Market Watch – Dec. 5, 2025

U.S. equities began the week rangebound as hawkish Bank of Japan (BoJ) signals and cautious sentiment tempered optimism around Fed easing, with valuations remaining a headwind. Mid-week, momentum softened after reports of weaker AI-related demand at Microsoft and a disappointing ADP employment print reinforced labour market concerns, while Thursday’s Challenger and ISM data highlighted persistent weakness across services and manufacturing—supporting expectations for continued Fed cuts and offering some relief to equities. Canadian markets mirrored early U.S. moves but later found support from a strong November jobs report, which erased rate-cut bets and boosted the loonie. European stocks advanced on steady inflation readings and upbeat retail earnings, while in Asia, Japanese equities swung on BoJ hike expectations and Chinese benchmarks lagged as PMI data underscored slowing growth and property sector stress.

Highlights:

U.S. equities returned 4.77%¹ with headlines regarding Microsoft’s AI sales and weaker labour data shifting attention to economic fragility and central bank support that placed a bid under equities.
Canadian equities returned 4.12%², initially mirroring rangebound U.S. markets, but diverging late-week as a strong jobs report erased rate-cut bets, lifted the currency, and tempered expectations for further near-term monetary easing.
European stocks rose 3.20%³ supported by inflation readings that validated the European Central Bank’s (ECB) wait-and-see stance and upbear retail earnings despite broader global uncertainty. .
Emerging markets were 3.13%⁴ higher despite Chinese benchmarks lagging on weak PMI readings and deepening property-sector-stress, while muted domestic demand reinforced concerns about slowing growth. Elsewhere, sentiment was uneven as commodity-linked markets tracked geopolitical risks and currency volatility.

Divergent policy signals drive rate swings

U.S. rates moved higher across the full curve throughout the week; beginning with a bear-steepener early in the week as hawkish BoJ commentary and heavy corporate issuance pushed yields towards the long-end of the curve higher, before reversing midweek on dovish Fed expectations following soft labour signals from ADP and ISM surveys. Canadian bonds mirrored global weakness initially but rose sharply Friday after a strong jobs report erased easing bets and even introduced speculation of future hikes. In Europe, gilts and Bunds saw modest swings, with steady inflation reinforcing the ECB’s hold stance, while late-week fiscal headlines in Germany added colour without shifting the broader tone. Japanese yields climbed throughout as markets priced near-certainty of a December BoJ hike despite fiscal stimulus chatter, contrasting with muted moves elsewhere in Asia as Chinese data underscored slowing growth without prompting immediate policy action.

Highlights:

The 2- and 10-year U.S. Treasury yields fell 6 basis points (bps) and 9 bps, respectively. In Canada, the 2- and 10-year yields were down 7 bps and up 10 bps, respectively. Bond yields and prices move inversely to one another.
Government bond markets swung on policy expectations, with U.S. and Canadian yields initially rising on hawkish BoJ signals before easing midweek on soft labour data, while Japanese curves steepened sharply as jobs strength and hike odds dominated late-week moves.
Credit spreads faced pressure early amid middling sentiment and heavy issuance, but stabilized as dovish Fed expectations gained traction; high-yield performance remained sensitive to tech headlines and labour softness, reflecting cautious positioning into year-end.

Weekly dashboard

Canada’s unemployment rate falls to 6.5%, driven by rise in part-time work

Canada’s unemployment rate once again defied expectations and fell to a 16-month low in November as a solid gain in part-time jobs boosted the number of people employed for the third time in a row. According to Statistics Canada (StatCan), the unemployment rate fell 0.4 percentage points in November to 6.5%, the lowest since July 2024, adding it was led by 53,600 net job gains in November mainly among youth. Analysts had forecast employment to reduce by 5,000 jobs in November and the jobless rate to tick up to 7%.

Highlights:

The job gains were driven by 63,000 net additions in part-time work force linked to healthcare and social assistance sector, StatCan said.
With three months in a row of job gains, the Canadian economy has now added 181,000 new jobs since September, offsetting an almost no change in jobs for the first eight months when U.S. tariffs and trade uncertainty choked hiring.
The average hourly wage of permanent employees, a gauge closely tracked by the Bank of Canada to ascertain inflationary trends, stayed at 4% in November, same as the previous month.

U.S. manufacturing contracts for ninth straight month

U.S. manufacturing activity contracted for the ninth consecutive month in November, a decline manufacturers attribute largely to U.S. President Trump’s tariffs. The Institute for Supply Management’s PMI for manufacturing came in at 48.2, a decrease from 48.7 in October. The level was below the 50 score that divides contraction from expansion. The level was below the 50 score that divides contraction from expansion.

Highlights:

Tariffs on U.S. imports has made it more expensive for U.S. producers to source materials from abroad needed in their processes. Uncertainty concerning tariff levels has also weighed on manufacturers, as duty levels have fluctuated for much of the year.
Many companies have held back on hiring as they try to manage higher input costs and weakening orders. In ISM’s survey, 67% of respondents said they were managing head count as opposed to hiring.
Industries that contracted included apparel, textiles, paper products, chemicals and transportation equipment. Transportation in particular, tariffs have led some companies to move manufacturing overseas instead of reshoring to the U.S., said ISM.

China’s manufacturing gauge shows slightly firmer growth momentum

China’s official factory gauge edged up on stronger production and demand in November but remained in contraction for an eighth straight month. According to China’s National Bureau of Statistics, the official manufacturing purchasing managers index rose to 49.2 in November, compared with 49.0 in October. The result undershot the forecast of 49.3 made by economists.

Highlights:

The production subindex rose to 50.0 in November from 49.7 in October. New orders increased to 49.2, compared with October’s 48.8, while new export orders rose to 47.6 in November from 45.9 in October.
China’s nonmanufacturing PMI, which covers both service and construction activity, fell to 49.5 in November from 50.1 in October.
The subindex tracking service activity fell to 49.5 in November, compared with 50.2 in October, and construction remained in contraction territory amid the country’s prolonged property slump.

^{1 S&P 500 Index USD}
^{2 S&P/TSX Composite Index USD}
^{3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD}
^{4 Bloomberg EM Large & Mid Cap Price Return Index USD}

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by Scotia Wealth Management - The Zukiwsky Group

Market Watch – Dec. 5, 2025

Week in review

Mid-week sentiment surge moves equity markets into positive territory

Divergent policy signals drive rate swings

Weekly dashboard

Canada’s unemployment rate falls to 6.5%, driven by rise in part-time work

U.S. manufacturing contracts for ninth straight month

China’s manufacturing gauge shows slightly firmer growth momentum

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