Market Commentary December 2025
Introduction
The Autumn Statement on 26 November dominated headlines in the UK. In the United States, the longest government shutdown in history came to an end, while in China there is cautious optimism that the recent trade war ceasefire may begin to support economic performance towards the end of the year.
United Kingdom
After months of speculation, the Autumn Statement finally arrived, bringing with it a combination of tax increases and political positioning. Despite an early leak from the Office for Budget Responsibility, the overall economic forecast proved less gloomy than expected, giving the Chancellor slightly more room to manoeuvre.
The result was a broad package of tax measures, many of which have been deferred, shaped as much by political considerations and revised forecasts as by immediate economic necessity. A full breakdown of the announcements is included in our detailed Budget article later in this newsletter.
United States
On 12 November, President Trump signed legislation bringing the longest government shutdown in US history to an end. The shutdown lasted 43 days. Public opinion remains divided over responsibility, with no clear political winner.
Democrats have so far been unable to secure concessions on healthcare subsidies, while Republicans are aware that the situation could re-emerge on 30 January if the remaining nine appropriations bills for 2026 are not passed by then.
The reopening of government should allow the flow of economic data to resume, although there may be permanent gaps. The White House has indicated that employment and Consumer Price Index data covering October may never be released.
US equity markets were volatile during mid-November but recovered later in the month as expectations grew for a further Federal Reserve interest rate cut in December. Some of this volatility was driven by the technology sector, following announcements around AI investment plans and corporate results.
Trade tensions between the US and China eased in November following the agreement of a trade deal between the two countries. There was also renewed speculation that an end to the war in Ukraine could be possible, as the US increased diplomatic efforts to negotiate a peace settlement. President Putin continues to send mixed signals, alternating between resistance and tentative signs of conciliation.
Europe
Economic growth across EU member states remains modest, with increasing divergence between countries. Despite ongoing political instability, France exceeded expectations in the third quarter, recording quarter-on-quarter growth of 0.5%. Spain also continued to perform well, while Italy and Germany showed signs of stalling.
A familiar pattern is emerging across Europe. Growth is being driven by the services sector. The S&P Global Purchasing Managers’ Index rose to 52.3 in October, its highest level since May 2023, while the Eurozone Services PMI reached 53.6. Manufacturing continues to lag, with job cuts announced across several firms. Despite this, there is reason to believe that Europe may finish 2025 relatively strongly.
Eurozone inflation edged up to 2.2%, while core inflation, which excludes energy and food, remained at 2.4%, below the forecast of 2.5%. Inflation rates vary across member states. France and Italy recorded low inflation of 0.8% and 1.1% respectively, while Germany’s rate rose to 2.6%, its highest since February.
The election in the Netherlands produced an inconclusive result, although the coalition that emerges is expected to be broadly pro-EU. The centrist Democrats 66 (D66) party won the largest share of the vote. The far-right Freedom Party, which had led opinion polls in 2023, lost momentum at the ballot box.
GDP growth across the Eurozone is forecast at 1.3% for 2025 and 1.6% for 2026.
Far East
China’s real GDP growth remained broadly in line with its 5% target over the first three quarters of 2025, although there were signs of slowing momentum in the third quarter. GDP growth eased to 4.8% in Q3, down 0.4% from Q2, with the seasonally adjusted quarter-on-quarter rate among the weakest on record.
China’s factory production downturn extended to its longest period on record. The official Purchasing Managers’ Index stood at 49.2 in November, marking the eighth consecutive month in contraction. The housing market also remains weak.
There are two reasons for cautious optimism heading into the fourth quarter. Trade tensions with the US have eased, which should support exports and business confidence. In addition, fiscal measures introduced in Q4 are focused on stabilising demand, supporting construction projects, resolving debt issues, and increasing bond purchases to inject liquidity into the economy. Strengthening domestic demand may help China return to its 5% growth target.
In Japan, PMI data continues to show a strong services sector offsetting weakness in manufacturing.
Under new Prime Minister Sanae Takaichi, the Japanese government has finalised a supplementary budget of 18.3 trillion yen, equivalent to approximately US$117 billion, as part of a wider stimulus package totalling 21.3 trillion yen, or US$137 billion. The measures include tax cuts, utility subsidies, cash payments, and targeted investment in key industries such as technology and infrastructure. The aim is to support growth and shield households from inflationary pressures.
The package will be partly funded through tax receipts, with the remaining shortfall covered by the issuance of 11.7 trillion yen in new government bonds. This compares with approximately 6.7 trillion yen of additional bond issuance in the previous year.
Emerging Markets
Many emerging market economies and businesses remain closely linked to US fiscal and monetary policy. As a result, a Federal Reserve interest rate cut could be a key factor in determining how these markets perform through the remainder of 2025.
Equity markets in technology-heavy economies such as South Korea and Taiwan experienced sharp declines in November. By contrast, Indian equity markets rallied to new highs before profit-taking in early December tempered performance.
India will be hoping for greater stability in 2026, with the aim of attracting foreign institutional investment that largely exited the market this year. A trade agreement with the US may be critical to achieving this. Despite recent volatility, the strength of the Indian economy remains clear. GDP growth reached 8.2% in the second quarter, exceeding expectations and making India the fastest-growing major economy in the world.
Although emerging markets are diverse and difficult to generalise, they continue to appeal to investors seeking global diversification. This is particularly the case in an environment where emerging market currencies are strengthening against the US dollar and further Federal Reserve rate cuts appear likely.
Conclusion
Analysis from Fidelity suggests that equity markets tend to perform particularly well in December. Often referred to as the ‘Santa rally’, UK equity markets have historically risen by an average of 2.1% in December, compared with a monthly average of 0.3%. US markets show a similar pattern.
Whether this reflects seasonal consumer spending or simple coincidence, it provides an optimistic backdrop as the year draws to a close. From trade tariffs under President Trump to Rachel Reeves’ Budget, 2025 has presented investors with a series of unusual and challenging moments.
While past performance offers no guarantee of future returns, experience suggests that maintaining discipline, sticking to a long-term plan, and avoiding short-term market noise are behaviours that tend to be rewarded over time.
Sources:
https://www.inkfreenews.com/2025/12/02/november-2025-market-review-from-hankins-boggs-group/
https://www.conference-board.org/publications/eur-forecast
https://tradingeconomics.com/euro-area/inflation-cpi
https://economy-finance.ec.europa.eu/economic-surveillance-eu-member-states/country-pages/economic-forecast-euro-area_en
https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2025/11/china-economic-monitor-q4-2025.pdf
https://www.investing.com/economic-calendar/chinese-manufacturing-pmi-594
https://www.econotimes.com/Japans-November-PMI-Shows-Manufacturing-Weakness-but-Services-Strengthen-1726587
https://www.investing.com/news/economy-news/japan-panel-softens-tone-on-fiscal-discipline-amid-takaichis-reflationary-push-4385263
https://timesofindia.indiatimes.com/business/india-business/sensex-nifty-at-lifetime-highs-where-are-indian-markets-headed-in-2026-will-they-outperform-gold-ems-heres-the-outlook/articleshow/125716774.cms
https://www.punjabnewsexpress.com/business/news/indian-stock-market-settles-lower-amid-profit-booking-fii-selling-309965
https://timesofindia.indiatimes.com/business/india-business/sensex-nifty-at-lifetime-highs-where-are-indian-markets-headed-in-2026-will-they-outperform-gold-ems-heres-the-outlook/articleshow/125716774.cms
https://timesofindia.indiatimes.com/business/india-business/gdp-grows-at-8-2-fastest-in-6-quarters-what-the-data-really-says-about-indian-economy-explained/articleshow/125640895.cms
https://www.fidelity.co.uk/markets-insights/markets/global/november-breaks-seven-month-winning-streak-the-week-ahead/