Global markets rally and Treasury yields tumble as investors bet on a Federal Reserve rate cut

3 December 2025

On December 3, 2025, financial markets around the world showed renewed momentum as investors responded to a fresh wave of economic data and rising expectations that the U.S. Federal Reserve will cut interest rates at its upcoming policy meeting, driving global shares up while U.S. Treasury yields and the dollar softened throughout the trading session. The market movements that day reflected a broad interplay between slowing economic signals, currency shifts and shifting investor sentiment, illustrating how central bank expectations can influence everything from equities to foreign exchange.

Wall Street’s major indexes climbed to close higher on Wednesday as data kept rate cut expectations elevated. The Dow Jones Industrial Average led the gains with a solid rise, while the S&P 500 and the Nasdaq also posted positive returns for the session. Small-cap stocks outperformed broader benchmarks amid optimism that lower borrowing costs could support economic activity and corporate profitability. A notable factor in the rally was a soft reading on private payrolls, which showed a larger-than-expected decline in U.S. private hiring. That surprise drop heightened speculation that the Federal Reserve will slash its policy rate next week to stimulate growth.

Across global markets, the story was similar. In Europe, equities were lifted by improved risk appetite, with industrial and automotive sectors contributing to gains in major indexes. European investors appeared to welcome the potential for easier U.S. monetary policy to support external demand and financial conditions, reinforcing a trend of equities moving higher on rate cut optimism.

Foreign exchange markets also reflected the shift in expectations. The U.S. dollar came under pressure, losing ground against major currencies as traders priced in the prospect of lower interest rates in the United States. The euro in particular climbed to near its highest level in weeks against the greenback, boosted by relatively strong business activity data in the euro zone and markets’ assessment that the European Central Bank might not need to ease policy as quickly as the Federal Reserve.

U.S. Treasury yields fell sharply. The drop in yields was most pronounced in shorter maturities, where investors expect the brunt of any upcoming rate cuts to occur. The yield on the benchmark 10-year U.S. Treasury note declined as participants shifted toward risk assets and away from safe-haven government debt, pricing in a more dovish U.S. monetary policy stance.

Commodities displayed mixed reactions to the market backdrop. Energy prices, including Brent crude, rose modestly on the day, while precious metals such as gold hovered at elevated levels as investors looked to hedge against uncertainty and potential future inflationary pressures once rate cuts are implemented.

Global equity funds saw significant inflows in the week ending December 3, reflecting broader confidence in equities amid rate cut prospects. While U.S. equity funds experienced outflows for the second week in a row, European and Asian equity funds attracted strong net inflows, highlighting differing regional dynamics in investor preferences. Bond funds also drew significant capital as yield-sensitive strategies gained appeal, and money market funds saw a sharp increase in assets as investors balanced risk and liquidity.

The backdrop to these market moves was a series of weak economic signals out of the United States. In addition to the unexpected contraction in private payrolls, other indicators suggested that sectors such as housing and manufacturing were slowing. These mixed signs of economic softening have amplified calls for the Federal Reserve to act more aggressively to maintain economic momentum, with many market participants now pricing in a better than 80 percent chance of a rate cut at the Federal Open Market Committee meeting.

Corporate earnings and sector rotation also played into the market narrative. While technology stocks continued to show resilience, there were pockets of underperformance particularly in sectors sensitive to interest rates and valuation concerns. Investors took profits in some high-growth areas while reallocating to cyclical and value names that stand to benefit from lower financing costs and stronger consumer activity if the rate cuts materialise.

The market reaction on December 3 underscored how central bank expectations remain a driving force for global financial conditions. As markets prepare for a potentially dovish Federal Reserve stance, asset prices across equities, bonds and currencies have begun to adjust accordingly, with investors positioning for a lower-rate environment. This dynamic has also sparked debate among economists and bond market participants about how future inflation and growth prospects will evolve once the initial cut(s) are priced in.

The interplay between slowing labor data, central bank policy expectations and global capital flows suggests that markets are in a state of transition. If the Federal Reserve follows through with rate cuts in the coming days, the effects seen on December 3 could mark the start of a broader shift in financial conditions that reverberate into 2026. For now, the market response reflects optimism tempered by caution as investors adapt to evolving economic signals and policy expectations.