This week in the markets: the Fed weighs up a third rate cut, the chancellor fields questions about her Budget, and predictions flood in for the year ahead.

Christmas is fast approaching, and an end-of-term feeling is setting in. But there is still plenty going on in the markets - and the next few days could prove eventful.

Wednesday is the big day next week, as it’s when the Federal Reserve will announce its final interest rate decision of 2025. There’s been lots of speculation about what will happen. For a long time, investors were convinced that there wouldn’t be a third cut this year. But they changed their minds towards the end of November, and the chance of a rate cut now sit at roughly 87 per cent.

This has had a knock-on effect on the stock market. The S&P 500 fell sharply in the first half of November, but it has now bounced back.

It’s not just US interest rates that are attracting attention, however - Japan is also under scrutiny. The country is braced for an interest rate rise later this month after years of negative rates. This has prompted a sell-off in the country’s bonds.

Investors are watching closely for signs of spill-over in the global bond market, and events in Japan have already been blamed for a drop in the price of bitcoin, which tends to suffer when investors can get better yields from safer assets.

So that’s the run-up to Christmas. But the end of the year is also a time to look ahead. Predictions for 2026 have already started to trickle in, but there will be plenty more this week. Assuming no disasters in the next couple of weeks, 2025 has been a good year for stock markets, with everything from the FTSE 100 to emerging markets posting double-digit gains.

There is plenty of optimism around 2026 too. Wall Street banks think the S&P 500 will rise by 10 per cent next year, according to a survey by the Financial Times. Meanwhile, analysts think the European stock market could climb by 11 per cent, helped by German fiscal stimulus.

For all the apparent cheer, though, UK investors seem nervous. Record sums were pulled out of equity funds last month and pumped into cash funds, according to new data. Concerns about an AI bubble in North America are clearly weighing heavy, and worries about the domestic economy may also have played a part.

The Autumn Budget is certainly still looming large. The chancellor will give evidence to the Treasury Committee on Wednesday about the Budget and - on Tuesday - the Bank of England will face questions about how the Budget could impact interest rates. Markets are currently pricing in another rate cut on 18 December, but the Monetary Policy Committee seems pretty divided.

Last but not least, the UK will publish GDP estimates for October on Friday. The Bank of England is forecasting headline growth of 0.3% for the full fourth quarter, but analysts think October could be disappointing. Only time will tell.