What to watch in the week ahead

• Our assessment of last week's US data flurry is that the door remains open for a further Federal Reserve rate cut in the first quarter of 2026. This outlook for easing in the first quarter should underscore the positive backdrop for quality bonds.
• Many major central banks held their final policy meetings of 2025 last week. The overarching theme was that policy easing outside the US is now largely over, in our view. We expect the US dollar to weaken into early 2026, and favor tactical exposure to the euro, the Australian dollar, Norwegian krone, and select high-yielding emerging market currencies.
• Despite some tech turbulence last week, we believe the investment theses for AI and CIO's other Transformational Innovation Opportunities (TRIOs) of Power and resources and Longevity remain intact for 2026 and beyond. While the AI capex outlook remains robust, we expect that value creation will increasingly shift from the “enabling layer” to the “application layer” of the AI value chain.

This marks our latest Weekly Global for 2025. The first edition of 2026 will land on 5 January. Thank you for your trust and readership through the closing year. Happy holidays and all good wishes for the year ahead,

Will the final batch of US data impact views on the Fed’s next move?

Investors looking for a quieter end to 2025 may have had their hopes dashed by the delayed US data deluge released last week. Markets have to digest an unusually high volume of US economic releases, as statisticians cleared a backlog created by the recent government shutdown.

Indicators under scrutiny included gauges of employment, inflation, business activity, and consumer confidence. Although some of the data was distorted by the effects of the shutdown or the statistical techniques used to fill in missing observations, our assessment of the broad picture remains that the US labor market is cooling and inflation—though above the central bank’s target—is under control.

The October and November jobs reports, released in tandem, pointed to some stabilization of private sector job creation—but also contained various signals of weakness. Government retirements contributed to a 105,000 decline in nonfarm jobs in October, while November’s payrolls increased by 64,000. While the job gain in November was modestly ahead of consensus, the unemployment rate rose to 4.6%, the highest level in more than four years, and average hourly earnings growth slowed, pointing to signs of  increasing slack in the US labor market.

Later in the week came US inflation data, where the signs were encouraging. November’s consumer price index (CPI) revealed inflation moderating more than expected. Headline CPI rose at an annualized rate of 2.7%, below consensus expectations of 3.1%, while core CPI, which excludes volatile food and energy prices, increased 2.6% over the past year, compared to a prior estimate of 3%. This benign outcome helped spur an equity rally on Thursday, though economists warned that deficiencies in data collection during the shutdown may have made the figures look better than the economic reality.

On the consumer, last week’s data were mixed. Retail sales were largely flat for October—though the control measure, which feeds into the GDP calculation, did point to resilience.

While the US publication calendar slows into the end of the year, we believe the mood among investors could be influenced by the Conference Board’s consumer survey for December, the weekly jobless data, and GDP growth for the third quarter, though such releases are only usually marketmoving in quiet weeks.

Our view is that the US data docket, in aggregate, keeps the door open for a further Federal Reserve rate cut in the first quarter of 2026. This outlook for easing in the first quarter should underscore the positive backdrop for quality bonds, which we view as an important component of generating diversified income in a portfolio and as a potential portfolio stabilizer in adverse economic scenarios, with potential to deliver capital appreciation over cash if the Fed is forced to cut rates more sharply.

Will the US dollar dip further as America’s rate advantage fades?

Central banks had little scope to start holiday season early last week, as policymakers from the European Central Bank, Norway’s Norges Bank, Sweden’s Riksbank, the Bank of England, and the Bank of Japan all revealed their latest monetary policy decisions.

The Bank of England and Bank of Japan stood out, with the former lagging the global rate-cutting cycle and the latter in the process of hiking. The UK central bank cut interest rates by 25 basis points on Thursday in a 5-4 vote, with Governor Andrew Bailey changing his stance from his November position. The tone of the minutes and Monetary Policy Committee member views, however, had hawkish overtones. In Japan, policymakers raised interest rates on Friday to a three-decade high of 0.75%, the first increase since January this year. They justified the move by citing a modest recovery in Japan’s economy, a tight labor market, and high levels of corporate profits despite the impact of tariffs. Governor Ueda said the rate is still some distance from the lower end of a neutral range, signaling that the BoJ is open to further tightening. Still, the Japanese yen weakened to near 156.90 against the US dollar, as markets did not perceive Ueda as hawkish without guidance on the pace and target of rate hikes.

Overall, however, the broad theme of the week was that easing outside the US is largely over. With the Fed expected to ease further into 2026, this is eroding the US interest rate premium versus global peers and looks likely to add pressure on the US dollar. The DXY index, which tracks the currency against six major peers, is now down roughly 9% in 2025.

Our view is that the US dollar will face headwinds from its elevated valuation, the twin fiscal and current account deficits, as well as a move by central banks to diversify away from the US currency. We foresee US dollar weakness will extend into the first half of 2026. Our current forecast is for the euro to strengthen to about 1.20 against the dollar in the first quarter, from around 1.17 at present. We recommend investors review their currency allocations to align exposure with their liabilities and spending plans. Tactically we like the euro, the Australian dollar, and the Norwegian krone. We also see opportunities in select high-yielding emerging market currencies such as the Brazilian real, Mexican peso, Indian rupee, and South African rand.

Will market sentiment over tech improve ahead of the year-end?

The traditional "Santa rally" has so far failed to materialize, with worries over tech valuations overshadowing enthusiasm following the Fed’s final rate cut of 2025. At the time of going to print, the S&P 500 and tech-heavy Nasdaq Composite indexes are tracking 0.2% and 0.4% month-to-date declines, respectively. The latter is on track for a second monthly decline, after seven straight monthly advances.

There were several catalysts for the decline last week. Oracle’s longtime partner Blue Owl Capital said it would not back its USD 10bn data center investment plans, amid stalled funding talks. And reports suggesting that Amazon is considering a USD 10bn investment in OpenAI stoked additional concerns about the circularity of recent AI deals.

Investors will be hoping that the mood will brighten again toward the end of the year. Though the timing of a pickup is uncertain, our view is that the outlook for AI remains bright.

Demand for AI compute remains strong, and we estimate that the required compute capacity in the coming years could be orders of magnitude greater than today’s installed base. We do not see evidence of an investment bubble, with company fundamentals in aggregate still robust, and we expect the total addressable market for AI to reach USD 3.1tr in revenue potential by 2030—a 30% compound annual growth rate over the next five years.

As a result, we expect AI and CIO's other Transformational Innovation Opportunities (TRIOs) of Power and resources and Longevity to remain significant drivers of stock returns into 2026 and beyond. While the AI capex outlook remains robust, we expect that value creation will increasingly shift from the “enabling layer” to the “application layer” of the AI value chain. In Power and resources, the buildout of AI infrastructure should continue to support data center-linked demand. We also see broader opportunities in companies facilitating grid modernization and supplying critical raw materials. In the Longevity field, we expect strong growth in the obesity, oncology, and medical device markets.