The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
U.S. stocks rallied on Friday, buoyed by an in-line inflation report that bolstered expectations for interest rate cuts in September. The Commerce Department's data showed the personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, remained flat month-over-month in May and rose 2.6% annually, aligning with forecasts.
Core Inflation Eases
Excluding volatile food and energy prices, the core PCE increased just 0.1% month-over-month and 2.6% annually. This data spurred optimism among traders, with the probability of a rate cut in September climbing to 68%, up from 61% prior to the report, according to LSEG FedWatch data.
Market Reaction
"This is an ideal report for the markets. It gives the Fed the green light to cut rates in September and maintains the dovish tone," said Jay Woods, Chief Global Strategist at Freedom Capital Markets.
Major tech stocks, including Apple, Nvidia, and Amazon.com, saw gains ranging from 0.2% to 1.2%. The broader S&P 500 sectors were predominantly in the green, led by the tech sector, while the small-cap Russell 2000 advanced 0.8% to a two-week high.
Nike Stumbles
Despite the overall market positivity, Nike shares plummeted 17.1% following a disappointing fiscal 2025 revenue forecast, exerting pressure on the consumer discretionary sector.
As of 9:43 AM ET, the Dow Jones Industrial Average climbed 133.28 points, or 0.34%, to 39,297.34. The S&P 500 rose 16.64 points, or 0.30%, to 5,499.51, while the Nasdaq Composite increased 42.09 points, or 0.24%, to 17,900.77.
Fed Comments
Richmond Fed President Thomas Barkin emphasized a cautious approach to policy adjustments, and San Francisco Fed President Mary Daly noted the positive inflation data as evidence of effective policy measures. Remarks from Fed Governor Michelle Bowman were anticipated later in the day.
AI Stocks in Focus
Investors also prepared for the final reconstitution of the Russell benchmark indexes, with the recent surge in AI-related stocks expected to significantly influence their composition.
Weekly and Quarterly Performance
The S&P 500 and Nasdaq were on track for weekly and quarterly gains, despite a brief downturn in AI stocks, Amazon.com's milestone of reaching a $2 trillion market value, and mixed economic data. In contrast, the Dow was poised to end the quarter down 1%, highlighting the divergence between tech-heavy indexes and the broader market.
Other Notable Moves
Trump Media & Technology Group gained 4% following a lackluster debate performance by Democratic incumbent Joe Biden. Optical networking gear maker Infinera soared 18.4% after Nokia announced its $2.3 billion acquisition deal.
On the NYSE, advancing issues outnumbered decliners by a ratio of 4.16-to-1, while on the Nasdaq, the ratio was 2.18-to-1. The S&P index recorded 12 new 52-week highs and one new low, with the Nasdaq posting 35 new highs and 38 new lows.
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