The week’s most important developments in the global economy
Europe: Strong Year-End Performance with Mixed Economic Signals
European equity markets ended the week on a positive note, continuing a strong run that made 2025 one of the region’s best-performing years since 2021. The pan-European STOXX Europe 600 reached new highs, supported by improving economic conditions and easing inflation pressures in several countries. Major national markets, including Germany, France, Italy, and the United Kingdom, all recorded gains during the week.
Inflation developments were mixed across the region. Spain reported a slowdown in headline inflation, largely due to lower fuel prices, although core inflation remained unchanged. In France, registered unemployment declined month over month, signaling some stabilization in labor conditions, even as overall unemployment remained higher than a year ago.
The UK housing market delivered a surprise, with house prices declining in December against expectations of modest growth. This raised questions about the sustainability of recent momentum in the property sector, particularly as higher interest rates continue to weigh on affordability.
In Northern Europe, Sweden’s central bank indicated that interest rates are likely to remain unchanged through much of 2026, reflecting confidence that current policy settings are appropriate for managing inflation without derailing growth. Overall, European markets continue to benefit from a more stable macroeconomic backdrop, though country-specific challenges remain.
United States: Signs of Resilience Amid Light Trading
U.S. equity markets experienced a softer finish during the holiday-shortened trading week, although the broader picture for 2025 remained constructive. Most major indexes closed the year with double-digit gains for the third consecutive year, reflecting underlying economic resilience despite short-term volatility. Technology-heavy stocks underperformed during the week, while more defensive segments such as energy provided modest support, helped by higher oil prices driven by geopolitical tensions.
Trading activity was notably subdued due to the New Year holiday, which limited market momentum. However, economic data released during the week painted a relatively encouraging picture of the U.S. economy. Most notably, pending home sales rose at their fastest pace in nearly three years, suggesting renewed confidence among buyers. Lower mortgage rates and steady wage growth appear to be improving affordability, encouraging households to re-enter the housing market.
The labor market also showed continued strength. New applications for unemployment benefits declined for the third consecutive week, reaching one of the lowest levels seen in 2025. This trend reinforces the view that employment conditions remain stable.
Meanwhile, minutes from the recent Federal Reserve policy meeting revealed differing views among policymakers on the future path of interest rates. While some officials remain open to further cuts if inflation continues to ease, others favor a more cautious approach. Overall, markets interpreted the update as balanced, with expectations for near-term rate changes remaining limited.
Asia: Monetary Shifts and Economic Stabilization
Asian markets delivered mixed results during the holiday-shortened week, with performance varying by country. In Japan, equity markets edged lower after a strong year driven by technology, artificial intelligence-related industries, and construction stocks. Despite short-term declines, Japanese equities recorded their third consecutive annual gain, supported by solid corporate earnings and a relatively strong domestic economy.
Japan’s bond market drew particular attention as government bond yields rose to their highest levels in more than two decades. This move reflects expectations that the Bank of Japan will continue gradually tightening monetary policy following its recent interest rate increase. The Japanese yen remained weak, prompting speculation that authorities may intervene to stabilize the currency.
In China, equity markets showed mixed performance, but fresh economic data offered cautious optimism. Manufacturing activity returned to expansion territory in December for the first time in eight months, suggesting that recent policy support measures are beginning to take effect. However, economists expect policymakers to proceed carefully in 2026, balancing growth support with financial stability concerns.
Taken together, developments across Asia highlight a region in transition—adjusting to shifting monetary policies while seeking sustainable economic momentum in a changing global environment.
Looking Ahead –
Overall, global markets enter the coming weeks supported by resilient economic fundamentals, while investors remain attentive to policy signals and regional shifts shaping the outlook for 2026. While short-term volatility persists, the broader outlook remains anchored in improving fundamentals and cautious optimism across major global markets.
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