Global Markets Mixed Ahead of BOE Rate Cut Expectations and ECB Decision

This analysis examines the mixed global market trends observed on December 17-18, 2025, amid anticipation of key central bank actions and upcoming economic data [0][1]. US markets experienced declines, with the S&P 500 down 1.20% and the NASDAQ Composite falling 1.91% on December 17, driven by concerns over AI valuations [0][1]. In contrast, European markets showed modest gains: the FTSE 100 rose 0.92% on December 17 and an additional 0.32% on December 18, while the DAX and CAC 40 climbed 0.14% and 0.34% respectively on December 18 [0].

Central bank expectations are a primary driver of these divergent trends. The Bank of England (BOE) is anticipated to cut its key policy rate by 25 basis points, following UK inflation falling more than expected to 3.2% in November [0][1]. Meanwhile, the European Central Bank (ECB) is expected to hold rates steady, with investor focus shifting to its updated inflation and growth forecasts [1]. Separately, Sweden’s Riksbank recently maintained its policy rate at current levels [0]. A delayed US CPI print for November, scheduled for 0830 ET, adds an additional layer of uncertainty for global markets [1].

1. Market Divergence Drivers
   : The contrast between declining US markets and rising European markets highlights differing near-term catalysts—AI valuation concerns in the US versus BOE rate cut expectations in Europe [0][1].
2. UK Inflation’s Policy Impact
   : The unexpected drop in UK inflation has significantly shifted rate hike expectations to rate cut bets, underscoring the sensitivity of markets to inflation data [0].
3. ECB Forecast Significance
   : While the ECB is expected to hold rates, its inflation and growth projections could reshape market sentiment for Eurozone assets in the medium term [1].
4. Delayed CPI Uncertainty
   : The postponed US CPI print introduces asymmetric risk, as a higher-than-expected reading could dampen global risk appetite post-central bank announcements [1].

• Unexpected central bank decisions (e.g., BOE holds rates, ECB hints at future hikes) could trigger market volatility across regions [0].
• A hotter-than-forecast US CPI print may reignite inflation concerns and lead to downward pressure on global equity markets [1].
• Overly optimistic rate cut expectations for the BOE could result in a “sell-the-news” reaction if the cut is delivered but paired with hawkish guidance [0].

• A successful BOE rate cut could stimulate UK equities, particularly interest-sensitive sectors such as real estate and consumer staples [0].
• Positive inflation and growth forecasts from the ECB may boost confidence in Eurozone markets [1].
• A cooler-than-expected US CPI print could reverse recent US market declines and support global risk assets [1].

As of December 18, 2025, global markets are showing mixed performance ahead of critical central bank announcements and a delayed US CPI print. US markets have declined due to AI valuation concerns, while European markets have risen modestly in anticipation of a BOE rate cut. The BOE is expected to cut rates by 25 bps following lower UK inflation, while the ECB will likely hold rates and release updated forecasts. Sweden’s Riksbank recently kept rates steady. Investors should monitor central bank decisions, ECB forecasts, and the US CPI print for potential market impacts [0][1].