The key events for the w/c 22 December 2025: Christmas Holiday week, US Q3 GDP, RBA Minutes
The Recap from Last Week: ECB, BoE, and BoJ Decisions
The final three major central bank decisions of the year reinforced the theme of policy divergence as policymakers navigate specific domestic pressures. The ECB maintained a “watchful neutral” stance, while the BoE delivered a fragile cut – a move that underscores a shift to more gradual easing, with future decisions likely to remain a “closer call”. Meanwwhile, the outlier Bank of Japan hiked rates to a 30-year high as it continued to normalise policy after decades of excess accommodation.
As we look to 2026, the path of Fed rate policy – the key global anchor – will remain important for markets. The question of ‘more or fewer cuts’ in 2026 is contingent on a labor market already testing the Fed’s ‘line in the sand’, inflationary crosscurrents from a new trade regime, fiscal stimulus, and a change in Fed leadership.
The final three decisions: ECB, BoE, and BoJ
- ECB: A Watchful Neutral – The Governing Council delivered a unanimous hold, keeping the deposit facility rate at 2%. While growth forecasts were revised slightly higher, services inflation is likely to remain sticky. With settings at a roughly neutral level, the ECB remains cautious, citing an uncertain international environment. Forward guidance remained suspended as ECB President Lagarde noted that it was also a “unanimous decision to keep all optionalities on the table and stick to a meeting-by-meeting approach” due to the high degree of global uncertainty.
- BoE: A Fragile Cut – In another razor-thin 5-4 decision, the BoE cut the Bank Rate by 25bps to 3.75%, with Governor Bailey acting as the swing voter. While upside risks to persistent inflation have eased, the risk to medium-term inflation from weaker demand has remained. Recent inflation reports have come in lower, while demand remains subdued and slack is building in the labor market. Inflation is expected to fall back target more quickly in the near-term. Guidance shifted – while the bias to cutting remained, further easing is likely to progress on a gradual path, with decisions becoming a “closer call”, and conditional on the inflation outlook.
- BoJ: Removing Excess Accommodation – The BoJ hiked by 25bps to 0.75%, a 30-year high. This unanimous decision reflects rising confidence in achieving the 2% inflation target. Importantly, the bridge between inflation and growth – the wages outlook – is expected to be maintained. However, the Spring wage negotiations remain the key risk to the outlook. Policy settings are seen as remaining accommodative – with the BoJ noting that the “significantly negative” real interest rate level is still supporting the economy. Guidance set up a clear bias toward further hikes, conditional on achieving inflation and growth outcomes, while “the chances of that happening are increasing”. While this was a more hawkish decision and tone, the immediate market reaction was a selloff in long JGB’s (the 10-year breaching 2%) and the further weakening of the Yen, which suggested markets may have expected more.
US Data – Setting the Tone for 2026
While these central bank decisions illustrate a global landscape of policy divergence, the FOMC remains the key anchor for markets in the year ahead. This week, markets were focused on the catch-up of key US labor market and inflation data – and importantly, what it could mean for the Fed’s rate path. Despite the weaker labor market data and softening CPI, market pricing for the FFR remained little changed over the week. This suggests that markets were looking past some of the distortions and waiting on the Dec data to help decipher temporary shutdown-related noise from a more fundamental cyclical shift.
1. The Labor Market: Mixed Signals and Shutdown Echoes
In our assessment of the Dec FOMC decision, Fed Chair Powell seemed to indicate that an uptick of more than two tenths in the unemployment rate (to 4.7%) could be a line in the sand for the Fed leading up to the Jan meeting. In the Nov labor market report, the unemployment rate started to approach that threshold, ticking up to 4.6% – higher than expected. Some of the uptick in unemployment appeared to be due to “temporary” layoffs, suggesting that this higher unemployment rate may not be enduring. While the increase in the unemployment rate was partly the result of higher participation, slower employment growth also contributed. The employment to population ratio for the 16yrs+ group fell to a post-pandemic low of 59.6%, while conditions in the core working-age group also seemed to soften.
Payroll growth rebounded in Nov to +64k after the notable fall of -157k in Oct, distorted by the shutdown and the deferred falls in government payrolls. Private payroll growth has remained positive over the last three months, and increased to +69k in Nov (with the 3-month avg now up to +75k). The private payroll diffusion index improved to >50 (reaching 55.2), suggesting some positive broadening in payroll growth across industries.
Another bright spot was the continued solid growth in aggregate hours worked. Hours worked increased by +0.3% over the month, and remained fairly steady over the year at +0.8% growth. This pace of aggregate hours suggests some stability in activity underlying the labor market noise.
2. US CPI Catch-Up
The inflation data, while lacking a month-on-month trend due to the Oct gap, showed a notable deceleration. Headline CPI slowed to +2.7% (down from 3% in Sept), and Core CPI dropped to +2.6%. While the Fed will likely remain sceptical of this data until the gaps are cleared, the downward trajectory was notable.
Further delays in inflation data could mean that the Fed may not have a clearer inflation picture until the Mar meeting. The PPI for Nov is postponed until 14 Jan, which means the Fed-preferred PCE inflation report for Nov will also be delayed – awaiting an updated release date. At this stage, the next complete PCE inflation report for Dec is not scheduled until 31 Jan, after the next Fed meeting on 27-28 Jan 2026.
3. The US prelim S&P PMIs Dec – Momentum Slows amid price pressures
The Dec PMI survey shows composite output momentum slowing, but the expansion remaining moderate. That said, there were several points of caution in the report, starting with a smaller increase in orders and a pullback in confidence. Marginal employment growth, led by the previously stronger services sector, was notable, constrained by concerns over costs, lacklustre demand, and uncertainty over the economic outlook. The PMI report also noted that price pressures “intensified noticeably” and services inflation was “the steepest in three years” – which was also reflected in rising selling prices.
Outlook for the week ahead: Christmas Holiday week, US Q3 GDP, RBA Minutes
It will be a shorter week this week, with the Holiday season now upon us.
There will still be several key US data releases – including the delayed US Q3 GDP.
Key factors & events to watch this week:
US data
- The delayed Q3 GDP will be released this week, and growth is expected to edge lower to a still elevated +3.2% annualized rate, down from +3.8% in Q2.
- Durable Goods Orders for Oct will be released this week, expecting a +0.4% increase over the month.
- Industrial Production for Oct & Nov will be released this week.
- The Conference Board Consumer Confidence survey for Dec should capture any rebound/shift in sentiment after the end of the government shutdown.
- Initial jobless claims for the week ending 20 Dec are expected to be little changed at 225k (from 224k in the week prior).
The RBA minutes of the Dec meeting will be released. Of particular interest will be the detail of the discussion noted in the press conference around how conditions would need to evolve if rates “had to rise again at some point next year”.
This week, the US Treasury will auction and settle approx $545bn in ST Bills and FRNs with a paydown of $18bn. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes this week, to settle on 31 Dec.
Approx $14bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
Thank you to all of our valued clients, readers, and friends for your support and friendship in 2025. We sincerely wish you the very best for a wonderful and peaceful holiday season and a healthy, happy, and prosperous 2026.
