Global stocks kicked off December on the back foot on Monday, December 1, 2025, as investors shifted into risk‑off mode. A stronger yen on rising expectations of a Bank of Japan rate hike, a fresh slide in Bitcoin, soft manufacturing data and intense speculation about imminent U.S. Federal Reserve rate cuts all weighed on sentiment. [1]
Global snapshot: cautious mood as December begins
By early afternoon in Europe, the MSCI World equity index was edging lower, down around 0.1%, reflecting modest declines across most major developed markets. [2]
- Europe: The pan‑European STOXX 600 fell about 0.6%, with Germany’s DAX down roughly 1.5% and London’s FTSE 100 slipping around 0.2%. [3]
- U.S. futures: S&P 500 futures lost around 0.6%, Nasdaq 100 futures about 0.7%, and Dow futures roughly 0.4% before the New York open. [4]
- Crypto & gold: Bitcoin dropped roughly 5–6% back below the $90,000 mark, while gold touched a six‑week high as investors looked for safety ahead of key central‑bank decisions. [5]
The backdrop: global equities finished November with solid gains overall, but volatility in tech and artificial‑intelligence leaders left investors nervous that 2025’s rally may be entering a choppier phase. [6]
Asia‑Pacific: Nikkei hit by yen surge as China and Hong Kong shine
Japan led the losses in Asia. The Nikkei 225 dropped close to 2% after Bank of Japan Governor Kazuo Ueda said the central bank would weigh the “pros and cons” of a rate hike at its next policy meeting. That remark sparked the heaviest selling in Japanese government bonds in months and pushed the yen to around ¥155 per U.S. dollar, its strongest in several weeks. [7]
Higher Japanese yields are particularly sensitive for global markets because they threaten to unwind popular yen carry trades, where investors borrow in low‑yielding yen to buy higher‑risk assets around the world. If that trade reverses, it can force selling across equities, credit and emerging markets simultaneously. [8]
Elsewhere in Asia, the mood was more mixed:
- Mainland China: The Shanghai Composite gained around 0.6% and the blue‑chip CSI 300 rose roughly 1.1%, supported by optimism over a potential Fed rate cut and ongoing state support for strategic sectors such as industrials and AI. [9]
- Hong Kong: The Hang Seng Index added close to 0.8% and is up about 30% so far this year, on track for its strongest annual performance since 2017, as foreign investors return after years of underperformance. [10]
Fund managers quoted in recent research describe China’s stock rebound as a “slow‑motion” rally driven less by stimulus euphoria and more by improving governance, targeted support and strong gains in AI‑linked names. Many see room for further upside into 2026 given still‑lower valuations versus U.S. peers, despite lingering property‑sector stress and weak factory output. [11]
At the same time, a run of purchasing managers’ index (PMI) data on Monday showed manufacturing activity in China, Japan, South Korea and Taiwan either stagnating or slipping back into contraction, underscoring how fragile global goods demand remains as the year ends. [12]
Europe: STOXX and DAX slide as defence stocks and data weigh
European markets opened firmly lower and stayed under pressure into the afternoon:
- The STOXX 600 fell about 0.6%, with the STOXX 50 and national benchmarks in France and Germany all in the red. [13]
- Germany’s DAX dropped around 1.5%, underperforming as investors rotated out of cyclical and export‑sensitive stocks. [14]
- The FTSE 100 in London proved a relative outperformer, slipping only about 0.1–0.2% as it “skirted” the worst of the global declines. However, UK government bonds came under pressure and the pound underperformed against major peers amid ongoing debate over the new government’s fiscal stance. [15]
A notable theme was weakness in defence stocks, which retreated after U.S. and Ukrainian officials reported “productive” talks on a possible Russia‑Ukraine peace framework, prompting some investors to take profits after a strong multi‑year run in the sector. [16]
Macro data didn’t help. Euro‑zone manufacturing PMIs slipped back into contraction in November, reinforcing concerns that Europe’s industrial slowdown is not yet behind it, even as markets increasingly price in more rate cuts from the European Central Bank in 2026. [17]
Wall Street today: futures slide ahead of Powell and key data
In the U.S., stock index futures pointed lower as traders braced for:
- A closely watched speech by Fed Chair Jerome Powell later Monday, and
- Fresh readings on ISM and S&P Global manufacturing surveys, followed by the delayed PCE inflation report on Friday – the Fed’s preferred price gauge. [18]
As of around 7:00 a.m. New York time:
- Dow futures were down about 0.37% (‑175 points).
- S&P 500 futures were off roughly 0.58% (‑39.5 points).
- Nasdaq 100 futures fell about 0.73%, extending November’s tech‑led underperformance. [19]
Despite a modest gain in both the S&P 500 and Dow Jones Industrial Average in November, the tech‑heavy Nasdaqsuffered its biggest monthly decline since March, reflecting mounting unease over whether AI‑driven capital spending and earnings expectations have run too far ahead of reality. [20]
Crypto‑linked stocks were among the biggest early losers, with names like MicroStrategy and Coinbase dropping between 4% and 8% in pre‑market trading as Bitcoin extended its slide below $90,000 after its steepest monthly fall since the 2021 crypto crash. [21]
Retail stocks were also in focus. Adobe Analytics estimated that American consumers spent around $11.8 billion online on Black Friday, a roughly 9% increase from 2024, and attention is now shifting to Cyber Monday performance to gauge the strength of year‑end consumer demand. [22]
Central banks and currencies: Fed cut bets vs. BoJ hawkish turn
The tug‑of‑war between expectations for easier policy in the U.S. and Europe and a possible tightening in Japan is central to today’s market story.
Fed: December cut now the base case
- Futures markets are pricing an ≈88% probability of a 25‑basis‑point Fed rate cut at the December 9–10 meeting, according to CME Group’s FedWatch tool. [23]
- BofA Global Research now officially forecasts a December cut, followed by two more 25‑bp cuts in June and July 2026, which would bring the policy rate down to roughly 3.00–3.25%. The bank says that shift is driven more by expectations of a new Fed chair than by a sharply weaker economy. [24]
Markets are also wrestling with leadership uncertainty: U.S. President Donald Trump is widely expected to nominate White House economic adviser Kevin Hassett to succeed Jerome Powell, potentially within weeks, leaving investors parsing the words of both the current and likely future Fed chair. [25]
BoJ: potential December hike jolts the yen
In sharp contrast, the Bank of Japan is edging toward its first real tightening step of the cycle. Governor Ueda’s comments about considering a hike at the next meeting pushed two‑year JGB yields to their highest level since 2008, while the yen rallied and the Nikkei tumbled. [26]
Because Japan’s ultra‑low rates have underpinned global carry trades for years, even a small hike could reverberate across global equities and credit as leveraged positions are unwound.
Dollar, euro and emerging‑market currencies
The U.S. dollar index slipped roughly 0.4% toward the 99 level, while the euro climbed above $1.16, reflecting expectations that the Fed will cut ahead of or more aggressively than other major central banks. [27]
Interestingly, this weaker‑dollar narrative is feeding into a constructive story for emerging‑market assets:
- Analysts note that EM stocks, currencies and debt have delivered strong returns in 2025, with some global bond investors now viewing select emerging markets as relatively safer than heavily indebted developed economies. [28]
- In its newly released 2026 annual investment outlook, Invesco argues that lower U.S. rates and increased fiscal support in Europe, Japan and China should help lift global growth and support continued outperformance from non‑U.S. and emerging‑market equities. [29]
Commodities: oil and gold underline the risk‑off tone
Commodities underscored the risk‑off, policy‑sensitive mood:
- Brent crude oil rose around 1% after a disruption to Caspian pipeline exports and renewed geopolitical tensions involving Venezuela, even as OPEC+ agreed to keep its output targets unchanged for the first quarter of 2026. [30]
- Gold hit its highest level in about six weeks, supported both by lower U.S. real yields as rate‑cut bets intensify and by classic safe‑haven demand amid global equity weakness and crypto volatility. [31]
China and Hong Kong: from laggards to potential 2026 leaders?
A standout shift in 2025 has been the renaissance in Chinese and Hong Kong equities:
- The CSI 300 has delivered roughly a 16% year‑to‑date gain, matching the S&P 500, while the Hang Seng is up around 30%, putting it on track for its strongest year since 2017. [32]
- Reuters reports that international fund managers are rotating into Chinese industrials and selected tech names, betting that Beijing’s campaign against industrial over‑capacity and price wars will improve margins over time. [33]
Major global banks are starting to lean more bullish:
- HSBC and UBS expect Hong Kong and mainland Chinese shares to “maintain recovery momentum” into 2026, highlighting attractive valuations, signs of earnings improvement and ongoing pro‑growth policies. [34]
That doesn’t mean the risks have disappeared: the property downturn, uneven domestic demand and geopolitical tensions still cast a long shadow. But for global investors seeking alternatives to richly valued U.S. mega‑cap tech, China’s evolving mix of industrial, AI and consumer growth stories is clearly back on the radar. [35]
Santa rally or December shake‑out? What analysts are saying
Historically, December has often been kind to equity investors, and some strategists are still talking about the potential for a “Santa rally” after markets rebounded from a sharp pullback earlier in the autumn. [36]
But Monday’s trading suggests that if such a rally arrives, it may be bumpy rather than smooth:
- Reuters’ Morning Bid column notes that “risks are stacking up hard and fast” as Bitcoin’s slide, weaker PMIs in Asia and Europe, and heightened central‑bank uncertainty all converge. [37]
- Invesco’s 2026 outlook remains constructive, arguing that resilient corporate earnings and an eventual easing cycle could allow global stocks to “potentially advance,” especially in undervalued non‑U.S. markets, smaller caps and cyclicals. [38]
- BofA’s call for a December Fed cut plus two more in 2026 reinforces the idea that monetary policy will be a tailwind again – but it also raises the risk of policy becoming too easy just as new fiscal packages in the U.S. and Europe kick in. [39]
In short, the medium‑term outlook from large asset managers is still broadly positive, but today’s risk‑off tone is a reminder that the path to higher markets may involve frequent air pockets.
What investors are watching next
Traders and longer‑term investors alike will be focused on several catalysts over the coming days and weeks:
- Fed events
- Powell’s speech later today
- The December 9–10 FOMC meeting, including any change in forward guidance
- Signals about future leadership and how a new chair might approach rate cuts [40]
- Economic data
- U.S. ISM and S&P Global PMIs for November
- Friday’s PCE inflation report
- Follow‑up PMIs in Asia and Europe to confirm whether manufacturing is stabilizing or weakening further [41]
- Geopolitics and energy
- Market technicals
- Whether Bitcoin’s drop sparks broader deleveraging across risk assets
- How heavily owned AI and mega‑cap tech stocks trade into year‑end after November’s wobble [44]
Big picture: cautious risk‑off day in a still‑resilient year
Despite the negative tone on this first trading day of December, 2025 remains a broadly positive year for global equities, with key benchmarks near multi‑year or record highs and several major houses forecasting further gains in 2026 as monetary policy gradually eases and fiscal support kicks in. [45]
However, Monday’s trading underlines three crucial themes:
- Central banks still dominate the narrative – especially the Fed’s next move and the BoJ’s potential pivot away from ultra‑low rates.
- Growth is uneven, with manufacturing weakness in Asia and Europe contrasting with relatively resilient U.S. consumption and a surprising comeback in China and Hong Kong. [46]
- Positioning is crowded in a few big themes, notably AI mega‑caps and crypto, making markets more sensitive to any reversal in sentiment. [47]
For now, global investors are taking some chips off the table, waiting to see whether December 2025 ultimately delivers a Santa rally – or a more volatile, policy‑driven finale to an already turbulent year.
This article is for informational purposes only and does not constitute investment advice. Markets are volatile and past performance is not a guide to future results.
References
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