Week ended Dec 19th 2025: flawed economic data and central bank decisions

 THIS WILL BE THE LAST WEEKLY UPDATE FROM EMORNINGCOFFEE.COM UNTIL JANUARY 2026. WISHING YOU HAPPINESS AT THIS TIME OF YEAR, AND MUCH INVESTMENT SUCCESS IN 2026!

---

U.S. stocks were all over the place last week, with important U.S. economic data and ongoing concerns regarding A.I. investment being the drivers.  Similar to the FOMC the week before, the ECB, Bank of England and the Bank of Japan delivered monetary decisions in line with expectations.  In spite of the swings and heightened volatility throughout the week, the confluence of data ultimately was deemed sufficiently positive to deliver positive returns in most global equity indices for the week.  Yields on U.S. Treasuries decreased slightly across the curve, the US Dollar weakened, and gold continued its march higher.  The next two weeks will be holiday shortened, due to the Christmas and New Years holidays.  

US economic data: jobs report, CPI data, and retail sales

Investors finally got a look at the U.S. economy from “official government sources” last week, with an employment report for November and retail sales data released on Tuesday, and an inflation (CPI) report delivered on Thursday.  The employment and inflation data were viewed as slightly flawed and “messy”, in that the data was incomplete in both cases due to the four week government shutdown. 

• Jobs: Unemployment rose to 4.6% in November (from 4.4% in September, with October data not available), the highest level in four years.  The jobs report from the BLS is here.  The U.S. economy added 64,000 jobs in November, all in the private sector.  Although the unemployment rate ticked higher, the U.S. private sector is continuing to add jobs albeit at a slower pace than in the past. 

• Inflation:  Headline and core inflation were 2.7% YoY and 2.6% YoY, respectively, in November, down from 3.0% for both headline and core CPI in September.  (There was no October CPI data due to the government shutdown.)  Headline inflation for November came in well below consensus estimates (of 3.1%), and was lower than September’s CPI reading of 3.0%.  The CPI report for November from the BLS is here.

• Retail sales: The Census Bureau released retail sales data for October (here), with the MoM increase coming in at a solid +0.5%, and a YoY (vs October 2024) increase of +4.2%.  I consider this data rather dated, but the reality is that – at least through October – Americans were still willing to consume, the key driver of the U.S. economy.

Even were it not missing key comparable components, the jobs and inflation reports in particular were viewed as largely suspect by investors, and – in any event – could cut both ways depending on one’s perspective and narrative.  Here’s what Jefferies’ chief economist had to say in an #FT article entitled “Flawed inflation data dashes Donald Trump’s hopes of a quick affordability victory”:

Lower inflation and higher unemployment suggests a slowing economy, negative for consumers and corporate earnings (and hence, future stock prices ceteris paribus).  However, the jobs and inflation data for November also gives the Federal Reserve ammunition to more aggressively implement decreases in the Fed Funds rate in 2026, favourable for bond yields (should inflation be seen as trending towards target) and acting as a catalyst for reviving a slowing U.S. economy.  If the performance of stocks and bonds on Thursday and Friday was an indication, investors received the data favourably in spite of its flaws.  Nonetheless, similar data for December (to be released in early January) – well in advance of the first FOMC decision of 2026 on January 28^th – will be much more comprehensive and influential as far as both the state of the U.S. economy and future direction of travel of interest rates. 

Monetary decisions: the ECB, the Bank of England and the Bank of Japan

The Bank of England, the ECB and the Bank of Japan all had monetary policy meetings last week, and all delivered as expected.  The BoE reduced its policy rate (the Bank Rate) by 25bps, to 3.75%.  The ECB stood firm with its key deposit rate held at 2.0%.  And the BoJ raised its policy rate 25bps, to 0.75%, as inflation in Japan remains well above the BoJ target of 2.0%.  November inflation in Japan for November was 2.9%.  At 0.75%, the policy rate in Japan is at its highest level in 30 years. 

Markets last week

Markets were volatile again last week, with the last two trading sessions of the week rescuing stocks from losses in the U.S.  European stocks markets were the best performers last week, with Japanese stocks being the worst.   In the U.S., tech shares bounced around but were stronger in the final half of the week, lifting the tech-heavy NASDAQ to positive territory even as the DJIA and the Russell 2000 lost ground on the week.  US Treasury prices were better (yields lower) across the curve by around 3bps, perhaps reflecting a weakening U.S. economy and better-than-expected November inflation read (with the flaws noted above).  U.S. credit spreads were slightly wider in both investment grade and high yield, and gold headed higher yet again.  This unusual and often conflicting movement of asset prices throughout this year has been one the year’s most interesting characteristics.

Below are updated tables for the week ended December 19, 2025.

_________________

**** Follow E-MorningCoffee on Twitter, and please like and comment on my posts right here on my blog. You need to be a subscriber, so please sign up. Thanks for your support. ****