Global equities had a softer month in December, as investors took some profits after a very strong 2025. The technology sector was more subdued, with market leadership shifting toward more cyclical names, despite mixed signals around the global economy. The US Federal Reserve cut rates again during the month, although the decision was a divided one. The European Central Bank kept rates on hold, while the Bank of England cut rates for the fourth time in 2025. In contrast, the Bank of Japan lifted its policy rate to 0.75%, the highest level in 30 years. In Europe, the Euro STOXX 50 jumped 2.3%, while in Asia the Hang Seng fell 0.9%, although the Nikkei edged 0.2% higher.
A varied performance in December took nothing away from what was a very strong year for equity markets. Despite no shortage of challenges (trade tensions, tariffs and ongoing geopolitical noise), fresh record highs became a regular feature across many global indices. The MSCI World Index rose ~20% over the course of the year.
US markets
In the US, the tech-heavy Nasdaq ended December down 0.5%, while the S&P 500 finished the month broadly flat. The Dow Jones outperformed, gaining 0.7%, while the small-cap Russell 2000 eased 0.8%. The mixed performances came after a very strong year for the US indices. The S&P 500 finished the year up around 16%, while the Nasdaq Composite gained roughly 20% and the Dow lifted 13%.
In December, the Fed cut rates for the third time during the year, by 0.25% (to 3.5%–3.75%), but in a somewhat divided 9–3 vote. Given the lack of fresh data due to the government shutdown, this was not a major surprise. Two officials voted for no cut, while Stephen Miran, Donald Trump’s appointee, favoured a larger 50bps reduction. It was the first time since September 2019 that there were three dissenting votes.
The “dot plot” of policymakers’ projections was also highly dispersed. The level of disagreement highlighted how torn the Fed is between stubborn inflation and a cooling labour market. Chair Jerome Powell attempted to calm the waters, saying the Fed is now “well-positioned to wait and see.”
Inflation remains a sticking point: the Fed’s preferred measure is sitting around 2.8%, still well above the 2% target. Jerome Powell also made the pointed remark that tariffs are doing much of the work keeping inflation elevated. Donald Trump, meanwhile, retorted that the rate cut should have been “at least double,” and is already signalling he will appoint a more aggressive rate-cutter when Powell’s term ends in May.
To be fair, the Fed made its decision with limited data - the six-week government shutdown had left officials flying partly blind. When the Fed meets again in January (27/28th), it will have three months of backlog on jobs and inflation, which could shift the policy conversation meaningfully.
Nonetheless, after a very strong very strong 2025, with US equities near record highs, the divided Fed decision created an environment ripe for profit-taking. Bond yields pushed up as the associated commentary suggested a more cautious path for future easing. This also threw the spotlight on interest-rate sensitive sectors, and valuations in mega-cap technology.
Sentiment towards the sector were not helped earlier in the month by releases from tech giants Oracle and Broadcom. The results were strong, but investors appeared more focused on the cost of AI related spending. These concerns were allayed later in the month as results and guidance from Micron Technology decisively beat expectations. The company pointed to surging demand for memory used in AI data centres, strong pricing, and sharply higher profitability, reinforcing confidence that AI-related infrastructure spending remains robust and broad-based. The released help the tech sector to rebound strongly in the second half of the month.
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Australian economy
In Australia, the ASX200 rose 1.2%, buoyed by the mining sector as copper and gold prices hit record highs.
Monetary policy remained a key theme during the month. The Reserve Bank of Australia left rates on hold at 3.6% but maintained a hawkish bias, and signalled that the door remains open to potential tightening in early 2026. Markets are pricing in a rate hike by May, despite a recent data release showing a slowdown in monthly inflation.
The minutes from the central bank meeting released later in the month highlighted a shift toward a firmer economic and inflation outlook. Officials also concluded that the risk of a material easing in labour market conditions had been reduced. The central bank said it was too early to determine whether inflation would be more persistent than they had assumed in November. Nonetheless, markets took the view that the next move in rates is likely to be up. The Australian dollar strengthened during the month as a result, reaching its highest mark against the US dollar since October.
Data during the month further showcased a resilient Australian economy with GDP expanding at 2.1% year-on-year in the September quarter, the fastest pace in two years. Consumption provided a strong boost. The number of filled jobs rose by 107,600 (+0.7%) to 16.1 million in the September quarter, and the unemployment rate remained at 4.3%.
Post the month-end there were some notable developments affecting the key resources sector. Energy stocks rose in line with oil prices following the Trump administration’s moves against Venezuela, which owns the world’s largest crude reserves. Large cap miners were also in focus as it emerged Rio Tinto is in talks to acquire Anglo-Swiss commodity trading and mining company Glencore. Both Glencore and Rio Tinto are major copper producers, and surging demand for the red metal is likely one impetus for the potential deal. A successful transaction would see the combined group displace BHP as the world's biggest miner.
NZ economy
The NZX50 rose 0.4%, with further “green shoots” emerging in the local economy. Data released during the month showed that gross domestic product expanded by a better-than-expected 1.1% in the September quarter, adding to optimism around the outlook. This represented a rebound after a 1.0% contraction in the June quarter. Growth was broad-based, with increases in business services, manufacturing and construction, while exports also lifted solidly. Household spending remained subdued, but higher government spending and a recovery in business investment helped support overall activity. On a per capita basis, GDP was 0.9% higher. However, despite the quarterly rebound, the kiwi economy is still 0.5% smaller than a year ago.
The economy is though on the mend it seems, and while the GDP release is relatively dated, more up-to-date data during the month also offered encouragement.
Building consents are picking up. There were 35,552 new homes consented in the year to October 2025, up 6.2% on the prior year. Historically, consents tend to lag OCR cuts by around nine months, suggesting more construction activity may be in the pipeline.
Kiwis also appear to be opening their wallets a bit wider. Electronic card spending in November rose 1.2%. Fuel and food spending were higher, but so too were durables, apparel and hospitality. Shoppers appear to be in the mood for discounts, and we will get a clearer read on underlying momentum in January once Black Friday and holiday-related effects wash through.
There was also a positive read on the manufacturing sector, with the BNZ–BusinessNZ Performance of Manufacturing Index holding comfortably above the expansion threshold of 50, coming in at 51.4 in November. A real bright spot was the PMI employment index, which recorded its strongest monthly lift since 2021. New orders eased slightly, but remain well above 50. Manufacturing isn’t roaring yet, but the foundations for a slow, steady and durable recovery look better than they have in quite some time.
The jobs market is also picking up. SEEK said that job ad volumes in New Zealand have risen by 1% in each of the past five months and are now 9% higher than a year ago. On a quarterly basis, volumes are up 4% on the previous quarter and 7% compared with the same period last year.
Tourism is also a bright spot. Short-term visitor numbers have climbed to around 92% of pre-Covid levels, and national hotel occupancy has reached 83%, the highest since February 2020. A release from Auckland Airport during the month added to this narrative: November saw 885,000 international passenger movements, up 4% on the same month a year earlier. Queenstown’s international arrivals were up 20%. Domestic travel remains a little soft, with passenger numbers down 1%.
It is not all universally positive just yet however. The services sector for one is still struggling. The BNZ–BusinessNZ Performance of Services Index (PSI) dipped further into contraction in November, falling to 46.9. This was 1.5 points lower than October and well below the long-run survey average. All five sub-index measures were in contraction. More positively, the retail sector’s PSI lifted to 56.0 - its strongest November reading since 2017. As the card-spending numbers suggest, retailers are beginning to see light at the end of the tunnel.
The dairy sector has provided one area of support for the economy over the past year, and there is likely be a further boost next year as Fonterra farmers receive a $3.2 billion windfall following the sale of the consumer business. Somewhat ironically dairy prices have been falling in recent months amid strong global supply (causing Fonterra to lower its milk prices forecast during the month), but a 6% gain in prices at the most recent auction has buoyed hopes of the dairy market turning back up.
A pick up in the wider economy meanwhile will be welcomed by the government. The Half Year Economic and Fiscal Update during the month has the expected government deficit for the year to next June forecast at $13.9 billion, around $1.8 billion more than was forecast in May, with no surplus now forecast until 2029/30. The downward revisions reflected steady expenses but a slower economy, lower tax take, and higher debt costs. With an economic recovery in the winds, the Treasury sees real GDP increasing by 1.7% in 2025/26, rising to 3.4% in 2026/27.
Interest rate reductions have clearly been constructive in providing a helping hand to the economy. A notable development during the month however, was that several major lenders raised their rates. This appears to be more of a technical move, driven by reduced offshore funding as swap rates have pushed higher. The view has emerged in some corners that the RBNZ is “done” with rate cuts and may begin hiking from May onwards. This is far from certain - particularly given the RBNZ has not explicitly ruled out further cuts. While recent economic brightness is encouraging, the central bank, now with a new governor at the helm, could well be retaining optionality.
Looking ahead
2026 is already shaping up to be another interesting year, and it has certainly started that way. US President Donald Trump has wasted no time making headlines, from orchestrating the capture of Venezuela’s president to floating the idea of the United States acquiring Greenland. While the headlines can be noisy, stepping back reveals several important themes emerging beneath the surface.
At a broad level, we see global equity markets continuing to push higher over the course of the year. Our base case is that a US recession is avoided, while central banks remain broadly supportive. Even with inflation still sitting above target, we expect a newly appointed Trump-backed Federal Reserve Chair to help direct two rate cuts during 2026.
Inflation itself has taken on a new dimension. Donald Trump has flagged his intention to exert control over Venezuela’s oil reserves, the largest in the world. How this situation evolves remains uncertain, but it reinforces the idea that geopolitics will once again be something investors need to navigate carefully. For some investors, heightened geopolitical tensions can feel unsettling, but periods of volatility often create opportunities for active managers to take advantage of temporary market dislocations and shifting sector dynamics in ways that passive approaches simply cannot.
Closer to home, we see the Australian market pushing to new record highs. The Reserve Bank of Australia is expected to begin its rate-hiking cycle against the backdrop of a relatively resilient economy, supported by a recovery in China that could surprise on the upside.
In New Zealand, we also expect the market to make new highs this year. Investor appetite is likely to build around electricity companies, property stocks and cyclical sectors that now appear to have bottomed. The dividend appeal of the local market should also come back into focus, particularly with interest rates expected to remain relatively low.
There is a new Governor at the Reserve Bank of New Zealand, and we expect Ana Breman to make her mark alongside a refreshed leadership team. Offshore pressures pushing borrowing rates higher remain a risk, and in our base case the RBNZ keeps rates on hold this year. That said, if the recovery stumbles, we wouldn’t rule out another rate cut in the first quarter.
Looking further ahead, we expect the New Zealand economy to show a much stronger second half, as early green shoots become more visible. The Fonterra payout and its flow-on effects should also provide support.
And of course, it’s an election year. We expect a tightly contested race, with capital gains tax and potential KiwiSaver reforms shaping up as key areas of debate.