This will be our final update for 2025. Have a wonderful Christmas break and a prosperous new year.
The Bank of Japan raised interest rates for the fourth time in its current hiking cycle which began in March 2024, with the rate now set at 0.75%, still far below inflation of near 3%. Hinting that further rate hikes would be likely but gradual, the bank’s officials distinctly avoided any concrete conclusions as to where the terminal interest rate may lie.
This comes at a time when economic growth is stalling as wages are failing to keep up with inflation and as a new prime minister considers more stimulus as a result. It’s hard to see the Bank of Japan moving aggressively under these circumstances, thus expectations for future hikes have been curtailed and the Japanese Yen fell over 1% on the day, yet to reverse its weak momentum.
The European Central Bank continued its pause with its last interest rate cut back in June, with dovish rhetoric and a mild 2026 inflation upgrade leaving them firmly on the fence for any decisions in the year ahead. The EU will, however, loan $90bn to Ukraine and have not agreed to use Russian frozen assets to do so, so I can’t see the central bank becoming more aggressive until there have been more developments on that front.
As expected, the Bank of England cut interest rates giving some monetary relief ahead of the festive period after a year of pretty disappointing fiscal policy for the UK. The vote was a surprisingly close 5-4 but the tone of the opening statement was more dovish than that may otherwise indicate, with a clear flipping of concern from rising wages and inflation to demand and the labour market.
If the UK can avoid another bout of imported inflation, it could benefit from easing monetary conditions and the currency doesn’t seem to mind. It also appears that tax receipts are beginning to creep higher with public sector borrowing coming in lower than in recent years, but it’s not all joy – economists expected these tax receipts to be higher, so policy may be too high on the Laffer curve after all.
US inflation data followed last week’s interest rate decision from the Federal Reserve, and surprised sharply to the downside but, in this first report from the Bureau of Labor Statistics since the US government shutdown ended, there appeared to be incidents of using zero in lieu of data and much of the data heavily weighted around the discounted shopping season, so it should be taken with a pinch of salt.
So, as 2025 draws to a close, we reflect on a year in which global trade is expected to reach record levels despite rising protectionism, concern of an artificial intelligence bubble has been building, concern over rising energy demand has been met by very cheap crude oil – with a large inventory currently at sea waiting for buyers – and high gold prices due to stagflation fears have evolved into higher copper, uranium and silver prices due to potential medium-term shortages.
Yet the World Bank expects commodity prices overall to fall to six-year lows in 2026 driven by record grain harvests and slowing economic growth as tariffs begin to have a greater effect on trade and higher borrowing costs filter through.
As for AI, the momentum continues with yet another set of good results from an AI-adjacent company Micron Technology while strategy and consulting giant Accenture has revealed that 30% of new business is derived from AI-related activities.
It is often cited that large acquisitions are a sign of market exuberance, and it was the huge Time Warner deal for $182bn that preceded the Dot-Com bubble, so is c. $100bn battle over Warner Brothers another “warner?”.
Probably not.
For our clients we will assess the outlook for 2026 in the quarterly update in the new year.
Where are markets up to?
The rolling 12 month % cumulative returns in local currency from various indices is shown in the following chart:
Where are the portfolios up to?
The portfolio performance, net of fees, to close of business on Thursday is as follows:
And here is the data from last week as promised:
As ever, if you would like to discuss any aspect of your portfolio, please do not hesitate to contact us on service@blythefinancial.com.
