Equities rebound on soft US inflation

Equity markets finished higher on Thursday after a cooler than expected US inflation report lifted investor confidence. US equity indices advanced, led by the Nasdaq which rose 1.4 percent, while the S&P 500 gained 0.8 percent and the Dow Jones Industrial Average edged up 0.1 percent. Consumer discretionary, technology and communication services equities led the gains, supported by renewed optimism around interest rate cuts and strength in the artificial intelligence theme. Micron Technology shares surged following strong earnings, boosting sentiment across growth focused equities, while market volatility declined.

Bond yields eased as investors increased expectations for future monetary policy easing, with the US ten year Treasury yield falling to around 4.12 percent. Elsewhere, European equity markets traded broadly higher after the European Central Bank left rates unchanged and the Bank of England delivered a widely expected rate cut. The US dollar strengthened against major currencies, while energy equities lagged the broader market despite higher oil prices. Overall, improving inflation data and solid corporate results underpinned a positive tone across global equity markets.

Latest market and economic update

• Asian equities mostly rose on Friday, led by a rebound in technology shares and positive cues from Wall Street. Japan outperformed after an expected Bank of Japan rate rise, while broader regional markets remained under pressure for the week, reflecting recent tech losses and lingering growth concerns.

• U.S. equity index futures dipped overnight, with S&P 500 futures down nearly 0.1% to 6,825.50, Nasdaq 100 futures off 0.1% at 25,239.75, and Dow Jones futures falling 0.2% to 48,239.0, as gains from a tech-led Wall Street rally cooled. In after-hours trading, Oracle rose 6% and FedEx gained 2%, while Nike fell 11% on weak margins and China sales.

• European equities advanced on Thursday, with the STOXX 50 up 0.5% and the STOXX 600 over 1%, after the ECB kept rates on hold and maintained a data-dependent approach. ASML rose 2.1% following prior losses, Inditex gained over 2% on strong trading, while Novo Nordisk fell more than 1%, weighed down by profit-taking.

• The US dollar hovered around 98.4 on Friday, largely unchanged for the week, as soft inflation and a cooling labour market fuel expectations for possible Fed rate cuts in 2026. Against the euro, the dollar traded at 1.1718, reflecting cautious investor sentiment amid uncertainty over future monetary policy and the upcoming Fed chair appointment.

• Oil prices were steady in Asian trading this morning but remained on track for a second weekly decline, pressured by concerns over a global supply glut and weak demand, particularly from China. Geopolitical risks linked to Russia and Venezuela offered limited support, failing to offset oversupply worries.

• US annual inflation eased to 2.7% in December 2025, the lowest since July and below forecasts of 3.1%, while core inflation fell to 2.6%, the lowest since March 2021. Energy and food prices rose, along with shelter, medical care, household furnishings, recreation, and used vehicles, while apparel and new vehicle prices saw minimal increases.

• The ECB held rates steady in December 2025, with the main refinancing rate at 2.15% and the deposit rate at 2.0%, following a data-dependent approach. President Lagarde gave no forward guidance. Growth forecasts were revised up for 2025–2028, while headline inflation is expected to average 2.1% in 2025 and gradually ease thereafter.

• EU leaders agreed to provide Ukraine with a €90 billion loan over the next two years, funded through EU borrowing rather than frozen Russian assets, which remain off-limits for now. The move ensures Kyiv’s financing amid the war, avoids internal EU divisions, and keeps Russian funds frozen until Moscow pays reparations.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• Oracle shares over 5% to $190.74 in after-hours trading following news it will be part of a consortium acquiring over 80% of TikTok’s U.S. operations, satisfying national security concerns. Gains were also supported by reports that OpenAI is seeking up to $100 billion in funding, highlighting strong investor appetite for AI.

• Nike reported a 32% drop in net income and a second consecutive decline in gross margins, hit by weak China sales, tariffs and inventory clearance. Revenue of $12.43 billion beat estimates, but recovery remains uneven. CEO Elliott Hill stressed the “middle innings” of turnaround, with new product lines showing promise amid ongoing margin pressures.

• Blackstone is in early talks to partner with Revolut, potentially offering its funds through the fintech’s expanding private-banking platform. If agreed, the deal would give Blackstone access to Revolut’s high-net-worth clients, highlighting private capital firms’ growing push towards wealthy individual investors.

• Lufthansa plans to expand U.S. transatlantic flights and promote its new premium Allegris seats, targeting business travellers from smaller cities. CEO Carsten Spohr expects steady demand and stable or rising fares amid limited aircraft supply. The airline aims for 6% long-haul capacity growth in 2026, focusing on efficiency after recent operational stabilisation and job cuts.

• Lennar shares fell after a quarterly profit miss and weak guidance, with affordability constraints and high incentives pressuring margins. RBC, Evercore, and Bank of America downgraded the equity to Underperform, citing ongoing demand weakness, elevated costs, and stretched valuation, while cutting price targets and earnings forecasts for fiscal 2026–2027.

• Rheinmetall AG lowered its 2025 defense revenue growth forecast to 30%–35% after excluding its Power Systems unit, citing portfolio delays. Operating margins remain strong at 18.5%–19%, with free cash flow expected well above €750m. The civil business sale begins immediately, triggering a €350m impairment, while Jefferies maintains a Buy rating despite a reduced price target.

• Bank of America upgraded Micron Technology to Buy, citing a stronger, more durable memory cycle driven by AI demand and supply tightness. BofA raised its price target to $300, projecting high earnings, robust free cash flow, and potential share buybacks, while noting possible volatility from converging DRAM prices and rising industry capital spending.

• Morgan Stanley downgraded PayPal to Underweight, citing structural and execution challenges. Concerns include slow improvement and share loss in Branded Checkout, risks from agentic commerce, limited Venmo monetization, and potential earnings pressure from slower growth and higher investment needs. Medium-term guidance may be revised despite strong free cash flow.

• Baird upgraded Rivian to Outperform, citing the upcoming $45,000 R2 launch and new product cycle as drivers for higher deliveries and broader customer reach. The brokerage raised its price target to $25, highlighting strong cash reserves, DOE and Volkswagen funding, and long-term competitiveness through autonomy initiatives and potential fleet deals.

• Capital Economics sees the AI-driven equity rally continuing through 2026, with strong gains in U.S. and Asian markets. Rising AI spending supports growth, while valuations remain manageable. The firm forecasts the S&P 500 at 8,000, expects tech to lead, and views the AI boom as a modest tailwind for risky assets and the US dollar.

• The New York Stock Exchange will remain open on December 24 and 26, 2025, despite President Trump ordering federal government closures on those days. Trading will close early at 1:00 pm ET on December 24, with late-session hours until 5:00 pm ET, while December 26 will follow a regular schedule.

Upcoming data and events

Today’s key economic releases include Germany’s GfK Consumer Confidence for January, UK Retail Sales for November, and US Michigan Consumer Sentiment, Expectations, Inflation, and Existing Home Sales for December and November. US Baker Hughes rig counts are also due. Major companies reporting earnings include Carnival, Conagra, Lamb Weston, Hornbach, and WH Smith.