Remember that famous photo of Neville Chamberlain waving a piece of paper in 1938, promising “peace for our time”? Every time someone in power starts talking about lasting global stability these days, I can’t help hearing that echo. Only now the paper is a Bloomberg screen, and instead of one dictator, we have several, and the bond market is screaming, and literally no one in trading floors believes the happy talk.
The past week delivered one of those moments where financial markets and geopolitics collided so hard you could almost hear the glass break. Let’s unpack why “peace in our time” feels more like a punchline than a forecast right now.
The Bond Market Just Threw a Tantrum Down Under
Picture this: a central bank that spent most of 2024 proudly cutting rates suddenly finds the market betting on a hike as early as February. That actually happened in Australia this week, and the speed of the reversal caught almost everyone flat-footed.
Two-year Australian government bond yields jumped more than seven basis points in a single session after weekend chatter that major banks were flipping their calls. The trigger? Another inflation print that refused to roll over, household spending that stayed annoyingly robust, and a housing market that apparently drinks rate cuts for breakfast and asks for seconds.
Yet when you dig into Thursday’s national accounts, the picture gets messier. Quarterly growth came in at 0.4% when markets wanted 0.7%. Normally that would send yields lower as traders price in more cuts. Instead they went up. Why?
Because the details showed domestic demand actually holding up rather well. The growth miss came mostly from mining companies running down inventories, hardly a sign of broad-based weakness. Add persistently high services inflation and wages growing above target, and suddenly a February hike doesn’t look completely insane.
Personally, I’m still skeptical. Productivity growth per hour worked jumped to 0.8% year-on-year, well above what the central bank assumed. The household saving ratio got revised sharply higher, now sitting above pre-Covid levels. Both numbers suggest the economy has more spare capacity than previously thought, and previous rate hikes might have been doing more work than anyone realized.
Throw in an Australian dollar already stronger than the central bank forecast while the Fed prepares to cut again, and the whole “emergency hike” narrative starts to feel like classic market overreaction. But the fact we’re even having this conversation tells you how jittery everyone has become.
America’s Weird Labor Market Paradox
If Australia provided the surprise hawkish shock, the US served up something genuinely bizarre: companies announcing job cuts at the fastest pace for any non-recession year in two decades, yet weekly unemployment claims just dropped to the lowest level since January.
Private payrolls supposedly contracted in November. Corporate layoff announcements are running hot. Capacity utilization fell. Services PMIs across the Anglo world look ugly. Yet new claims for unemployment benefits fell to 191,000, and the four-week average hit the lowest since winter.
How do you lose jobs but gain fewer unemployed people? The answer floating around trading desks isn’t pretty: the labor pool itself is shrinking, and policy is accelerating that process.
Daily immigration arrests have surged. Work authorization rules for legal immigrants are about to get tighter. When people leave the workforce entirely rather than become unemployed, the claims numbers look amazing even as payrolls suffer. It’s the kind of “strong” labor market report that actually keeps recession odds elevated, because it suggests demand isn’t the problem, supply is.
When the labor force shrinks faster than jobs disappear, you get beautiful headline numbers hiding an ugly reality.
Anonymous rates trader, December 2025
Putin Just Killed the Latest Peace Feelers
While markets were digesting these contradictory signals, the Kremlin delivered its clearest message yet: no deal.
Russian officials told reporters that Ukrainian forces must withdraw from Donbas completely or face continued military clearance operations. Previous back-channel proposals were rejected out of hand. The message was simple, why negotiate when you’re advancing?
This matters enormously for markets because the entire “soft landing plus peace dividend” scenario that sent stocks to new highs in 2024 rested on some version of Ukrainian conflict de-escalation in 2025. Energy prices, European growth prospects, defense spending, everything traced back to hope that Russia would eventually accept a face-saving off-ramp.
That hope just took a torpedo below the waterline. And when you combine it with Chinese naval maneuvers near Japan after recent diplomatic spats, the picture darkens further.
What Kind of Multilateralism, Exactly?
French President recently warned about the “disintegration of the international order” after meeting Chinese leadership. The Chinese response? Keep pushing multilateralism. But multilateralism can mean very different things.
One version is genuine collective security with updated voting power for emerging markets. The other version is great-power spheres of influence where regional hegemons do whatever they want inside their backyard and everyone else stays out. Russia’s preferred model is clearly the latter, and China shows increasing comfort with that framework too.
When Beijing declines to pressure Moscow on Ukraine while simultaneously sailing carrier groups through contested waters, the message isn’t subtle. The rules-based order isn’t evolving, it’s fracturing.
- European politicians finally noticing what markets priced in years ago
- Defense stocks trading like growth is guaranteed forever
- Commodity markets quietly positioning for prolonged disruption
- Defense budgets expanding while “peace dividend” talk vanishes
These aren’t the signals of a world sleepwalking into harmony. They’re the signals of a world preparing, however reluctantly, for the opposite.
Where This Leaves Markets
The brutal truth is that financial markets hate uncertainty, but they hate kidding themselves even more. When central banks were cutting rates and talking about “immaculate disinflation,” stocks could climb a wall of worry built on hope.
Now the hope is evaporating. Rate cut cycles that were supposed to be complete by mid-2025 are getting questioned. Growth assumptions built on conflict resolution are being stress-tested. Labor markets that looked bulletproof suddenly have very visible holes.
Perhaps most telling is what isn’t happening. Despite all these negative developments, we haven’t seen panic selling. That tells me positioning was already cautious, and many investors were waiting for the excuse to reduce risk further.
My base case for 2025 has shifted from “mild re-acceleration with resolving conflicts” to “stagflationary grind with periodic risk-off flares.” Not depression, not boom, but the kind of environment where nothing quite works and safe havens slowly grind higher.
Because if there’s one thing markets have learned since 2022, it’s that hoping for peace in our time doesn’t make it happen. It just leaves you wrong-footed when the next shock arrives.
And the shocks, unfortunately, keep coming.
I’ve been doing this long enough to know that the crowd is usually wrong at turning points, but right about the trend. Right now the trend is toward fragmentation, not harmony. The prices may gyrate, narratives will shift, but the underlying direction feels increasingly clear.
Peace in our time? Don’t count on it. Count on volatility instead.
