Investor sentiment swung notably this week as markets recalibrated expectations for US monetary policy. The probability of a December Fed rate cut rose toward 80%, up sharply from 43% a week earlier, after NY Fed President Williams said he sees room for another cut “in the near term.” This came after expectations had briefly plunged to 25%, following the BLS announcement that both the October CPI and payrolls reports were cancelled and that November data will arrive only after the December FOMC meeting. With no fresh inflation or labor-market prints before 12 December, uncertainty is elevated across asset classes. In parallel, the October FOMC minutes highlighted an increasingly divided Committee: while several members judged inflation close to target, many stressed persistent upside risks and little progress toward 2%. Policymakers delivered conflicting messages this week, from Waller supporting a December cut to Logan, Bostic and Goolsbee expressing caution. Minutes showed that most participants see further easing as appropriate over time, though not necessarily in December. This coming December Fed’s meeting remains highly uncertain in its outcome.

Euro-area negotiated wage growth slowed to 1.9% in Q3 (vs 2.5% expected and after 4.0% in Q2), reinforcing ECB confidence that services inflation will moderate. President Lagarde pushed back firmly against political calls for renewed QE, emphasizing the need for fiscal reforms rather than monetary accommodation. The European Commission’s autumn forecasts show inflation near target by 2026 and subdued growth through 2027, underscoring a landscape of balanced inflation risks but persistent downside risks to activity. ECB rate future pricings were barely affected last week, unlike in the UK where milder-than-expected inflation data for October and dovish-leaning talks from BoE members pushed the probability of a December rate cut up toward 90%.

The South Africa Reserve Bank cut its key rate by 25bp to 6.75%, as expected, while the Bank Indonesia kept its rate unchanged at 4.75%.

Credit

Credit spreads widened as investors continued to absorb heavy supply in the secondary market. Meanwhile, equity and cryptocurrency volatility were elevated, with another week of pullback on technology stocks. Meanwhile, U.S. Treasury and German bund yields fell and drove total returns of most credit segments positive.

U.S. primary issuance accelerated last week, exceeding expectations ahead of the holiday-shortened week of Thanksgiving. Despite broader market volatility, demand held firm: U.S. investment-grade deals averaged slightly over 4 times oversubscription. New issue supply could rise further in 2026, driven by AI-related capex investments and large M&A pipeline. With U.S. rates forecast to decline next year, opportunistic refinancing could also boost issuance volumes.

In Europe, high-grade funds posted another week of inflows, marking 30 out of the last 31 weeks of positive momentum. Short-term strategies continued to attract stronger demand, partly due to the fixed-maturity fund launches, capturing the majority of inflows this week.

Moody’s upgraded Italy by one notch to Baa2 with Stable outlook last week, citing consistent track-record of political and policy stability. This will likely translate into improved funding conditions for Italian banks.  

Credit markets delivered mostly positive returns, supported by lower U.S. Treasury and German bund yields. Both U.S. and EUR investment grade gained +0.1%, while U.S. high yield advanced +0.2%. The only exception was EUR high yield, which declined -0.2%.