The bond market is going through a rough patch, with conditions worsening significantly this Monday afternoon (since precisely 3:30 pm). German Bund yields have jumped by 7.5 basis points to 2.875%, French OATs by 6.3 points to 3.597%, and Italian BTPs by 8 points to 3.578%. Yet, stock indices are behaving as if nothing is happening, despite these being the worst levels seen since September 25th.
The day started poorly in Japan, where the 10-year yield reached 1.97%, the 20-year hit a historic high at 2.95%, and the 30-year stood at 3.395%.
How these two worlds--bonds and equities--remain so disconnected today is a mystery. The Paris stock exchange has gone nowhere since the opening bell, with the CAC40 down just 0.2%, continuing to hover around the 8,100-point mark, a lack of initiative that has characterized the last nine sessions (stagnating around this same 8,100 threshold since November 26). Meanwhile, the Euro-Stoxx50 has slipped into the red after six hours of holding steady, and both the DAX40 and BEL-20 have moved from +0.2% to flat.
A sign of investors' growing caution after a successful 2025 stock market year so far, the Paris market moved within a particularly narrow trading range last week, between 8,040 and 8,160 points, with limited fluctuations from -0.1% to 0.4%.
A similar lack of momentum has been seen on Wall Street for six sessions, where major indices posted only marginal gains last week (+0.1% for the S&P 500), yet this was enough to bring them back within sight of record highs, with the Nasdaq now less than 2% from its peak.
On Monday, the Nasdaq slipped 0.3%, the Dow Jones fell 0.35%, and the S&P 500 dropped 0.3%--a perfect illustration of the wait-and-see approach ahead of the Federal Reserve's statement expected in 48 hours.
Barring a major surprise, nothing appears likely to alter expectations for a further 25-basis-point reduction in U.S. borrowing costs, given recent signs of a slowdown in employment and better control over inflation trends.
This would bring the total monetary easing by the U.S. central bank since September 2024 to 1.75 percentage points--unprecedented outside of recessionary periods in the United States, and with inflation still above the Fed's target.
Yet, over the past 10 days, while the "Fedwatch" barometer puts the odds of a rate cut at 85-90%, yields have continued to deteriorate: T-Bonds are up 4.8 points to 4.188%, and the 2-year is up 4.2 points to 3.606%. These are the same levels as mid-November, when a third rate cut seemed unlikely for December 10th.
Even if a rate cut seems largely priced in, an easing move accompanied by a dovish message would likely boost appetite for risk assets heading into year-end--a seasonally favorable period for equities and potentially paving the way for the famed "Santa Claus rally."
Some analysts believe it's not out of the question for the S&P 500 to reach the symbolic 7,000-point mark by December 31, and to target 7,500 points at the start of 2026--a major psychological milestone cited by many strategists.
Once the Fed meeting has passed, attention will inevitably turn to 2026, a year marked by the arrival of a new Fed chair, expected to be Donald Trump's trusted economic adviser, Kevin Hassett, though he has yet to be officially nominated.
Stock markets generally welcome rate cuts, but the prospect of an even more accommodative policy under a chairman known for his dovish stance could begin to unsettle market participants.
The recent flurry of rate cuts could put the resilient U.S. economy at risk of overheating, which might force the Washington-based institution to hit the brakes--or even hike rates again--potentially triggering a relapse into recession, some experts warn.
"We see good reasons for the Fed to start exercising more caution and to slow the pace of rate cuts," forecasted Henry Alle, a market analyst at Deutsche Bank, last week.
Meanwhile, the economic calendar and corporate earnings news are expected to be much quieter, though Oracle's quarterly report, scheduled for Wednesday evening, will draw particular attention.
The dollar has gained 0.15% against the euro to 1.1620, while the Swiss franc continues to slide, losing another 0.25% against the euro to 0.9392--its lowest level in a month.
Shares of the software developer soared nearly 40% after its last earnings release, following the disclosure of a massive cloud order book driven by strong AI investment. However, the stock has since given up all those gains amid questions about the sustainability of the exceptional cycle that has powered U.S. tech for the past three years.
The outlook Oracle communicates this week will therefore be closely scrutinized.
Copyright (c) 2025 Zonebourse.com - All rights reserved.
