Macro Monday Insight: December 1-5, 2025

RECAPPING LAST WEEK
U.S. equity indices and other risk assets rebounded sharply in a holiday-shortened week as rising hopes for a December rate cut and a recovery in technology shares buoyed sentiment. The Nasdaq Composite and Russell 2000 indices surged nearly 5% and 5.5%, respectively, while the S&P500 jumped 3.7%. Sector performance was overwhelmingly positive, led by consumer discretionary (+4.9%) and technology (+4.8%). Gold futures rose 4.5% while oil prices increased 2.5% as OPEC was seen leaving output levels unchanged at its upcoming meeting. U.S. Treasury yields eased after comments from FOMC officials and moderate weakness in the limited economic data released lifted odds for an additional rate cut this year to above 85%, according to fed funds futures. Fed Governor Waller and New York Fed President Williams both voiced support for lowering rates later this month. However, with no clear consensus among FOMC members on the next path of rates, their upcoming December 9-10 meeting should spark a lively debate. The U.S. labor market showed further signs of weakening, despite weekly jobless claims remaining at low levels. Payroll processing firm ADP reported that private companies shed an average of 13,500 jobs per week over the past four weeks, up from 2,500 jobs a week in the last update. Employment worries weighed on consumer confidence, which dropped to 88.7 in November from 95.5. September’s delayed retail sales report revealed a lower-than-expected increase of 0.2%, raising some concerns about consumer spending heading into the critical holiday shopping period. However, despite gloominess in sentiment surveys and a dearth of data to consider, the Fed’s latest Beige Book report revealed that overall economic activity remained solid, and little changed since the last account. The Atlanta Fed is forecasting Q3 GDP growth at 3.9%, with that delayed report scheduled for release on December 23. In other economic news, weak demand and softening home prices caused nearly 85,000 U.S. sellers to take their homes off the market in September, up 28% YoY. Many homes are sitting on the market for longer, and supply is up 15% versus a year ago. On the inflation front, the delayed producer price index from September increased 0.3% MoM and 2.7% YoY. Overseas, UK government bond prices and the pound edged higher after the release of finance minister Reeves’s 2026 budget calmed investors. While tax increases are estimated to give the country more fiscal headroom, the potential drag on economic growth remains concerning. In Germany, inflation accelerated more than expected in November while retail sales fell 0.3% MoM. Finally, Tokyo’s core CPI reading came in at 2.8% YoY, supporting growing calls for a near-term rate hike from the Bank of Japan. Early indications suggested that Japan’s annual wage negotiations lean toward solid pay hikes, which could give the central bank added confidence to raise rates.

THE WEEK AHEAD
Last week’s rally in risk assets may have also been fueled in part by speculation that the White House could decide on the next Fed Chair before year-end. The current frontrunner appears to be National Economic Council Director Hassett, and the potential dovish implications of his tenure could weigh on the U.S. dollar as traders price in more rate cuts. Consequently, a weaker dollar may be supportive of gold and digital assets. Normally, investors would be anticipating this week’s U.S. jobs data, but the JOLTS and non-farm payrolls data have not returned to their usual schedule. The ADP private payrolls and Challenger job cuts reports will have to suffice ahead of the next Fed decision. September’s core PCE price index, which was originally targeted for release last week, will now arrive on Friday, along with preliminary consumer sentiment and inflation expectations. ISM manufacturing and services PMI and consumer credit figures round out the domestic calendar, and Fed Chair Powell is scheduled to speak at a conference this evening. A couple of international events over the weekend may set the early tone for this week—China’s PMI release and the OPEC meeting. Investors will also be watching ongoing developments in Ukraine-Russia negotiations. The rest of the overseas agenda includes Eurozone CPI and retail sales, German factory orders, and Australian GDP.

CHART OF THE WEEK
A week for the little guys
U.S. small caps were the biggest beneficiary of last week’ equity rally, with the Russell 2000 index (RUT) rocketing higher by 5.5%. Since the April lows, RUT has outperformed the S&P500 index (SPX) by a margin of 700 basis points (+34% versus +27%) but still lags considerably on a longer-term view. After RUT reached its 2021 highs, it took three years to reach that level again, suffering through 30% drawdowns both before and after the late-2024 peak. In October, the index finally ascended to a new record close, and after a four-week pullback, last week’s bounce looks constructive from a technical perspective. RUT’s relative strength vs SPX is showing signs of a turnaround, potentially setting the stage for continued outperformance into next year. Last week’s catch-up in economic data boosted the probability of another rate cut this year, which typically benefits smaller companies the most. If the cutting cycle continues into next year, that could jeopardize the recent uptrend in the U.S. dollar and provide a further tailwind for RUT.


Source: thinkpipes
 
Source: Charles Schwab Corporation
 
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