Financial and capital market updates Q4 2025

Global markets closed 2025 with a sense of cautious confidence, as improving inflation dynamics and clearer policy signals helped stabilise investor sentiment.

Equity markets ended the year on firmer ground, supported by resilient earnings and easing financial conditions, while bond yields softened toward year end as markets grew increasingly comfortable that major central banks were approaching the end of their tightening cycles.

While geopolitical risks and uneven regional growth persisted, overall risk appetite improved as macro volatility moderated.

At a macro level, economic momentum across developed markets showed signs of normalisation rather than acceleration. In Europe, growth remained modest but supported by steady consumption and improving investment confidence, particularly in infrastructure and energy transition initiatives.

In the United States, economic activity cooled gradually, with softer labour market data reinforcing expectations of easing inflation without a sharp slowdown.

Emerging markets benefited from improved currency stability and renewed capital inflows, aided by a softer U.S. dollar in the latter part of the year.

Inflation across major economies continued to trend closer to central bank targets, reinforcing expectations of rate stability heading into 2026.

The KPMG Financial Instruments (KFI) team have put together the insights below to provide an overview of the ongoing developments and to help you navigate through the changes.

Financial and capital market updates - Quarterly newsletter Q4 2025

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Global overview

Valuation trend

Throughout 2025, global valuations showed notable resilience despite changing economic signals and evolving policy expectations. By December 2025, investor sentiment reflected a careful balance between optimism around easing monetary policy and realism about uneven global growth.

U.S. equity valuations remained broadly stable during the year, supported by steady earnings, pricing power in some sectors, and strong balance sheets.

European markets ended the year on firmer ground, led by industrials, infrastructure, and financials as capital spending and public investment increased.

Emerging markets drew consistent interest, especially in Asia, as currency pressures eased and growth became clearer.

Market movement

European equities ultimately outperformed U.S. markets as investors shifted toward cyclicals, industrials, and energy, supported by improving purchasing managers index (PMI) trends and fiscal support measures.

U.S. markets remained backed by technology, AI-driven productivity themes, and select consumer companies, though gains became more selective as the year progressed.

In the second half of the year, emerging markets saw renewed inflows, aided by a weaker U.S. dollar.

Regulatory change

In 2025, regulatory focus remained centered on transparency, valuation discipline, and risk management, especially in Europe.

The European Securities and Markets Authority (ESMA) took an active stance, issuing updates to UCITS liquidity stress-testing frameworks and refining SFDR Q&A guidance to enhance the consistency and reliability of sustainability disclosures.

Economic indicator

Macroeconomic conditions gradually stabilised throughout 2025, creating a more predictable backdrop for asset valuation by year-end. Global inflation trends moderated but remained uneven across regions.

Eurozone headline inflation ended the year close to 2%, with services inflation persisting in core economies like Germany. The ECB maintained a careful policy stance, keeping rates steady as inflation expectations became more stable.

In the U.S., inflation hovered just below 3%, while bond yields softened toward the end of the year amid growing confidence about a potential policy shift.

Financial market indicators

Equities

Global equity markets ended December 2025 on a firmer footing. U.S. equities posted moderate gains, supported by easing inflation trends and growing confidence that policy rates were near their peak. While geopolitical risks and uneven regional growth persisted, overall risk appetite improved as macro volatility moderated.
The S&P 500 rose 2.35% to close at 6,845 points and the NASDAQ advanced 2.57% and closed at 23,242 points

Fixed income

U.S. credit markets stabilised in December as volatility eased and macro uncertainty moderated. Expectations that the Federal Reserve would begin policy normalisation in 2026 supported risk sentiment. The U.S. 10-year Treasury yield declined by 21 basis points during the quarter to closed at 4.16%.
European sovereign yields remained relatively stable, with the ECB maintaining a cautious, data-dependent stance amid easing inflation and mixed growth signals across the region.

Commodities

Commodity markets were broadly stable in December, with price action influenced by balanced supply-demand dynamics and geopolitical developments.
Brent crude settled near $60.85, while WTI crude closed at $57.42, losing 9.21% and 7.94%, supported by production discipline but capped by concerns around global demand.
Gold and silver held near elevated levels, benefiting from lower yields and continued demand for defensive assets. Industrial metals showed mixed performance as investors weighed slowing growth against long-term energy transition demand.

FX exchange

The U.S. dollar softened modestly toward year-end as interest rate differentials narrowed, and markets increasingly priced in a Fed policy pivot in 2026.
USD ended the quarter with gained 0.11% at 1.17446 against the euro reflecting weakness across major currencies during December.

CLO market developments in 2025

By December 2025, European CLO issuance remained resilient, closing the year on a solid footing despite periods of volatility earlier in the cycle. Full year issuance was supported by a steady pipeline of new deals, resets, and refinancings, as managers took advantage of improved liability spreads and stabilising loan market conditions.

The Irish CLO market continued to play central role in European issuance, with Ireland-domiciled structures remaining the jurisdiction of choice for new vehicles. Strong global investor demand supported issuance activity and regulatory clarity through the year further supported market confidence and deal execution.

In the U.S., CLO issuance remained healthy through year end, with full year volumes exceeding expectations amid elevated refinancing and reset activity.

AAA spreads in Europe tightened to around 120–130 bps over SOFR, reflecting sustained demand for senior tranches.

Mezzanine tranches (BB/BBB) continued to see solid investor interest, supported by improved relative value and stable credit fundamentals.

Defaults on US and EUR leveraged loans remained in the 3-5% range till December 2025, keeping CDRs elevated versus long term historical averages. Subdued business activity, persistent trade tariffs, tighter financing conditions, and continued geopolitical uncertainty continued to pressure weaker and highly leveraged borrowers.

Segment focus : CLO market

December 2025 highlights

$347.07 billion new money leveraged volume representing

29.8%

of total leveraged loan issuance ($1,164.49 billion)

Key rates

Global economic data in December showed gradual but uneven stabilisation. The Eurozone posted modest growth, supported by steady consumption and improving investment sentiment. Easing inflation allowed the ECB to keep a data‑dependent stance, with markets eyeing possible 2026 rate moves.

In the U.S., growth cooled but remained solid as consumer spending softened, labor markets eased, and inflation improved. Treasury yields fell on expectations that the Fed had finished tightening.

France’s composite purchasing managers index (PMI) stayed in expansion, reflecting stable demand, while Ireland’s manufacturing purchasing managers index (PMI) remained firm on strong export and investment activity.

Economic calendar

Macroeconomic outlook

The global economy ended the final quarter of 2025 on uncertain footing, with growth slowing and risks increasing. In its World Economic Outlook update, the IMF forecast global GDP growth of 3.3% in 2026, an upward revision of 0.2 percentage points from its October estimate, even as higher tariffs and tighter financial conditions continue to weigh on trade and investment.

Both the IMF & OECD emphasise that without stronger global cooperation and reforms to boost productivity, the world risks a prolonged period of weak growth, fragmented trade, and heightened vulnerability to shocks.

GDP growth: 2.1% (2025A), 2.4% (2026E)
Inflation: 2.7% (2025A), 2.4% to 2.8% (2026E)
Unemployment: ~4.4% (2025A), ~4.6% (2026E)
Forecasts indicate that GDP growth in 2026 is expected to strengthen as the earlier impact of tariffs diminishes and the effects of business and personal tax reductions begin to support economic activity. The labor market is identified as the area with the greatest uncertainty in the 2026 outlook.

GDP growth: 1.4% (2025A), 1.3% (2026E)
Inflation: 2.3% (2025A), 2.0% (2026E)
Unemployment: ~6.0% (2025A), ~6.3% (2026E)
EU projections indicate a marginal deceleration in real GDP growth in 2026, easing inflation from 2.3% to 2.0% and a slight uptick in the unemployment rate to 6.3%.

GDP growth: 1.4% (2025A), 1.3% (2026E)
Inflation: 3.4% (2025A), 2.2% (2026E)
Unemployment: ~5.1% (2025A), 5.1% (2026E)
Economic momentum remains subdued as tighter fiscal conditions and elevated trade costs constrain activity, with inflation easing from 3.4% in 2025 to 2.2% in 2026 and GDP growth stays below its pre‑pandemic trend.

GDP growth: 5.0% (2025A), 4.5% (2026E)
Inflation: 0.1% (2025A), 0.2% (2026E)
Unemployment: ~5.2% (2025A), ~5.1% (2026E)
China’s growth is expected to slow in 2026 as government support decreases and trade challenges continue, while problems in the property sector reduce demand. Inflation stays low at 0.2% even though the currency is weaker.

GDP growth: 7.3% (2025A), 6.4% (2026E)
Inflation: 2.2% (2025A), 2.1% (2026E)
Unemployment: ~4.8% (2025A), ~4.9% (2026E)
India’s growth is expected to slow slightly in 2026, easing from 7.3% to 6.4%. Inflation stays low at about 2.1%, and unemployment rises a little to 4.9%, showing the job market softens slightly but the economy remains generally stable.

GDP growth: 4.3% (2025A), 4.5% (2026E)
Inflation: 2.2% (2025A), 2.0% (2026E)
Unemployment: ~3.4% (2025A), ~3.4% (2026E)
Saudi Arabia’s economy is expected to expand steadily in 2025, with GDP growth at 4.3% supported by higher oil output and ongoing non‑oil investment. Inflation remains moderate at 2.2%, reflecting stable domestic pricing conditions.

Market benchmarking: Q4 2025

To support performance evaluation, we have conducted a comprehensive benchmarking exercise on liquid public equities for each calendar year with annualised total shareholder returns including capital gains and dividends.

These returns (with caution) can be used as a benchmark to evaluate the performance of investments in equity and equity like investments.

Source: KPMG analysis, S&P Capital IQ.

Despite a challenging macro‑economic backdrop, global equities delivered a measured rebound, although performance remained highly differentiated across regions.

Global equities delivered another year of positive returns, although performance in 2025 moderated slightly compared to 2024 (23% vs. 26%). The United States returned 18%, supported by steady earnings and ongoing AI investment, though high valuations constrained upside.

Europe remained strong, with the EU at 31% and the UK at 30%, helped by improving inflation dynamics and expectations of further monetary easing. Canada gained 37%, supported by commodities and currency tailwinds.

In Asia, China rose to 38% on policy support and technology sector stabilisation, while Asia excluding China & India led with 44%. Sub‑Saharan Africa & North Africa remained a high‑risk, high‑return market and delivered the strongest regional gain at 51%.

Sector performance was mixed. Materials led with 36%, reflecting a rebound in industrial demand, improved pricing conditions. Communication Services (30%), Financials (29%), and Industrials (26%) also performed well.

More defensive sectors saw moderate gains, with Consumer Staples (10%) and Consumer Discretionary (11%). Payback dynamics highlight the divide, with IT at 2.7 years, while capital‑intensive sectors such as Real Estate and Energy remain materially longer.

Source: KPMG analysis, S&P Capital IQ.

Market deals

2025 outlook

The year closed on a moderate but active note, with global markets demonstrating resilience despite ongoing macroeconomic uncertainty.

Although Q4 2025 witnessed a softening in some areas relative to Q3 2025, on a year‑over‑year basis (2024 vs. 2025) total deal activity remained either consistent or slightly elevated across Mergers & Acquisitions (M&A), Equity Capital Markets (ECM), Debt Capital Markets (DCM), and Private Placements & IPOs, even as volatility persisted.

Global M&A aggregate value climbed further, reaching USD 1.23 Trillion in Q4 2025, mostly driven by large‑cap U.S. transactions ($808 Billion) and renewed cross‑border interest.

ECM activity reduced by 26% in Q4 2025, with the U.S. contributing approximately 50% of total aggregate transaction value. DCM also declined by 22% in Q4, with transactions declining by 600 in Q4.

Global IPO activity held steady, with issuance remaining selective despite further monetary policy easing in December. Private‑placement activity remained steady in Q4 2025, totalling 11,227 transactions and USD 323 billion globally.

Strengthening credit spreads enabled continued sponsor-led add‑ons and recapitalisations, supporting a stable financing environment into year‑end.

United States

Q4 2025 closed the year on a strong and active note, with global markets demonstrating resilience despite ongoing macroeconomic uncertainty.

Even though, the Q4 2025 witnessed a slowdown relative to the Q3 2025, on yearly comparison between 2024 and 2025 total deal activity remained either consistent or slightly elevated across Mergers & Acquisitions (M&A), Equity Capital Markets (ECM), and Debt Capital Markets (DCM), Private Placement & IPO even as volatility persisted.

Global M&A aggregate value climbed further, reaching USD 1.23 Trillion in Q4 2025, mostly driven by large‑cap U.S. transactions ($808 Billion) and renewed cross‑border interest. ECM activity reduced by 26% in Q4 2025, with the U.S. contributing approximately 50% of total aggregate transaction value. DCM also declined by 22% in Q4, with transactions declining by 600 in Q4.

Global IPO activity held steady, with issuance remaining selective despite further monetary policy easing in December. Private‑placement activity remained steady in Q4 2025, totalling 11,227 transactions and USD 323 billion globally. Strengthening credit spreads enabled continued sponsor-led add‑ons and recapitalisations, supporting a stable financing environment into year‑end.

Rest of the world

The rest of the world maintained active deal momentum in Q4, with M&A activity reaching USD 340 billion, supported by strong contributions from Asia and the Middle East. ECM issuance totalled USD 121 billion, driven by several sizeable offerings across Asian markets.

IPO activity remained stable, generating USD 20 billion in proceeds, largely supported by emerging‑market listings. DCM issuance moderated to USD 267 billion, reflecting softer sovereign and quasi‑sovereign activity as governments adjusted borrowing strategies toward year‑end.

United States

Q4 2025 closed the year on a strong and active note, with global markets demonstrating resilience despite ongoing macroeconomic uncertainty.

Even though, the Q4 2025 witnessed a slowdown relative to the Q3 2025, on yearly comparison between 2024 and 2025 total deal activity remained either consistent or slightly elevated across Mergers & Acquisitions (M&A), Equity Capital Markets (ECM), and Debt Capital Markets (DCM), Private Placement & IPO even as volatility persisted.

Global M&A aggregate value climbed further, reaching USD 1.23 Trillion in Q4 2025, mostly driven by large‑cap U.S. transactions ($808 Billion) and renewed cross‑border interest. ECM activity reduced by 26% in Q4 2025, with the U.S. contributing approximately 50% of total aggregate transaction value. DCM also declined by 22% in Q4, with transactions declining by 600 in Q4.

Global IPO activity held steady, with issuance remaining selective despite further monetary policy easing in December. Private‑placement activity remained steady in Q4 2025, totalling 11,227 transactions and USD 323 billion globally. Strengthening credit spreads enabled continued sponsor-led add‑ons and recapitalisations, supporting a stable financing environment into year‑end.

Get in touch

The KPMG Financial Instruments (KFI) team is uniquely positioned to help clients navigate this environment by providing high-quality independent valuations, leveraging deep technical expertise and market insight.

As clients face changing regulatory requirements, evolving capital allocation trends, and increased scrutiny surrounding asset quality and impairment, KFI provides critical support through application of best-practice valuation methodologies.

From private equity and structured products to financial instruments impacted by interest rate volatility, KFI enables businesses to evaluate risk, maintain audit readiness, and respond with confidence to dynamic market and regulatory developments.

Should any of the matters outlined in this market outlook be of interest, or if you would like to explore the potential implications for your business, please feel free to contact one our team members. We would be pleased to assist you further.