Monthly report

CIO Report - December 2025

Markets

Overall, 2025 was a very positive year for financial markets. A constructive environment prevailed across almost all asset classes, supported by robust global growth, rising liquidity, continued optimism surrounding artificial intelligence, and further interest rate cuts by major central banks. At the same time, the year was not without disruptions. The announcement of global US tariffs in early April temporarily triggered significant market dislocations, while the German government’s decision to implement a large-scale fiscal stimulus programme marked a notable shift in Germany’s economic policy stance. Equity markets proved to be highly resilient, with all major global indices in the United States, Europe and emerging markets posting strong gains. Global bonds (as measured by the Bloomberg Global Aggregate Index) recorded their best year since 2020, although fiscal concerns continued to weigh on government bonds. Yield curves steepened across all major markets, and divergences between individual countries widened significantly. While the yield on 10-year US Treasuries declined slightly after four years of increases, yields in Japan rose sharply following interest rate hikes by the Bank of Japan and the election victory of Sanae Takaichi. In Europe, doubts about France’s ability to achieve fiscal consolidation also led to rising yields. In commodity markets, precious metals such as gold and silver stood out, benefiting from strong demand as hedges against geopolitical and fiscal risks. The US dollar, meanwhile, weakened significantly against all G10 currencies as a result of US tariff policy.

Outlook

The development of global liquidity remains the key driver of equity and credit markets, as well as of economic activity, commodity prices and, by extension, inflation and long-term interest rates. However, the transmission to these markets and macroeconomic factors occurs with different time lags. Equity and credit markets – as well as Bitcoin – tend to react most directly to changes in liquidity, typically with a lag of three to six months. This is followed by the real economy, commodity prices and thus inflation, as well as gold and silver. Ultimately, these dynamics also influence the level of long-term interest rates. As a pronounced loss of momentum in global liquidity growth has been evident for several months, a dampening effect on “risky assets” – in particular equities, corporate bonds and Bitcoin – should be expected in the first half of the new year. That said, the US Federal Reserve has begun to increase liquidity provision again, thereby offsetting some of this loss of momentum. In December, the Fed launched a new quantitative easing (QE) programme, while at the same time cutting policy rates. The People’s Bank of China (PBoC) is also increasing liquidity in the Chinese financial system, with positive spillover effects globally. However, as both the Fed’s QE measures (via T-bill purchases and the associated increase in US government spending) and Chinese liquidity tend to flow more into the real economy than into equity markets, upside potential for equities is likely to remain limited, despite solid global economic growth. By contrast, this environment should provide support for commodity prices, and in particular for copper, which has historically been a reliable indicator of economic activity. Moreover, persistently sticky inflation can be expected, implying a tendency toward moderate upward pressure on long-term interest rates. Given that the current liquidity impulses are not particularly strong, extreme movements in markets, inflation or interest rates are unlikely, especially as long as the US dollar remains within its current relatively narrow trading range.

Please continue reading here: