U.S. markets ended the week on a mixed note as investors balanced encouraging inflation data with the early signals from corporate earnings.
Large-cap indexes paused after recent record highs, while smaller and mid-sized companies continued to outperform.
This suggests investors are rotating toward value-oriented and domestically focused stocks rather than high-growth names.
The most important development came from inflation data. Core consumer prices rose at their slowest annual pace since early 2021, easing concerns that inflation could reaccelerate.
This reinforces expectations that the Federal Reserve may be closer to cutting interest rates later this year. Producer prices, which measure costs at the wholesale level, ticked higher mainly due to energy prices, but did not change the broader picture of gradually cooling inflation.
Earnings season began with mixed reactions. Shares of JPMorgan and Citigroup fell after reporting lower profits, while Morgan Stanley and Goldman Sachs gained on stronger-than-expected results. Technology sentiment improved after Taiwan Semiconductor posted a sharp rise in profits, boosting confidence in artificial intelligence-related investments.
Housing data also surprised positively. New and existing home sales beat expectations, supported by falling mortgage rates that are approaching 6%. In fixed income, municipal and corporate bonds outperformed U.S. Treasuries as investor demand remained strong.
Europe: Growth returns, industry stabilises, and trade opens new doors
European markets posted modest gains overall, supported by improving economic data and stabilizing industrial activity. Germany delivered a key positive surprise as its economy expanded for the first time in three years, ending a prolonged recession. Growth was driven mainly by higher household and government spending, although exports weakened due to U.S. tariffs, a stronger euro, and competition from China. As a result, Germany’s trade surplus fell sharply, reflecting a shift toward more domestically driven growth.
The United Kingdom also returned to growth, with GDP rising in November after two months of contraction. Services and manufacturing led the recovery, helped by the reopening of major auto factories after a cyberattack earlier in the year. This eased fears that the UK economy was slipping back into recession.
Across the euro area, industrial output rose for a third consecutive month, and investor confidence improved to its highest level since mid-2025. These signals suggest that Europe’s manufacturing sector may be stabilizing after a difficult period.
On the trade front, the European Union provisionally endorsed a landmark free trade agreement with South America’s Mercosur bloc. Once implemented, the deal will remove tariffs on over 90% of trade and could significantly expand export opportunities for European companies, strengthening long-term growth prospects.
Asia and global developments: Politics, policy, and trade shape markets
In Asia, Japan stood out as a strong performer. Stock markets rose sharply on news that Prime Minister Sanae Takaichi is preparing to call a snap election. Investors expect that a clear political mandate would allow for more aggressive fiscal spending, benefiting sectors such as artificial intelligence, defense, and energy. The yen weakened initially on the news but later stabilized after government officials signalled readiness to intervene if currency moves became excessive. Bond yields rose as markets priced in the possibility of increased government borrowing and earlier interest rate hikes.
China’s markets moved in different directions. Mainland shares declined after regulators tightened margin lending rules to curb speculative trading, while Hong Kong stocks advanced. The policy shift reflects concern about the rapid rise in stock prices and high levels of investor borrowing.
China’s trade data remained strong. Exports grew at their fastest pace in three months, and the country recorded a record trade surplus for 2025. While this highlights China’s manufacturing strength, it also raises the risk of renewed trade tensions as Chinese exports expand into emerging markets.
Globally, bond markets were stable, with corporate and municipal bonds outperforming government debt as investors continued to seek yield in a gradually easing interest rate environment.
Looking ahead
This week’s developments point to a cautiously improving global outlook. Inflation in the U.S. is easing, Europe is showing signs of recovery, and Asia remains driven by political and policy shifts. While risks remain, particularly around trade and geopolitics, markets are increasingly focused on the prospect of slower inflation and more supportive growth conditions in the months ahead.
