The Month Ahead
December 2025
The US equity rally stalled in November amid valuation concerns, particularly in AI-related stocks. Uncertainty from the 43-day government shutdown and limited economic data further dampened sentiment. Despite a late-month rebound, both the S&P 500 Index and Nasdaq 100 Index were lower for the month, as of 27 November.
Japanese equities also retreated, largely viewed as a correction after October’s 10% surge, while in Europe, the UK’s FTSE 100 Index and Euro Stoxx 50 Index drifted off their recent record highs. Closer to home, the NZX 50 Index had an up-and-down month, and was trading about flat as of 27 November.
US bonds rose on heightened uncertainty, pushing the 10-year yield below 4%. In contrast, New Zealand bonds fell. Despite the interest rate cut, the RBNZ signalled its cut may mark the end of this cycle.
The Month Ahead December 2025 summary
Transcript - The Month Ahead December 2025 summary
[Note: Text on screen that’s similar to what’s being said is not described in this transcript]
[Text on screen: The Month Ahead December 2025, Heath Smith, Senior Investment Analyst]
Heath: What happened in November?
Global share markets gave back some ground last month. US shares were slightly lower, with the S&P 500 down around half a percent and the Nasdaq off around 2%. This was driven by investors becoming cautious about the valuations of tech and AI related companies.
The prolonged US government shutdown added to uncertainty, while European markets were mixed and New Zealand’s NZX 50 eased back from previous highs.
What did the Reserve Bank of New Zealand decide?
The Reserve Bank of New Zealand, as expected, cut interest rates by a quarter of a percent to 2.25% at its last meeting of the year. They did note inflation was still high but should ease towards 2% by the middle of next year.
This could be the last cut for now, but they’ll be keeping a close eye on how growth and inflation track. For households and businesses, lower rates should help ease financial pressure and also support spending in the economy.
How does December usually play out for markets?
December is often a strong month for shares because of year-end optimism – sometimes called the ‘Santa rally’. But this year, with high valuations and uncertainty in markets means investors shouldn’t necessarily assume smooth sailing. Additionally, we could see some volatility if central banks surprise or economic data disappoints.
What’s next for global central banks?
The US Federal Reserve meets early December, and it’s set to be a close call. Some members want to keep rates steady because inflation hasn’t fallen much. On the other hand, others want a cut because job growth and spending has been muted.
This matters because the Fed’s decision will likely guide markets into 2026 – will they show confidence or add more support? Recent data shows unemployment rising and retail sales starting to cool, which adds further fuel to the debate.
What local data should we watch?
New Zealand’s GDP for the third quarter is up next. After the economy shrunk 0.9% in the second quarter, economists are expecting a small rebound of around half a percent. If growth is stronger, it could mean the economy is starting to turn a corner. If not, it may be sluggish into 2026.
[Text on screen: Important information. Information can change, is general, and not advice. In good faith, we’ve used reliable sources to get this information, but we don’t promise it’s accurate, complete, or suits you. To the extent that the law allows, we don’t accept responsibility for loss or damage if you rely on or use this information. Past performance is not indicative of future performance. We don’t guarantee performance, which depends on many things, and could be positive or negative. ANZ Bank New Zealand Limited. ANZ logo]
The Fed faces a contentious decision
The US Federal Reserve (the Fed) meets early December, where it is shaping up to be a contentious meeting, with the probability of an interest rate cut (according to interest rate markets) oscillating around. Up until late November, interest rate markets were pricing in a full cut, but some rhetoric from several policymakers and concerns about inflation has seen the probability of a cut scale back towards 80%, as of late November.
Boston Fed President Susan Collins said that her base case was to “keep policy rates unchanged” citing the lack of economic data due to the shutdown. She added that there are “several reasons to have a relatively high bar for additional easing in the near term”. Her comments follow Fed Chair Jerome Powell who said at the October central bank meeting that a December cut was “not a foregone conclusion”.
On the other hand, Federal Reserve Governor Christopher Waller said in an interview he favours an interest rate cut, citing his concerns about the slowdown in the labour market, while Stephen Miron continues to advocate for sizeable interest rate cuts.
Other central banks to meet in December
Accompanying the Fed in December are several other central banks that will meet. These include the Bank of England (BoE), Reserve Bank of Australia (RBA), European Central Bank (ECB) and the Bank of Canada (BoC).
Interest rate markets indicate that the BoE is the only one contemplating a rate cut. Policymakers had remained concerned about inflation of late, despite a weakening job market and relatively tepid economic growth. However, a downside surprise to October inflation data has raised hopes that the central bank will ease further to fuel growth.
Meanwhile, rate cuts in Australia are becoming increasingly unlikely after an upside surprise to inflation, while positive employment data suggest the economy remains in good stead. Elsewhere, the BoC is expected to leave interest rates unchanged as the central bank takes a ‘wait and see’ approach after more than 250 basis points of cuts since May 2025, while the ECB is in a similar position, holding rates steady in October, with the economy holding up well amid the global trade uncertainty.
New Zealand: Growth data rounds out 2025
After the RBNZ cut the OCR by 25 basis points in November, the last meeting of the year, December will see a focus on economic data, with GDP being the highlight. After a weak Q2 report (-0.9%), it is expected the economy rebounded and grew somewhere in the region of 0.5% in Q3 (the RBNZ is forecasting a growth rate of 0.4%).
While growth remains benign, policymakers and the government will be hoping it is the start of a recovery as we head into 2026. If there is to be a surprise to the upside, it could suggest that the RBNZ easing cycle has ended, with the OCR down more than 300 basis points since its peak at 5.50%.
We remain overweight to the New Zealand dollar
We maintain our overweight position to the New Zealand dollar (NZD) relative to the US dollar (USD). At 57 cents, the NZD appears undervalued from a medium-term fundamental perspective. Additionally, technical indicators suggest potential upside for the NZD.
On global equities, we remain cautious. While momentum supports further upside, valuations in several markets are elevated relative to historical norms, which has resulted in a mild pullback in November. As a result, we are maintaining a neutral position.
In fixed income, we believe global bond markets are currently priced fairly, with compelling opportunities on either side. The recent sell-off in equities, albeit mild, has seen some demand for defensive assets such as bonds, while concerns around persistent inflation poses some downside risk to bonds.
Contact us
Important information
This information is issued by ANZ Bank New Zealand Limited (ANZ). The information is current as at 27 November 2025 and is subject to change.
This document is for information purposes only and is not to be construed as advice. Although all the information in this document is obtained in good faith from sources believed to be reliable, no representation of warranty, express or implied is made as to its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability for any direct or indirect loss or damage arising from your use of this information.
Past performance is not indicative of future performance. The actual performance any given investor realises will depend on many things, is not guaranteed and may be negative as well as positive.