Markets take a pre-Christmas breather

Global indices trod water this week as investors weighed up the strength of consumer spending, inflation and jobs.

• Sterling rises on strengthening PMIs.
• Japan fiscal stimulus package raises inflation concerns. 
• US picture remains unclear, though tailwinds are apparent.

Markets remained largely becalmed this week as a mixed bag of macroeconomic data posed as many questions as it answered about the state of the global economy.

In the UK, a 51.2 reading for the November S&P Global UK Composite purchasing managers’ index painted a stronger-than-expected picture of business activity. The data  buoyed investors who, ahead of last week’s budget, had factored in significant challenges for the economy. Sterling rose as a result, making for its biggest daily gain against the US dollar since April. 

In Japan, yields on government debt rose to their highest level since 2007 on fears that the Bank of Japan will increase interest rates. Prime Minister Sanae Takaichi has announced a US $135 billion stimulus plan, raising expectations that the central bank will push interest rates higher at its December meeting. 

In the US, federal macro data has been delayed due the record-length six-week government shutdown. Federated Hermes Deputy Chief Investment Officer for Global Fixed Income RJ Gallo notes that the combination of declining jobs growth but sustained consumer spending has contributed to a relative lack of clarity for investors. “Although the markets face incomplete and delayed federal data releases in the wake of the 43-day government shutdown, private sector and alternative data sources continue to portray a resilient US economy,” he says. “US inflation, meanwhile, remains elevated, closer to 3% than to the Federal Reserve’s 2% target.”

Louise Dudley, Portfolio Manager, Global Equity ESG, highlights the better-than-expected outlook for the global economy. In the US, she flags declining concerns around the impact of tariff policies, as well as strong company balance sheets and an upturn in M&A. Equally important are increased capital expenditure on artificial intelligence in the fourth quarter entering 2026, deregulation and tax and interest rate cuts — all of which help support a constructive backdrop, she says.  

“Coupled with the impact of buybacks and dividends, as well as better-than-feared employment numbers, this environment makes for a positive outlook for investors in US equities,” Dudley says. 

Outside of the US, productivity remains a drag for Europe, she adds, while China and emerging market valuations remain attractive.