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...
US stocks fluctuated as investors navigated fresh economic data and corporate earnings while preparing for key central bank decisions that are expected to shape global market trajectories.
Following a US$2.3 trillion Nasdaq 100 wipeout, investors are keenly awaiting Microsoft Corp’s earnings to see if the tech giant can shift market sentiment. Concerns persist that tech firms have yet to see returns from substantial investments in artificial intelligence. Microsoft's results will set the stage for upcoming reports from Meta Platforms Inc, Apple Inc, and Amazon.com Inc later in the week, along with anticipation for the Federal Reserve's decision on Wednesday.
“It’s likely the Fed does signal that looming cut and given the recent pullback, that should help this rebound continue,” said Tom Essaye at The Sevens Report. “However, if the Fed does not signal a September rate cut, markets could get a bit ugly given recent tech weakness, especially if earnings underwhelm.”
Key Takeaways:
Federal Reserve Decision: The Fed is expected to hold benchmark rates at their highest level in over two decades this week. Traders are closely watching for any hints of potential policy easing. Data shows US consumer confidence rose in July, and job openings exceeded forecasts.
Market Performance:
- The S&P 500 hovered around 5,460.
- A gauge of the “Magnificent Seven” megacaps fell 0.5%.
- The Russell 2000 of small caps gained 0.4%.
- Microsoft Azure is investigating global connectivity issues.
- Advanced Micro Devices Inc climbed ahead of its results.
- PayPal Holdings Inc soared on a bullish outlook.
- Procter & Gamble Co sank on a sales miss.
Treasury and Yen: Treasury 10-year yields remained steady at 4.17%, while the yen weakened as the Bank of Japan began its two-day policy meeting. BOJ Governor Kazuo Ueda is expected to outline plans for quantitative tightening and make a decision on the policy interest rate.
Goldman Sachs Forecast: Goldman Sachs CEO David Solomon now sees one or two Fed rate cuts later this year, a shift from his earlier prediction of no rate reductions in 2024. “One or two cuts in the fall seems more likely,” Solomon said, noting the impact of prolonged inflationary pressures on consumer behavior.
Historical Context:
- If the Fed starts a rate reduction cycle, stock bulls have history on their side. Historically, the S&P 500 has risen an average of 5% a year after the first cut following a rate hike cycle, according to CFRA. Additionally, the small-cap Russell 2000 Index has shown an average gain of 3.2% 12 months later.
As the market awaits the Fed's decision and major corporate earnings, investors remain cautiously optimistic about potential signs of economic stabilization and recovery.
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