Economy Market Wrap December 2025
December ended risk-cautious as a split Fed, commodity & funding strains met AI megadeals pushing flows to cyclicals, infra and select tech.
Key Trends
December closed with a neutral, risk‑cautious tone. Markets paused as a split within the Federal Reserve on whether to cut rates, rising liquidity strains and volatile commodity moves combined to cloud central‑bank paths. At the same time, large private AI megainvestments and a year‑end rotation pushed flows toward cyclicals, infrastructure and selective tech, while China’s reported activity pickup and the unveiling of an interest‑bearing digital yuan added a structural policy axis for global markets.
Notable Events
- Fed minutes showed officials divided on a December cut, contributing to policy ambiguity. - China announced an interest‑bearing digital yuan and signalled an activity pickup, prompting reassessments of capital allocation and cross‑border payments. - Private AI “megadeals,” data‑centre M&A and IPO activity concentrated flows into infrastructure and selective tech. - Commodity rallies, notably in copper and energy, shifted fiscal and inflation dynamics for commodity exporters. - US tax changes and Argentina’s 2026 budget raised fiscal and emerging‑market sovereign risk concerns; political signals on Fed leadership intensified uncertainty.
Performance
Price action was range‑bound into month‑end with elevated episodic volatility. Sector rotation outperformed headline indices: cyclicals and infrastructure saw relative strength on AI capex and commodity sensitivity, while defensives lagged. Asia markets were mixed amid regional regulatory shifts; liquidity strains manifested as tighter short‑term funding conditions and constrained risk appetite.
Outlook
Near term, markets will key off Fed communication (and any leadership developments), liquidity metrics, and commodity trajectories—particularly copper and energy. If AI capex sustains, cyclicals and infrastructure could extend gains, but persistent policy uncertainty and funding strains argue for guarded positioning and close monitoring of fiscal developments in the US and EM.