Markets turn defensive ahead of payrolls

​​​Risk-off tone dominates Monday trading

​Monday saw investors adopt a firmly defensive stance as the final full trading week of the year kicked off. A heavy run of economic data and multiple central bank meetings have left traders wary of taking fresh risk.

​Global equities retreated from recent highs. The combination of year-end positioning and uncertainty around key releases created a broadly risk-off tone across markets. Asian stocks led the decline, with tech shares under particular pressure.

​Volatility looks set to rise as the week unfolds. Thursday and Friday appear particularly important, with US payrolls data and multiple central bank decisions due. Trading conditions remain cautious.

​The calendar is packed with potential market-moving events. From UK wages to eurozone purchasing managers indices (PMIs) and US inflation data, investors face a relentless stream of information that could reshape the outlook for early 2025.

​UK wages complicate Bank of England picture

​Monday morning's UK wage data showed pay growth slowing less than expected, while unemployment rose to 5.1%. The combination of still-elevated wages and a weakening labour market has left Thursday's Bank of England (BoE) decision finely balanced.

​Rate-cut bets remained broadly steady despite the mixed data. Policymakers face the challenge of weighing easing inflation pressures against pay growth that remains uncomfortably high. The outcome is far from certain.

​Sterling showed little reaction to the data, stuck in recent ranges. Traders will need Thursday's decision and guidance to provide the next catalyst for a meaningful move in the currency.

​The data shows the UK economy is slowing, but not fast enough to make the BoE's job straightforward.

​Europe awaits PMI verdict on growth momentum

​Flash December manufacturing surveys across the eurozone are due today, including readings from France and Germany. These will help shape views on the region's growth momentum heading into 2026.

​Expectations are modest at best. The manufacturing sector has struggled for months, and another weak set of numbers would reinforce concerns about the European growth outlook. Any surprise to the upside would be welcomed.

​Germany's industrial weakness continues to weigh on the broader region. With the country's manufacturing base under pressure, a strong PMI reading seems unlikely. France faces similar challenges amid political uncertainty.

​The data will feed into European Central Bank (ECB) thinking ahead of their meeting later this week. Weak numbers would support the case for continued easing, while any signs of stabilisation could complicate the policy outlook.

​US data takes centre stage for Fed path

​Investors are braced for delayed US jobs data covering October and November, due later this week, along with fresh inflation figures. These releases are expected to play a decisive role in settling the gap between the Federal Reserve's (Fed) outlook and market pricing for 2026 cuts.

​The market has priced in aggressive easing for early next year. Weak jobs data would support this view and likely pressure the dollar further. A hot surprise would reignite inflation fears and threaten recent equity gains.

​With December liquidity already thin, the potential for outsized moves is elevated. The asymmetry is clear – markets can absorb modest weakness far more easily than unexpected strength.

​What matters isn't just what the data says about today's economy. It's what it locks in for rates tomorrow. This week's numbers may prove more important for monetary policy expectations than current growth dynamics.

​Asian markets lead Monday's global sell-off

​Asian equities slid on Monday as tech stocks led losses. South Korea and Taiwan both fell more than 1%, reflecting caution ahead of US payrolls and broader concerns around crowded AI trades.

​The Nikkei 225 dropped 1.6%, falling below 50,000 as AI and chip-related stocks slumped. Some dip buying emerged after sharp losses, but the overall tone remained cautious as traders headed into the week.

​Safe haven flows strengthened the yen to around 154.8 per US dollar ahead of Friday's Bank of Japan (BoJ) meeting. A rate hike is widely expected, with guidance on further tightening keenly watched by traders.

​The weakness in Asian markets mirrors concerns about stretched valuations in the technology sector. After a stellar run in 2024, investors are questioning whether gains can be sustained into next year without stronger growth data.

​Crypto weakness reinforces defensive positioning

Bitcoin hovered near two-week lows on Monday, reinforcing the risk-off mood as investors cut exposure to volatile assets. The weakness in crypto mirrored the broader retreat from risk as the data-heavy week began.

​The sell-off in digital assets has accelerated as year-end approaches. With major economic releases looming, traders are reducing positions in higher-risk corners of the market.

​Crypto's recent weakness also reflects concerns about regulatory headwinds and questions around institutional adoption. The narrative that drove gains earlier in the year has lost some momentum as macro uncertainty has increased.

​Central bank week set to dominate trading

​With US data, UK policy decisions, and central bank meetings from the BoE, ECB and Bank of Japan (BoJ) all due this week, trading conditions remain cautious. Monday's defensive tone suggests investors are braced for volatility ahead.

​The next few days will determine whether the Santa rally can extend into year-end, or whether caution prevails as 2025 approaches. The weight of evidence suggests traders are prepared for disappointment.

​Positioning data shows a clear defensive tilt. From rising cash levels to reduced exposure in cyclical sectors, the message is consistent – traders are protecting capital rather than chasing returns into year-end.