Trading for the final month of 2025 is up and running, and while December is traditionally a good month for stocks, we could yet see some of the wild sentiment shifts which were commonplace during November. That’s because we have two key central bank meetings this month which could create a stir in global markets, depending upon how the cards fall. The Fed are due to meet (on December 9-10), where a rate cut is the favoured outcome, while the BOJ (Bank of Japan) could be sending Japanese interest rates in the opposite direction when they meet later this month (December 18-19).
With Japanese inflation remaining constantly above the 2% target (for 44 consecutive months, in fact), the ingredients appear to be present for the BOJ to pull the trigger on a rate hike. Which is a scenario that BOJ Governor Ueda has hinted at in comments just this week. The result? Japanese Government Bond (JGB) yields continue to soar in anticipation that the US-Japanese yield differential is destined to shrink. The 10-year JGB yield’s surge to 1.88%—its highest level since June 2008, illustrates this point.
BOJ rate hikes have been known to spook markets in the past. Late July/early August 2024 springs to mind when global markets went into a slump in response to tightening monetary policy from the BOJ (when the Nikkei sunk 12% in one day on August 5th. If the BOJ hikes rates, it doesn’t necessarily mean that markets will go into meltdown mode again. And the BOJ may well decide to hold rates steady this month. But if JGB yields continue tracking north, this could present a broader risk to the market which could pressure carry-trades and by extension risk sentiment. In short - diverging policy paths of the Fed and the BOJ have rattled markets before, and it could do so once again should a BOJ interest rate hike follow a Fed rate cut.
In commodities, gold had a run higher to start the week, but it failed to overcome resistance in the $4270-$4280 region. And with prices at levels not seen since October, profit taking then kicked in ahead of key US jobs and inflation data still to come this week. The bullish outlook remains intact for gold, but it is largely predicated on the arrival of lower US interest rates. As such, ADP jobs data and the Core PCE Price Index will influence gold’s near-term direction. If the labour environment remains soft and inflation stays benign, this would allow the Fed keep on its current dovish policy course. Which is a scenario that aligns well with any upside ambitions in the gold price. Moderate support waits at $4066, ahead of sturdier support at $3990. Resistance between $4270-$4280 would first need to be overcome for gold to reclaim the $4300 level.
A decisive break higher or lower in the oil price remains elusive with the US-Russia peace talks ongoing regarding Ukraine. Essentially, traders don’t know whether Russian oil will enter the global market again with the peace talks still occurring but so far unable to yield an outcome. This makes a break to the topside for oil difficult until we get an understanding of whether sanctions on Russia will remain in place or be lifted, depending upon how the peace talks progress. Whilst OPEC+’s decision to hold oil supply at current levels through Q1 2026 is providing some support to prices. US crude trades around $58.50, ahead of support at $57.90 and below resistance at $59.30.
With the Fed members now in their media ‘blackout’ period ahead of the December meeting, it is the economic data that will do the talking regarding the odds for a rate cut. On the labour market front, this week we will get ADP private payroll figures, Challenger job cuts, and jobless claim figures, while Core PCE Price Index (due Friday) will be the focal point for gauging inflation. Markets are expecting the Fed to deliver a rate cut this month, but any upside surprises in either the jobs or inflation data could yet throw a spanner in the works as far as rate cut hopes are concerned.
