Risk is on as we enter the penultimate trading week of the year. Gold reached a fresh record high, Asian stocks surged, and the Nikkei jumped by more than 1.8%. US equity futures are pointing higher; however, European stocks are lagging after a number of European indices breached fresh record highs in recent days including Spain’s Ibex.
Gold has best annual performance in 4 decades
Tech stocks are leading this ‘Santa Rally’ and Europe is tech-light, so it may be a laggard as we start a new week. Commodities are also surging. The gold price hit a fresh record high on Monday and is above $4,400, as geopolitical concerns heat up and hopes grow that the Fed can continue to cut rates next year as US inflation moderates. Gold is rounding off the strongest annual performance for the yellow metal in four decades and today’s price action suggests that it is not done yet.
Venezuela tensions support oil price, but for how long?
The oil price rising as we start a new week after the US boarded a sanctioned oil tanker near Venezuela. The US has imposed an oil blockade on Venezuela, to choke off revenues that fund the Maduro government. When the oil blockade was announced last week, it sent the price of oil soaring and helped Brent crude to rise above $60 after it had slid below this key threshold on the back of concerns about excess supply. However, there is a concern that Venezuela alone does not currently produce enough oil to move the market for the long term and gains could be fleeting.
Overall, oil prices posted a loss for last week, and it’s been a rough December for energy bulls. Brent is lower by 3.5%, WTI by 2.5%, gasoline by 9% and heating oil is also lower by nearly 10%. This is good news for inflation, especially as we lead up to the holidays and the peak winter months. In contrast, silver is soaring, it is higher by more than 20% so far in December and the gold price is also higher by 4%, as precious metals easily outperform equities.
Stock market volatility retreats as we near year end
Stock market volatility retreated last week and US stock indices managed to eke out a gain, as the S&P 500 hovers close to a record high. Jitters about the AI trade weighed heavily on the index in the first half of the week, before easing off after Micron Technology reported strong results and robust demand in its AI division. This helped Oracle, which has been hit hard by the AI sell off. Its stock price staged an impressive recovery on Friday and rose by more than 6%. Oracle was also given a boost when it was announced as one of the new owners of TikTok after the US business was sold by parent company ByteDance.
Interestingly, although volatility is well below its average of the year so far, it feels like it has been a choppy period for global stocks, especially US stocks. December trading has been lacklustre so far, MTD the S&P 500 is down 0.2%, while the Nasdaq is lower by 0.25%. There has been a large divergence in performance, for example, the transport and banking sectors have surged in December, while the Philadelphia semiconductor sector is just about eking out a gain. The question now is, will there be a Santa Rally over the last trading days of 2025?
Bond markets stable as we reach holiday season
After last week’s central bank fest, the bond market is relatively stable at the start of a new week. Yields rose across Europe last week while Treasury yields dropped by 1bp, suggesting that the bond market is not yet rushing to price in more rate cuts from the world’s largest central banks and the recent torrent of economic data and central bank decisions have not shifted the dial for monetary policy in 2026.
The highlights to watch out for in the trading week ahead include:
- Confirmation that the UK economy grew by 0.1% last quarter. There were small upgrades to trade, personal consumption and government spending, which is still a key driver of UK growth. However, investment was revised lower. We doubt that investment rose in Q4 due to budget concerns, instead we may need to wait for next year to see it bounce back.
- There are signs that momentum picked up in the UK economy in December, after a stronger than expected UK PMI report and some positive signs from the high street that retail sales may have bounced back after posting a surprise decline for November. The PMI survey for December noted that businesses and consumers seemed a little more confident once the budget was out of the way.
- US Data deluge, including the final Q3 GDP report, consumer confidence, durable goods orders, FOMC meeting minutes, and US industrial production data for October and November. The minutes could be the most market-moving event this week, as traders assess the chances of further Fed rate cuts in 2026. Signs that rates could be cut further could further ignite the Santa rally as we near year end.
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