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...
Oil prices fell to seven-week lows on Tuesday due to a weaker demand outlook, while bond, currency, and stock markets traded cautiously ahead of central bank meetings in the US and Japan.
Brent crude dropped to $79.70, with traders focusing on Chinese demand concerns. Copper, iron ore, zinc, and aluminium prices also declined, as China’s Politburo meeting did not announce new economic support measures.
“The US economy is expected to be softer this quarter and next, and the euro area isn’t compensating. China’s issues persist,” said Chris Scicluna, economist at Daiwa Capital.
The S&P 500 steadied after a two-week downturn, and futures were flat late in the Asia session. The MSCI All-World index was flat, and London’s FTSE 100 fell due to declines in basic resources stocks and a profit miss by Diageo.
Preliminary eurozone data is expected to show 0.5% annual economic growth for Q2. German 10-year Bund yields were steady at 2.355%.
'Calm Before the Storm' Interest rates are in focus. Japanese government bond yields fell, with the 10-year JGB yield down three basis points to 0.995%. US 10-year Treasury yields were steady at 4.182%.
Markets expect no US rate cut this week but foresee a 25-basis-point reduction in September. Japan’s central bank might hike rates by 10 basis points and provide details on reducing bond purchases.
The dollar and yen remained stable. The euro was at $1.08235, while the dollar/yen pair rose 0.45% to 154.72.
Microsoft and AMD will report earnings later, and preliminary CPI data for Germany and Spain is due. Australian inflation data and the Bank of England’s rate decision are also upcoming.
Key Takeaways:
- Commodities, including oil and metals, fell on demand concerns.
- Stock markets remained steady ahead of central bank meetings.
- US and Japanese central banks are key focus points for potential rate changes.
- Bond yields remained steady, and major currencies stayed within recent ranges.
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