Mondays in December always feel a bit strange, don’t they? The Christmas lights are already up, half the trading floor is thinking about mulled wine, and yet here we are, glued to screens waiting for the most important central-bank week of the year.
This morning, European markets opened exactly as most of us expected: flat, sleepy, and completely unwilling to commit to a direction. The continent’s major indices are moving by fractions of a percent — the kind of action that makes you wonder if anyone actually showed up to work.
A Classic Pre-Fed Holding Pattern
Let’s be honest — nobody wants to be the hero (or the fool) two days before the Federal Reserve speaks. According to early IG data, the FTSE 100 is expected to open around 0.1% lower, the DAX more or less unchanged, the CAC 40 flat, and Italy’s FTSE MIB down a modest 0.17%. Translation: nothing is happening until Jerome Powell opens his mouth.
In my experience, these pre-Fed Mondays are usually the calmest trading sessions of the entire year. Volumes are light, volatility is low, and the only real excitement comes from watching the same five headlines recycle across terminals.
What the Market Is Pricing Right Now
As of Sunday night, the CME FedWatch tool was showing an 87% probability of a 25 basis-point cut this Wednesday. That’s basically a done deal in trader speak. The more interesting question is what the Fed will signal for 2026.
Will we get three cuts next year as many still hope, or has the recent strength in U.S. data forced the dot plot toward a more cautious two-cut scenario? That single sentence from Powell could swing risk assets by several percent.
- Current implied probability of Dec cut: ~87%
- Probability of no cut: ~13%
- Probability of 50 bps cut: less than 1%
Those numbers haven’t moved much over the weekend, which explains today’s complete lack of conviction.
The Rest of the Central-Bank Calendar This Month
If you thought this week was busy, just wait until next week.
- December 11 – Swiss National Bank
- December 18 – Bank of England & European Central Bank
- December 19 – Bank of Japan
The SNB is almost certain to cut again, the ECB is widely expected to stay on hold after its recent moves, the BoE remains a coin toss, and the BoJ… well, everyone is still trying to work out what on earth they’re thinking.
In short, the next ten days will set the tone for global liquidity well into 2026.
Friday’s Surprise U.S. Data Still Echoing
Many European traders spent the weekend digesting Friday’s delayed release of the September core PCE number — the Fed’s preferred inflation gauge. It came in noticeably softer than forecast, which gave U.S. markets a nice end-of-week lift and kept the December cut narrative intact.
“That print removed the last meaningful obstacle to a December cut.”
— Fixed-income strategist at a major European bank
Soft inflation plus still-solid U.S. growth is the Goldilocks scenario markets love. The problem? Goldilocks scenarios rarely last very long.
What to Watch in Europe This Week
Beyond the Fed, the European calendar is unusually quiet — perfect conditions for U.S.-driven moves.
Monday brings German industrial production numbers, which have been trending better lately but still reflect an economy that’s growing at stall speed. Consensus expects a modest rebound, but anything too strong could reignite “higher for longer” fears in the bond market.
Later in the week we’ll get final eurozone inflation revisions and some retail sales figures, but honestly, none of these will move the needle compared to whatever Powell says on Wednesday evening.
Sector Rotation Still in Play
One theme I’ve noticed over the past month is the quiet rotation out of this year’s winners (mostly tech and defensive growth) and into the laggards — banks, energy, and cyclical industrials.
If the Fed sounds even mildly dovish, that rotation could accelerate quickly. European banks, in particular, have been pricing in a “no landing” scenario for months and remain remarkably cheap on almost any metric you care to look at.
My Take — Caution, But Not Panic
Look, I’m not here to predict exactly what Powell will say — nobody gets that right consistently. But after fifteen years watching these meetings, one pattern is clear: when markets are this certain of a 25 bps move, the real risk is almost always in the forward guidance.
A “dovish cut” (soft language, hinting at more easing) would likely send European equities sharply higher into year-end. A “hawkish cut” (acknowledging recent data strength, pushing back on aggressive 2026 easing) could trigger the sharpest two-day selloff we’ve seen since summer.
Personally, I’m keeping powder dry until Wednesday night. The risk/reward just doesn’t feel compelling when the entire market is leaning the same way.
Bottom Line for the Week Ahead
European stocks are drifting because they have no choice. Until the Fed removes the final piece of 2025 uncertainty, we’re likely to see more of the same low-volume, range-bound action.
If you’re an active trader, this is scalping weather. If you’re an investor, this is probably a good week to catch up on research or — dare I say it — enjoy some early holiday cheer.
Either way, keep your phone nearby Wednesday evening. Things could get interesting in a hurry.
Stay sharp out there.
