Last week saw rising expectations for central bank rate cuts as sluggish economic data and political uncertainty weighed on global markets. Bond yields fell, particularly in the U.S., signalling growing confidence that the Federal Reserve will cut rates at its December meeting next week.

U.S. Jobs Report: Mixed Signals for the Labour Market

November's U.S. non-farm payrolls report showed solid job growth of 227,000, in line with expectations. However, the unemployment rate ticked up to 4.2% from 4.1%, and the participation rate declined slightly - potential signs of cooling in the extremely tight labour market. While Fed officials noted the economy remains in good shape, the jobs data alongside soft ISM services and factory orders bolstered the case for a December rate cut, which markets are now pricing at around 80% odds.

Europe Grapples with Economic Stagnation and Political Turmoil

Economic data from Europe painted a bleak picture, with German industrial production and eurozone retail sales declining. A 25bp rate cut from the European Central Bank is widely anticipated this week. Political instability in France escalated as a no-confidence vote dissolved the government. President Macron has pledged to appoint a new prime minister swiftly, but the ongoing disarray casts doubt on economic reforms and fiscal discipline.

Canada and Australia Signal Further Easing Ahead

In Canada, unemployment spiked to 6.8% in November, prompting expectations of a 50bp rate cut. Meanwhile, Australia’s GDP grew just 0.3% last quarter, laying the groundwork for the RBA to follow other central banks in easing further, albeit cautiously and probably not until well into 2025.

Commodity Markets: Oil Prices Hold Steady Amid OPEC+ Delays

Commodities saw oil prices dip modestly after OPEC+ confirmed they will delay planned production increases until April due to the shaky demand outlook. However, prices remained fairly stable around $72/barrel. Cryptocurrency markets cheered the nomination of a pro-crypto SEC chief by the incoming U.S. administration.

Asia-Pacific: Policy Shifts and Currency Movements

The Japanese yen strengthened as speculation around a Bank of Japan rate hike cooled following a rollback of hawkish comments by officials. In China, this week’s economic planning conference is expected to announce fiscal support, though no major stimulus is anticipated. Meanwhile, the Australian dollar fell nearly 2%, dropping below $0.64 on growth concerns. However, overnight China's Politburo announced plans for fiscal and monetary stimulus in 2025 earlier than expected. This includes boosting domestic demand, stabilizing property and stock markets, and allowing the fiscal deficit to exceed 3%. The announcement was light on details but the sentiment of greater policy support lifted Chinese equities by around 3%. Markets are waiting to see the actual policies that get implemented.

Equity Markets Reflect a Mixed Global Outlook

Equity markets showed mixed performance, with U.S. indices posting modest gains while European and Australian markets declined. Asian shares outperformed, buoyed by hopes of Chinese stimulus. Overall, the week highlighted a slowing global economy increasingly reliant on monetary and fiscal intervention.

Looking Ahead

Central bank meetings and inflation data over the coming week will be scrutinised for signals on the interest rate path in the months ahead with U.S. CPI in a couple of days likely to get the most attention.