Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

This will be the last regular 'Trading Day' newsletter of the year. Thank you for all your support and feedback, and we look forward to an equally eventful and rewarding 2026. Normal service will be resumed on Monday, January 5. Happy holidays.

U.S. stocks rose and Treasury yields fell on Thursday after U.S. heavily-distorted inflation figures strengthened bets for another rate cut early next year, while global markets turned their attention to the Bank of Japan's policy meeting and guidance on Friday. 

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The U.S. inflation figures published on Thursday were so far out of consensus - "whacky", according to KPMG's Diane Swonk - that serious doubt is being cast on their credibility. The reason? The government shutdown that delayed and distorted the data collection process.

This may explain the muted reaction of Treasuries, and especially the dollar, to core inflation falling to 2.6%, the lowest since March 2021. The consensus was for a slight rise to 3.1%. Some economists note this was the biggest downside "miss" since 2009. 

The Bank of England cut rates on Thursday, while the European Central Bank and Norges Bank stayed on hold. But on balance, the underlying tone to officials' statements and guidance was generally hawkish.     

Traders are now beginning to wager that the ECB's next move will be a hike, albeit not until 2027. The BoE's 5-4 vote could not have been closer, and the Bank indicated that its gradual pace of easing might slow further. Taken together with the surprise fall in U.S. inflation, the Fed seems even more of a dovish outlier.  

U.S. President Trump signed an executive order on Thursday recommending the easing of regulations on marijuana, which could reshape the industry, unlock billions in research funding, and open doors long closed to banks and investors. 

U.S.- and Canada-listed cannabis stocks rallied on the news, some posting double-digit gains. But they reversed course sharply on the realization that this will be a process, and therefore could be diluted or even thwarted altogether. 

The Japanese yen was the worst-performing major currency against the bruised U.S. dollar in 2025, even though the Bank of Japan was the only major central bank to raise interest rates. Further tightening will not guarantee the yen escapes the intervention "danger zone." 

The BOJ is expected to continue its gradual tightening cycle on Friday with a quarter percentage point rate increase, bringing its policy rate to a three-decade-high of 0.75%. Interest‑rate futures imply around 40 basis points of additional hikes next year.

As things stand, that will make the BOJ one of the most hawkish G10 central banks next year along with the Reserve Bank of New Zealand and the Reserve Bank of Australia. Governor Kazuo Ueda's guidance on Friday will be closely scrutinized for clues about the BOJ's appetite for additional tightening.

But more hikes are no guarantee that the yen will recover in 2026. Most major central banks are close to the end of their easing cycles, with the notable exception of the Federal Reserve. If monetary policy starts tightening globally in the coming year, other central banks could quickly narrow the gap with the BOJ.