December 2025 quarter economic and market commentary
Perhaps the most notable development in global financial markets during the December quarter was the ongoing surge in precious metal prices. Gold prices were up around 12 per cent (in USD terms) in the quarter for a circa 65 per cent increase over the year while silver prices rose by an incredible 50 per cent in the quarter (again in USD terms) to be up around 135 per cent for the year.
Normally such an increase in precious metal prices would be accompanied by a severe risk aversion episode which might have occasioned sharp falls in global equity markets and a strong rally (sharp falls in yields) in government bonds. While growing geopolitical uncertainties helped precious metal prices, the bigger influence appears to have been some nascent diminution in the ongoing utility of US Treasury bonds as the primary “safe harbour” asset in portfolios.
The more sceptical view of bonds reflected, inter alia, ongoing large budget deficits (particularly in the US but also elsewhere), “stickiness” in US inflation, and some concern around the implications of a more politically pliant US Federal Reserve.
Shorter date yields actually fell modestly as the US Federal Reserve cut the policy rate twice from the target of 4-4 ¼ per cent prevailing at the start of the quarter to 3 ½ – 3 ¾ per cent. However, despite the Fed’s actions US longer term bond yields rose ever so slightly. US 10-year yields started the quarter at 4.15 per cent and finished at 4.17 per cent.
The “stickiness” in longer term bond yields failed to dent the positive tone in equity markets with the S&P500 and Nasdaq indices up around 2.3 per cent and 2.6 per cent respectively for increases of circa 15 and 18 per cent respectively (in USD terms) for the calendar year. Those returns were posted despite a sharp downdraft in April in the wake of President Trump’s “Liberation Day” announcements.
Equity markets have since reassessed the likely fallout on US (and global) economic activity as a consequence of the Trump tariff agenda. The US economy has proved more resilient (at least in the near-term) than a number of analysts had projected back in April. Having said that, the US labour market exhibited clear cooling through the quarter and uncertainties over the near-term course of growth in economic activity in the US (and globally) remain.
The strong performance in equity markets appeared to reflect increasingly more positive assessments of the financial ramifications of the AI revolution and other structural “mega-trends”.
Other factors include: a fracturing world that has buoyed defence stocks; a tendency toward “oligopolisation” / “monopolisation”, particularly in emergent tech industries (think Meta, Google, Uber, Amazon, Nvidia) which has boosted returns from those stocks.
Indeed, most global equity markets exhibited solid returns in the December quarter. The German DAX was up 2.6 per cent while the Japanese TOPIX market surged around 8.6 per cent probably on the back of a weaker JPY (down 6 per cent against the USD) and despite the Bank of Japan increasing the policy rate from 0.50 per cent to 0.75 per cent in the quarter. Japanese 10-year yields surged from 1.64 per cent to 2.06 per cent in the quarter.
The weakness in the USD that had been a feature of the first half of the calendar year abated through the quarter and the USD was relatively stable against the EUR and AUD during the quarter.
Despite the rise in the precious metals Bitcoin fell around 23 per cent (in USD terms) in the quarter.
Locally, inflation data revealed a hint of “last mile” complications in getting inflation back to the middle of the target 2-3 per cent range. The RBA left the policy rate unchanged through the quarter and markets now expecting the next move in the policy rate to be an increase, perhaps as early as February 2026.
As that sentiment took hold Australian bonds markedly underperformed their US counterparts with the Australian 10-year yield rising some 44 basis points in the quarter to 4.74 per cent. That saw the ASX200 go backwards in the quarter (around 1.5 per cent) in contrast to other developed country equity markets.
Going forward, the key issues for 2026 revolve around how the Trump agenda might both evolve and manifest itself in the data. Certainly, there remain some residual fears that “sticky” inflation and the Trump tariff agenda could still yet result in a “stagflation-lite” scenario. That might yet arrest the current positive tone in markets. Having said that, there is only scant evidence of such a scenario in the hard economic data and structural “mega-trends” like AI continue to dominate the macro.
Geopolitical uncertainties (Venezuela, Greenland / NATO fractures) also loom large. President Trump’s plan for the Fed and a seeming desire to see a depreciated USD also will bear watching.
December 2025
Stephen Miller is an Investment Strategist with GSFM. The views expressed are his own and do not consider the circumstances of any investor.
