Capital Idea: European Open, 19th December, 2025

• The markets sail smoothly into the holiday season 

• The Bank of Japan hikes but delivers cautious guidance

It’s the last proper trading day of the year before traders pack things up and the markets hit the holiday lull. The markets sail smoothly into the holiday season but there’s no sign of a Santa Rally yet. The Santa Rally looks unlikely to come this year, although the seasonal strength often hits around the 20th of the month. Lukewarm US labour market data, a surprise drop in US inflation figures, and a notionally dovish Fed is providing support for equity prices. However, fears about tech valuations and the pay-offs from artificial intelligence are keeping a lid on stock markets. Both will be the big themes in 2026, or at least the start of it. The markets are pricing in further monetary policy easing which it’s hoped combine with accommodative fiscal settings to stimulate economic activity. Market participants – and the Fed too, it must be said – are also hoping 2026 is the year when the broader growth and productivity benefits of artificial intelligence to the economy materialise.

Stocks rose in Asian trade, with European stocks off to a positive start and US futures pointed higher. The Bank of Japan decision was the last major risk event for the year, and despite hiking interest rates as expected, resulted in relatively little volatility. If anything, the BOJ provided a slight boost for the bulls, with the BOJ acknowledging the high probability of further policy tightening but avoiding providing a timeline and sticking to a cautious and “wait and see” tone. The Yen continued to depreciate on the prospect of a more protracted period of low real yields and accommodative policy, offsetting the impact of US Dollar downside from mild economic data and a dovish Fed. The dynamic has the USDJPY in an uptrend, with the technicals setting up in a way that suggests a looming break-out.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)