Bumpier December

ISM's November factory readout was enough to lift Treasury yields sharply across the curve on Monday and sowed a kernel of doubt about this month's widely expected Federal Reserve interest rate cut. A third Fed cut of the year on December 10 had been almost fully priced prior to the report, but the chances of a move have been pared back slightly to just over 80%.

Fed policymakers are in their traditional quiet period ahead of the meeting, so no more public guidance is expected before then. But the ISM report re-introduced the tariff question.

With the Supreme Court yet to rule on the legality of President Donald Trump's use of emergency powers to introduce the levies, retailers too were emphasizing the pressure.

Costco became the latest firm to sue the U.S. government to ensure it will receive refunds if the Supreme Court rejects Trump's sweeping authority to impose those tariffs.

The discomfort spread to stock and bond markets on Monday, with the S&P 500 falling back about 0.5% - irked additionally by the ongoing shakeout in crypto markets. Bitcoin lost more than 5% on Monday, relapsing back below $90,000 before steadying earlier today, and crypto stocks were hit too.

Firmer crude oil prices also weighed after the weekend decision from OPEC+ to keep output levels unchanged early next year.

But with Tuesday's calendar thin, world markets have calmed somewhat before today's bell. 

U.S. stock index futures crept back higher, with European stocks higher too. South Korea's Kospi benchmark outperformed again with gains of almost 2%.

U.S. Commerce Secretary Howard Lutnick on Monday confirmed the general tariff rate on imports from South Korea, including on autos, would drop to 15% from last month because South Korea has introduced legislation in parliament to implement the country's strategic U.S. investment commitments.

Japan's Nikkei also held the line after a heavy loss there on Monday on stepped up speculation about a Bank of Japan interest rate rise this month. Japanese government bond yields and the yen eased back a bit after a decent 10-year debt auction there.

There was better news from the Organisation for Economic Cooperation and Development, which lifted its U.S. economic growth forecasts for this year and next to 2.0% and 1.7% respectively. It also nudged up euro zone forecasts, but said global trade growth would almost halve to 2.3% in 2026 due to tariffs.

Euro zone inflation for November, meantime, came in a touch above expectations at 2.2%

In Britain, the Bank of England cut the amount of capital it estimates lenders need to hold in a bid to boost lending and stimulate the economy, in what will be its first reduction to bank capital demands since the global financial crisis. The major UK bank stocks rose about 1%. 

As consensus forms around next year's investment outlook, it's hard to find many outright stock market bears. Yet an economic mix not seen for more than half a century means few forecasts come without serious qualifiers.

The biggest puzzle of 2025 is transpiring to be less about how markets shrugged off U.S. President Donald Trump's tariff war and more about how the artificial intelligence investment boom has managed to accelerate without creating many jobs.

As economists at JPMorgan insist, the juxtaposition of an AI-led capex explosion and stalling labor market has not been evident in any U.S. expansion for the past 60 years.   

Graphics are produced by Reuters.

Graphics are produced by Reuters.

U.S. manufacturing contracted for the ninth straight month in November, with factories facing slumping orders and higher prices for inputs as the drag from import tariffs persisted.

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