Navigating the noise into 2026

Introduction

This December Market View looks back at November’s key developments and outlines what they mean heading into the new year. The Fed remains on track for a December cut, China’s data showed continued stabilisation, and US services activity picked up. Offsetting that, Australia’s inflation reaccelerated to 3.8%, UK retail retreated sharply, and China’s property market recorded its steepest monthly decline in a year. The result is familiar: supportive policy and better services prints on one side; sticky inflation pockets and property sector fragility on the other. Scenario probabilities reflect our current assessment and are reviewed monthly as new data emerges.

Macro overview

• United States: The Fed appears poised to deliver a 25 bps cut at its December 9-10 meeting, bringing the target range to 3.50%–3.75%. Market pricing has swung dramatically—from 50% probability a few weeks ago to roughly 85% now—after dovish commentary from Fed Governor Waller and NY Fed President Williams. ISM Services rose to 52.6 in November (from 52.4), the strongest since February, with business activity holding above 54 and prices paid easing to a seven-month low. Manufacturing remains in contraction (48.2), marking nine consecutive months below 50. The delayed September jobs report showed 119,000 payrolls added – beating the 50,000 consensus – but unemployment ticked up to 4.4%, the highest since late 2021.
• China: October data showed modest stabilisation. Retail sales grew 2.9% YoY, slightly below September’s 3.0% but ahead of expectations. Year-to-date retail growth sits at 4.3%, on pace to close 2025 above last year’s 3.5%. Consumer prices returned to positive territory at 0.2% YoY, the first increase since June, while producer price deflation narrowed to -2.1%. Core inflation reached 0.9%, the highest in 18 months. The property market remains the weak link: new home prices fell 0.45% month-on-month in October, the steepest drop in a year, with used home prices down 0.66%.
• Australia: October CPI jumped to 3.8% annually—up from 3.6% in September and well above the RBA’s 2-3% target band. The trimmed mean measure also ticked higher to 3.3%. The RBA has signalled the current easing cycle could be finished, with Governor Bullock noting rates may not need to fall as far given they didn’t rise as high. This complicates the domestic outlook and limits policy flexibility heading into 2026.
• United Kingdom & Europe: UK retail sales fell 1.1% month-on-month in October, the first decline since May, as consumers delayed purchases ahead of Black Friday. German ZEW sentiment slipped to 38.5 from 39.3, below expectations, with ZEW’s president noting structural problems persist despite expected fiscal stimulus. Eurozone sentiment improved modestly, with the index rising to 25.0.
• Japan: The BoJ held rates at 0.5%, continuing to favour stability while monitoring global conditions and domestic wage dynamics.

October-November data kept the soft-landing debate alive: services are expanding, policy support is coming, and China is stabilising at the margin—but sticky inflation in Australia, property fragility in China, and cooling labour markets warrant attention.

Asset class outlooks

Equities: Loose financial conditions, improving US services activity, and stabilising China trade flows support earnings durability into year-end. Structural themes – AI infrastructure, energy transition, digital enablement – continue attracting capital. In Australia, the inflation print raises the bar for valuations, though resource names benefit from firming China demand.

Selectivity remains critical. We prefer balance-sheet strength, pricing power, and clear linkage to secular growth over pure cyclical beta. Within the US, watch for dispersion as the FOMC remains divided and margins adjust to slower top-line growth. In Europe, international earners with trade-lane exposure screen better than domestically focused names. Across Asia, quality tech and industrials remain in focus despite property sector headwinds.

Fixed income: With the Fed cutting while signalling caution on pace, front-end yields remain attractive. Short-to-intermediate duration offers better convexity if growth cools further. Investment-grade credit is supported by solid fundamentals; lower-quality high yield warrants discrimination with ISM Manufacturing still sub-50. Divergent inflation paths (Australia running hot vs moderating US services prices) argue for cross-market duration positioning rather than a directional bet.

Alternatives & commodities: Precious metals retain their role as inflation and geopolitical hedges – gold reached all-time highs in October. Infrastructure exposures – renewables, storage, transmission, digital networks – continue benefiting from policy support and multi-year capex commitments. Private markets offer improving entry points as valuations reset, though underwriting discipline matters given uneven exit conditions.

Foreign exchange: AUD faces crosscurrents: hotter CPI argues against RBA easing, yet stabilising China data supports terms of trade. The USD remains sensitive to Fed path and data surprises; a December cut could see further dollar weakness, though divided FOMC commentary may limit downside.

Positioning considerations

• Stay pro-growth, selectively: Focus on structural demand (AI infrastructure, energy transition, healthcare innovation) where pricing power and margin durability are clearest.
• Keep optionality: Maintain modest cash or near-cash to buy episodic pullbacks created by data or policy headlines.
• Balance duration: Emphasise short-to-intermediate maturities; use cross-market relative value as inflation paths diverge between regions.
• Retain real-asset hedges: Precious metals and listed infrastructure buffer inflation and geopolitical risk.
• Let data guide tilts: Adjust regional and cyclical weights as US labour markets evolve, China property stabilisation efforts progress, and the RBA-inflation mix clarifies.

Base case – 78%

Markets remain cautiously constructive into 2026. Resilient earnings, fiscal support, and still-ample liquidity underpin the backdrop, even as volatility stays elevated. The Fed’s expected December cut aligns with broader easing, though FOMC division suggests the pace will moderate next year. China’s stabilising activity should continue filtering through commodity and trade channels, while AI and energy infrastructure sustain capital formation.

The implication for portfolios: maintain a growth tilt, add on weakness, and use high-quality credit and intermediate duration to balance risk. Inflation hedges remain relevant, particularly given Australia’s trajectory.

Bear case – 10%

A sharper slowdown takes hold. US labour market cooling accelerates, persistent inflation keeps central banks cautious, and tariff uncertainty suppresses corporate risk-taking. China’s property sector fails to stabilise despite stimulus, with cascading effects on household wealth—and direct implications for Australia’s resource exports.

Banking sector strains could resurface if credit markets tighten, while sovereign debt concerns push yields higher. If liquidity growth stalls, earnings downgrades accelerate and rich valuations get exposed.

Playbook: elevate cash, rotate toward defensive sectors (healthcare, staples, utilities), shorten credit exposure, and reduce cyclical beta.

Bull case – 12%

Disinflation resumes, tariffs prove less disruptive, and productivity gains from rapid technology adoption (including agentic AI) lift margins. China’s recovery broadens beyond trade into domestic demand; coordinated fiscal outlays support infrastructure and consumption. Central banks keep real rates contained and extend liquidity support, driving a renewed risk-on phase with cyclicals participating alongside secular growth leaders.

Playbook: reduce cash buffers, increase cyclical/quality-beta exposure, and lean into regions and sectors most leveraged to rising nominal growth.

Closing perspective

November delivered mixed signals heading into year-end: expanding US services and an expected Fed cut on one side; sticky Australian inflation, retreating UK retail, and accelerating China property declines on the other. The balance still favours growth assets into 2026—provided portfolios stay selective, liquid, and ready to lean into dislocations.

The discipline is the edge: hold conviction in secular themes, but let the data steer near-term tilts. Markets will be watching the Fed’s forward guidance closely this week—not just the cut itself, but the dot plot and Powell’s tone on the 2026 path. That will set the scene for how risk assets trade into the new year.

This publication is prepared by Akambo Pty Ltd (ABN 16 123 078 900) AFSL 322056.

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo’s Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.

Past performance is not a reliable guide to future returns.