Market Commentary

December 2025

Global shares were mixed through December, with the MSCI World Index – Net closing the month down 0.86% in unhedged AUD terms. In hedged AUD terms, the index returned a positive 0.54%.

Global share markets went on a bull run to close the year, led by financials, materials and energy. The “Santa Claus rally” – a tendency for markets to rise in the last five trading days of the year – was due to a variety of factors including lower-than-expected inflationary figures out of the US and expectations that The US Federal Reserve (Fed) would cut rates twice in 2026.

Despite periods of volatility due to concern around AI capex and sustainability, tech has led market upside through the year and was the difference maker between a positive and negative December. Nvidia rallied from a mid-month dip on news that the chipmaker would resume AI-related shipments to China by mid-February with initial deliveries from existing inventory while expanding capacity in the new year. President Trump overturned a Biden-era restriction that limited chip exportation, instead allowing them with a 25% fee.

The US Federal Reserve (Fed) cut rates at its final meeting of 2025, a decision that was widely expected. In justifying their decision, the Fed pointed to reasonably strong economic activity; economic activity has expanded at a moderate pace while job gains have slowed and the unemployment rate edged up through September.

There was some volatility in US bond markets as traders targeted a bond rally that would send US Treasury 10-year yields back to 4% in coming weeks, a level not seen since November. US yields ticked higher in the weeks leading up to the end of the year, topping at 4.20% in early December though it had dropped to 4.16% as investors weighed new information about future rate cut plans and timings from the Fed.

Minerals continued to rise through the month. Copper surged, reaching an all-time high in mid-December on strong demand from AI data centres and energy transition, along with supply disruptions from Central America. Iron Ore rose more than 2.5% on modest demand from China and tightening supply. Silver hit a record high on 19 December while gold regained value – and also hit a new record – after an early month dip.

Central bank activity

Underlying inflation and unemployment figures sent central banks down divergent paths to end the year. Fed officials delivered their third consecutive interest rate cut and the Bank of England (BoE) followed its lead, reducing the bank rate by 0.25%. Banco de Mexico and the Reserve Bank of India also cut interest rates 0.25%, citing easing inflation expectations. 

The European Central Bank (ECB) kept all key interest rates unchanged at its policy meeting on 18 December, maintaining a data-dependent, meeting-by-meeting approach that is willing to make changes if warranted by conditions without establishing a fixed path forward.

The Reserve Bank of Australia (RBA) kept its cash rate steady at 3.60% to end the year. The move was not surprising however market observers had noted a recent uptick in inflation and unemployment figures might prompt the RBA to take proactive action to raise rates. The Bank of Canada also left rates unchanged.

The Bank of Japan (BoJ) increased the short-term interest rate by 0.25%, reaching 0.75% – the highest rate in 30-years.

Australian activity

Australian share markets took advantage of the Santa Clause rally and finished positive, breaking a skid that started in mid-October. Unfortunately, Australian shares performed worse than its international counterparts in December. The S&P/ASX 300 Accumulation Index rose 1.37% to end December.

Australian unemployment rate remained at 4.3% for the month according to seasonally adjusted figures but underemployment and labour participation were concerning. Australian Bureau of Statistics data shows the number of people employed fell by 21,300 while the number of people who were unemployed fell by 2,100. The size of the labour force shrunk by 23,400, dropping the participation rate by 0.2 percentage points to 66.7%.

Property prices continue to be red hot across the nation, with September quarterly figures showing growth in most states and territories, led by Western Australia (+4.9%) and Queensland (+4.0%). New South Wales remains the most expensive place to buy a home, with a mean price of a residential dwelling at $1,295,900.

The Consumer Price Index remains at 3.8% for the 12 months to October; new figures will be released in early January. Trimmed mean inflation is at 3.3% to October.

Fixed income performance

In terms of fixed income, global bonds fell slightly over the period, with the Bloomberg Global Aggregate Index – $A hedged returning 0.21%. Longer-term Australian government bond yields were higher¹, reaching their highest levels since mid-January supported by the growing belief that there will be no rate cuts this year and potentially a rise in early 2026.

Australian bonds were down for the month, continuing the trend started when prices peaked in mid-October, as measured by the Bloomberg AusBond Composite 0+ Year Index. The RBA kept rates on hold in its December meeting, which is flowing through to domestic government bond yields, which rose through the month on anticipation of a potential rise in 2026.

The Australian cash market returned 0.31% over the period, as measured by the Bloomberg AusBond Bank Bill Index.

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¹ Bond yields have an inverse relationship with bond prices, meaning when yields rise, prices fall and vice versa.