European Markets Open December Lower Amid Geopolitical Tensions and Policy Uncertainty

Gerik

Summary:

European stock markets began December in negative territory, weighed down by lingering interest rate uncertainty and ongoing peace negotiations between the U.S., Ukraine, and Russia....

Markets Enter December Cautiously After Volatile November

European equities kicked off the final month of 2025 on a weak note, with all major indices projected to open lower. According to IG data, the UK’s FTSE 100 was set to drop 0.26%, Germany’s DAX by 0.62%, France’s CAC 40 by 0.46%, and Italy’s FTSE MIB by 0.5%. This shift follows a choppy November that ended in positive territory for many markets, though concerns about overstretched valuations especially in the AI sector continued to cast doubt over long-term sustainability.

While last month’s volatility did not significantly erode market gains, investor caution remains prevalent as 2025 draws to a close. Much of this hesitancy is tied to both macroeconomic factors and global political developments that could affect market stability into 2026.

Rate Cut Expectations Dominate Monetary Policy Outlook

One key factor shaping sentiment is speculation surrounding the U.S. Federal Reserve's upcoming policy decision. With the Fed meeting scheduled for December 9–10, traders are currently pricing in an 87.4% probability of a 25-basis-point rate cut, according to the CME FedWatch Tool. This expectation reflects a market consensus that the Fed may act preemptively to support the U.S. economy amid signs of slowing job growth and waning inflation.

However, the timing and scale of potential rate adjustments continue to divide analysts, introducing a degree of policy-related uncertainty that has spilled over into European markets. Although no major economic releases are expected from Europe at the start of the week, investors are likely to remain cautious in the absence of fresh catalysts.

Ukraine-Russia Peace Talks Add Geopolitical Risk Premium

European investors are also closely monitoring the high-stakes diplomatic developments surrounding the war in Ukraine. This week, U.S. Special Envoy Steve Witkoff is scheduled to meet with Russian President Vladimir Putin in Moscow for further discussions on a peace framework.

This follows recent confirmation that Ukraine has tentatively approved a U.S.-backed 19-point peace proposal an amended version of a previously confidential 28-point plan negotiated by the U.S. and Russia. The original draft appeared to lean toward Russian interests, prompting further diplomatic engagement. Over the weekend, U.S. Secretary of State Marco Rubio met with Ukrainian officials in Florida and described the talks as "very productive," while acknowledging that significant differences still need to be resolved.

These geopolitical negotiations inject additional volatility into investor sentiment. Although progress on a peace deal could ultimately reduce risk in European markets, the current lack of resolution keeps tensions elevated and market positioning cautious.

Global Market Context: Mixed Sentiment in Asia and the US

The mixed tone was reflected in other global markets. Asia-Pacific trading began December unevenly, reacting to new Chinese factory data indicating another contraction in manufacturing activity. This industrial weakness, as previously noted, suggests that any recovery in Chinese demand remains fragile and is unlikely to boost European exports meaningfully in the near term.

Meanwhile, U.S. stock futures remained largely flat on Sunday night after closing the previous week with solid gains. Wall Street continues to benefit from seasonal momentum December has historically delivered strong returns, with the S&P 500 averaging gains of over 1% in the final month of the year since 1950, according to the Stock Trader’s Almanac. This seasonal trend may offer some indirect support to global risk appetite, but regional factors in Europe remain more dominant at present.

While Wall Street eyes a strong end to 2025, European markets have entered December weighed down by macroeconomic ambiguity and unresolved geopolitical risks. Investors are waiting for clarity from the Federal Reserve on interest rates and from diplomacy regarding Ukraine before committing further capital. With no major earnings or economic reports due from Europe at the start of the week, market momentum is likely to remain soft unless significant breakthroughs materialize on either front.

Source: CNBC

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