Global market update – December

As we head into the final quarter, markets continue to grapple with mixed signals; some are encouraging, while others warrant close attention. Here’s my take on what stood out across major global regions.

Australian inflation surprised on the upside, with CPI rising to 3.8% in October, up from 3.6% in September. This is not the direction the Reserve Bank or borrowers were hoping for. Rather than reinforcing the case for future rate cuts, this uptick puts the possibility of a rate increase back on the table. While the broader economy remains resilient, sticky inflation continues to challenge sentiment. For investors, this reinforces the importance of maintaining diversification as local conditions remain fluid.

The US delivered a mix of strength and concern. On the positive side, the ISM Services PMI rose to 52.4, its strongest level since February, indicating that the services sector remains in expansion mode. Employment data also surprised to the upside, with 119,000 new jobs added, well above expectations. However, not all signals were rosy. The unemployment rate rose to 4.4%, the highest level since late 2021. Retail sales also softened, rising just 0.2% in September, compared to the 0.4% expected.

China continues to deliver a blend of gradual improvement and lingering risks. Retail sales grew 2.9% year-on-year, slightly above expectations, and consumer inflation finally turned positive, alleviating concerns of a deflationary spiral. Producer price deflation also eased, offering some breathing room. However, the property sector remains a significant drag on the economy. Prices across 70 major cities fell 0.45% month-on-month, the steepest decline in a year. This remains the critical risk to China’s growth trajectory and, by extension, to Australia’s resource-heavy export sector.

Europe saw renewed weakness in sentiment. In Germany, the closely watched ZEW investor sentiment index fell to 38.5, missing expectations. Meanwhile, UK retail sales declined 1.1% in October, marking the first drop since May. These figures underscore the fragile nature of Europe’s recovery, as consumer caution and higher costs persistently weigh on economic momentum.

Currently, global markets are navigating a classic push-and-pull environment, with solid pockets of economic resilience balanced against inflationary pressures, softening consumer demand, and geopolitical uncertainty. While short-term volatility is likely, the medium-term backdrop remains supported by global earnings, fiscal stimulus, and expected liquidity injections.

For investors, staying flexible, diversified, and focused on long-term themes, such as AI, energy infrastructure, and inflation-hedging assets, remains the most prudent approach.