As the markets approach Black Friday, investor sentiment mirrors the somber mood that inspired the shopping holiday's name. This week has seen setbacks in markets throughout Europe, the U.S., and Asia, with a concurrent surge in the VIX volatility index.
TL;DR
- Investor sentiment is somber due to a confluence of unfavorable developments, impacting global markets.
- Federal Reserve interest rate expectations have shifted, with December cuts now less likely, impacting consumers and businesses.
- Slowing growth in key economies like the U.K., E.U., China, and Japan, alongside fiscal policy uncertainty, adds to apprehension.
- Upcoming U.S. employment data could further dampen expectations for a Fed rate cut in December.
According to Macquarie's Thierry Wizman, in a client note this week, the negative sentiment isn't attributable to a single factor. Instead, it stems from a “deadly confluence” of unfavorable developments, or news that investors would prefer to avoid.
America's foundational interest rate is the first point. Investors had been consistently persuaded throughout 2025 that rate reductions would occur later in the year, with a December decrease virtually guaranteed. Nevertheless, recent statements from Federal Open Market Committee (FOMC) members have adopted a more aggressive stance, especially considering the absence of federal data during the government shutdown.
According to CME’s FedWatch barometer, the probability of a rate reduction in December has dropped from 94% a month prior to 47% currently, as market sentiment shifts towards maintaining interest rates at their present standing. This decision carries its own consequences: Consumers will miss out on a final boost of financial ease before the holiday shopping season, and companies won't benefit from reduced borrowing expenses to encourage new investments. Additionally, there's the less significant but notable point that keeping rates unchanged could displease the White House, possibly escalating disputes concerning the Fed's autonomy.
Also on the list of “wrong-way news,” Wizman wrote, are: “Second, there’s been widening evidence of slowing growth in key economies—the U.K., E.U., China, and Japan. Third, there’s been uncertainty ahead of key fiscal policy decisions and plans (e.g., Japan, U.K.), as well as some associated political turmoil abroad (e.g., France, U.K.).”
Growing apprehension surrounds the U.K. Economy's future path, as the country has experienced only fractional growth in the third quarter this year. Simultaneously, Chancellor Rachel Reeves faces increasing scrutiny regarding her forthcoming budget, particularly concerning its strategy for addressing escalating deficits through measures that avoid alienating either businesses or the public.
France is grappling with comparable inquiries regarding its public deficit, and in Japan, apprehension arises from Prime Minister Sanae Takaichi's forthcoming fiscal declaration. Takaichi is receiving pressure to approve a more substantial financial plan to stimulate the economy following the country’s GDP contracted by 1.8% during the latest reported timeframe.
So far, apprehension among allies hasn't provided the U.S. Dollar with the surge it typically receives. Wizman notes: “The USD has only been a small beneficiary of these adverse trends, and only in the past two days has it managed to start to be a ‘safe haven’ again, even besting the CHF [the Swiss franc] and JPY [Japanese yen], which are both weaker today.”
Bad news may keep coming
It may take further bad news for the Fed to change its tune, Wizman adds: “While these adverse narratives floating mainly outside the US for now, it’s hard to conceive of a renewal in the weakness of the USD between now and year-end, unless a sharper drop in US stocks causes the Fed to about-face again and sound ‘dovish’.”
Investors may also be concerned by numerous upcoming data announcements, particularly a highly awaited employment report scheduled for release tomorrow.
Economists have also cautioned that this could contribute to the prevailing negative sentiment. According to a note sent to Coins2Day by RSM chief economist Joe Brusuelas yesterday, he anticipates a 50,000 job gain in the September figures. Despite this being a positive development, Brusuelas further commented: “The internals of the report will illustrate diminished demand for labor in higher-paying industries as the economy struggles to produce the 50K necessary to keep American labor conditions stable.”
He also expects the July and August jobs figures to be revised higher, pushing employment closer to 100,000 positions in the report—which ought to be positive news, shouldn't it?
Hold on a moment. He further states: “Should the September estimate show solid upward revisions it would likely further dampen expectations of any prospective rate cut at the Fed December policy meeting.”
Here’s a snapshot of the global markets prior to the opening bell in New York:
- S&P 500 futures are up 0.41% this morning. The last session closed down 0.83%.
- STOXX Europe 600 was up 0.14% in early trading.
- The U.K.’s FTSE 100 was flat in early trading.
- Japan’s Nikkei 225 was down 0.34%.
- China’s CSI 300 was up 0.44%.
- The South Korea KOSPI was down 0.61%.
- India’s NIFTY 50 is up 0.55%.
- Bitcoin was up at $95K.