Summary
Global markets ended 2025 on a mixed but generally positive note. Europe and the UK saw strong equity performance supported by stable inflation and modest rate cuts, while the US lagged behind global peers despite easing inflation and further Fed rate reductions. Asia delivered gains in tech-driven markets like Korea and Taiwan, though China remained weak amid structural challenges. Emerging markets benefited from Latin America’s recovery and Middle Eastern strength, while fixed income posted solid annual returns for US Treasuries, UK gilts, and corporate bonds, aided by rate cuts and tightening spreads.
Europe
European equities gained over 2% in December, capping a strong year. Financials led performance, while energy and staples lagged. The ECB kept rates at 2% for the fourth meeting, upgraded GDP forecasts for 2025–2028, and projected inflation near its 2% target. Service price inflation remains elevated at 3.5%, driven by wage growth, adding uncertainty to the outlook.
UK
UK equities closed higher for 2025, with the FTSE All-Share among top performers. Inflation fell to 3.2% in November, its lowest in eight months, prompting the Bank of England to cut rates by 0.25% to 3.75%. Growth contracted slightly in October, wage growth slowed, and unemployment rose to 5.1%. Consumer confidence improved modestly, though retail sales dipped.
US
US equities were flat in December, underperforming globally. The Fed cut rates by 25bps to 3.5%–3.75%, citing labour market weakness and easing inflation (2.7% in November). Unemployment rose to 4.6%, while job gains were modest. Consumer confidence fell, though Q3 GDP grew strongly at 4.3%. Sector performance was mixed, with financials and materials leading.
Asia
Asia-Pacific equities ended 2025 positively, led by Korea and Taiwan on tech strength, while China and Hong Kong declined on weak macro data and property-sector stress. Japan rose despite a 25bps rate hike to 0.75%, its highest since 1995. India was flat, supported by rate cuts and strong growth forecasts. Australia advanced on easing policy concerns.
Emerging Markets
Emerging markets gained in December, driven by Korea, Taiwan, and Latin America. Brazil rebounded after political uncertainty, Chile surged on falling inflation and pro-business reforms, and Peru benefited from strong commodity prices. Middle Eastern markets strengthened on solid fundamentals and diversification efforts. China and India underperformed amid structural and earnings challenges.
Fixed Income
2025 was positive for US Treasuries (+6.19%), UK gilts (+5.00%), and corporate bonds, while German bunds and Japanese bonds lagged. The Fed and BoE cut rates, while the ECB held steady. December saw gilts outperform (+0.20%) as Treasuries and bunds fell. Corporate bonds ended strong, with high yield outperforming investment grade. European IG issuance hit a record €800bn.
