This week has revealed a striking level of volatility across global financial markets, largely driven by renewed concerns about inflation trajectories, central bank policy recalibrations, and geopolitical tensions intensifying in key regions.
As of today, markets are reacting noticeably to the latest U.S. inflation data released earlier this morning. November’s Consumer Price Index (CPI) came in slightly higher than expectations — headline inflation rose 0.4% month-over-month, versus the expected 0.3%, while core inflation stayed persistently high at 0.3%. This reinforces my concern that the disinflation narrative priced into equities recently may have been somewhat premature.
The immediate reaction in the bond market was telling. U.S. Treasury yields spiked, with the 10-year yield climbing back to 4.35% after dipping below 4.2% earlier in the week. This suggests that investors are now reevaluating the probability of rate cuts by the Federal Reserve in Q1 2026. Just days ago, futures markets had priced in a nearly 70% probability of at least two rate cuts by May. As of this afternoon, that number has dropped significantly to under 50%, and I expect it to hover around that level until the December FOMC minutes are released.
Equity markets have responded with hesitation. The S&P 500 opened flat and quickly turned negative, with the tech-heavy Nasdaq dropping over 1% before stabilizing mid-session. High-growth tech stocks, which have been leading the late-year rally, are particularly sensitive to rising yields. Apple and Nvidia both traded down more than 2% during the first half of today’s session. From my point of view, this suggests institutional investors are rotating away from duration-sensitive assets, back into value and defensive names.
European markets also reflect a cautious tone. The DAX and the CAC 40 are mildly red, as ECB President Christine Lagarde reiterated this morning that it was still “too early” to discuss rate cuts despite better-than-expected economic sentiment in Germany. This reinforces the narrative that central banks, while open to loosening policy in 2026, remain deeply data-dependent — a theme that, in my view, will define the first quarter of next year.
On the commodities side, oil prices have been surprisingly resilient. Brent crude is holding above the $76 level, supported by ongoing supply concerns due to escalating tensions in the Red Sea region. Over the weekend, commercial shipping activity through the Suez Canal dropped significantly due to Houthi rebel activity, according to satellite and logistics data. This geopolitical flashpoint could act as an underappreciated tail risk for inflation, especially if it results in sustained supply chain disruptions into Q1. I’m closely monitoring this dynamic, because energy cost pressures could complicate central bank easing plans.
In FX markets, the U.S. dollar has staged a modest rebound, particularly against the Japanese yen and the euro. The greenback’s strength today could largely be attributed to the upward surprise in CPI data, reinforcing the dollar’s safe-haven appeal in a data-sensitive environment. USD/JPY pushed above 145.30 again, retracing some of its losses from last week when speculation of a BOJ policy shift was elevated. It’s clear that any BOJ hawkish surprises are being tempered by global yield repricing.
Crypto markets, in contrast, remain in a speculative uptrend. Bitcoin crossed above $42,000 again, as institutional interest ahead of the January ETF decision continues to pick up. Volumes remain strong on CME Bitcoin futures, and the options market is showing increased open interest in long-dated calls. While I continue to see significant upside potential here, the asset class remains exposed to regulatory developments in early 2026.
In sum, today’s financial landscape is defined by recalibrations and repricings. The market is no longer in a straightforward “rate cuts coming” environment — it’s entering a phase of nuanced interpretation, asymmetric risks, and a strong sensitivity to every economic and geopolitical headline.