The US equity rally stalled in November amid valuation concerns, particularly in AI-related stocks. Uncertainty from the 43-day government shutdown and limited economic data further dampened sentiment. Despite a late-month rebound, both the S&P 500 Index and Nasdaq 100 Index were lower for the month, as of 27 November.
Japanese equities also retreated, largely viewed as a correction after October’s 10% surge, while in Europe, the UK’s FTSE 100 Index and Euro Stoxx 50 Index drifted off their recent record highs. Closer to home, the NZX 50 Index had an up-and-down month, and was trading about flat as of 27 November.
US bonds rose on heightened uncertainty, pushing the 10-year yield below 4%. In contrast, New Zealand bonds fell. Despite the interest rate cut, the RBNZ signalled its cut may mark the end of this cycle.
The Month Ahead December 2025 summary
The Fed faces a contentious decision
The US Federal Reserve (the Fed) meets early December, where it is shaping up to be a contentious meeting, with the probability of an interest rate cut (according to interest rate markets) oscillating around. Up until late November, interest rate markets were pricing in a full cut, but some rhetoric from several policymakers and concerns about inflation has seen the probability of a cut scale back towards 80%, as of late November.
Boston Fed President Susan Collins said that her base case was to “keep policy rates unchanged” citing the lack of economic data due to the shutdown. She added that there are “several reasons to have a relatively high bar for additional easing in the near term”. Her comments follow Fed Chair Jerome Powell who said at the October central bank meeting that a December cut was “not a foregone conclusion”.
On the other hand, Federal Reserve Governor Christopher Waller said in an interview he favours an interest rate cut, citing his concerns about the slowdown in the labour market, while Stephen Miron continues to advocate for sizeable interest rate cuts.
Other central banks to meet in December
Accompanying the Fed in December are several other central banks that will meet. These include the Bank of England (BoE), Reserve Bank of Australia (RBA), European Central Bank (ECB) and the Bank of Canada (BoC).
Interest rate markets indicate that the BoE is the only one contemplating a rate cut. Policymakers had remained concerned about inflation of late, despite a weakening job market and relatively tepid economic growth. However, a downside surprise to October inflation data has raised hopes that the central bank will ease further to fuel growth.
Meanwhile, rate cuts in Australia are becoming increasingly unlikely after an upside surprise to inflation, while positive employment data suggest the economy remains in good stead. Elsewhere, the BoC is expected to leave interest rates unchanged as the central bank takes a ‘wait and see’ approach after more than 250 basis points of cuts since May 2025, while the ECB is in a similar position, holding rates steady in October, with the economy holding up well amid the global trade uncertainty.
New Zealand: Growth data rounds out 2025
After the RBNZ cut the OCR by 25 basis points in November, the last meeting of the year, December will see a focus on economic data, with GDP being the highlight. After a weak Q2 report (-0.9%), it is expected the economy rebounded and grew somewhere in the region of 0.5% in Q3 (the RBNZ is forecasting a growth rate of 0.4%).
While growth remains benign, policymakers and the government will be hoping it is the start of a recovery as we head into 2026. If there is to be a surprise to the upside, it could suggest that the RBNZ easing cycle has ended, with the OCR down more than 300 basis points since its peak at 5.50%.
We remain overweight to the New Zealand dollar
We maintain our overweight position to the New Zealand dollar (NZD) relative to the US dollar (USD). At 57 cents, the NZD appears undervalued from a medium-term fundamental perspective. Additionally, technical indicators suggest potential upside for the NZD.
On global equities, we remain cautious. While momentum supports further upside, valuations in several markets are elevated relative to historical norms, which has resulted in a mild pullback in November. As a result, we are maintaining a neutral position.
In fixed income, we believe global bond markets are currently priced fairly, with compelling opportunities on either side. The recent sell-off in equities, albeit mild, has seen some demand for defensive assets such as bonds, while concerns around persistent inflation poses some downside risk to bonds.