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...
Asian stocks surged on Wednesday, and the yen experienced volatility after the Bank of Japan (BOJ) raised interest rates. Investors also digested mixed results from tech giants Microsoft and AMD, highlighting differing impacts within the AI sector.
Key Points:
- BOJ Rate Hike: The BOJ increased its overnight call rate target to 0.25% from 0%-0.1%. It also announced a quantitative tightening plan to reduce monthly bond buying to ¥3 trillion by early 2026.
- Market Reaction:
- Japan's Nikkei index saw choppy trading, ending down 0.19%.
- Japanese government bond yields fell slightly post-decision.
- The yen fluctuated but remained flat at 152.81 per dollar, marking over a 5% gain in July.
- MSCI's Asia-Pacific index outside Japan rose 0.9%.
- Chinese blue-chip stocks and Hong Kong’s Hang Seng index both increased by about 2%.
Influences on the Market:
- Oil Prices: Rose from seven-week lows due to Middle Eastern tensions after Hamas reported the killing of its leader Ismail Haniyeh in Tehran.
- China’s Economy: Data revealed a contraction in China’s manufacturing for the third month in July, sustaining expectations for further economic stimulus from Beijing amid ongoing property crises and job insecurities.
Tech Earnings and AI Sector:
- Microsoft and AMD: Microsoft’s disappointing earnings impacted its shares and other tech stocks. Conversely, AMD’s strong performance boosted chip stocks, with Nasdaq futures rebounding 0.7%.
Central Bank Focus:
- Federal Reserve: The Fed's decision is expected later on Wednesday, with markets anticipating a pause in rate hikes but looking for indications of a potential rate cut in September.
- Interest Rate Speculation: Markets fully price in a 25 basis point cut in September, with an overall 68 bps reduction anticipated for the year.
Currency and Commodity Movements:
- Dollar Index: The index, measuring the dollar against six other currencies, was at 104.41, down 1.36% for July.
- Australian Dollar: Dropped to a three-month low following a soft inflation report, reducing expectations for further rate hikes.
- Oil Prices:
- US crude rose 1.65% to US$75.98 per barrel.
- Brent increased 1.49% to US$79.80 per barrel.
Summary:
Asian markets experienced a robust session, with the BOJ's rate hike introducing volatility in the yen. Mixed tech earnings underscored the varied impact of AI investments, while oil prices surged on geopolitical tensions. Central banks remain in focus, with investor attention on the Fed's upcoming rate decisions.
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