additional cut in January. US small cap equities responded positively to the prospect of lower interest rates and have enjoyed a positive week.
On Friday it was revealed that Netflix had won the race to acquire Warner Bros studios in a blockbuster deal valued at $83bn. The deal will see Netflix supercharge its library with the rights to the Harry Potter franchise and Game of Thrones, amongst many other timeless classics and modern series.
After a period of weakness, silver has made new all-time highs, approaching $60 an ounce. We have also witnessed gold rebound following a pullback in November. It’s not only precious metals that are rising, with the copper price advancing throughout the week. Demand for copper is expected to be robust over the coming years, through the build out of both data centres and the grid, while supply is forecast to be very constrained over the medium to long term due to a lack of investment in new mines.
Equity markets were mixed this week, with Japan’s Nikkei 225 leading the way, rising 2.3% on the back of tech strength and optimism ahead of a Bank of Japan rate hike. The UK’s FTSE 100 and both US indices were broadly flat. The much-anticipated Santa rally has yet to materialise, though expectations of rate cuts from the U.S. Federal Reserve and the Bank of England later this month could provide the spark for the seasonal upswing.
Nathan Amaning, Investment Analyst
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