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 rose on Friday, poised for a strong end to August, while the US dollar faced its worst monthly performance in nine months amid expectations that the Federal Reserve (Fed) will cut interest rates next month. The upcoming release of the US core personal consumption expenditures (PCE) price index and eurozone inflation data are likely to provide further insights into the global rate outlook.
Key Takeaways:
Strong Performance of Asian Stocks: The MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.77%, aiming for a 2.3% gain for the month. Key markets like Taiwan's benchmark index and South Korea's Kospi also saw recoveries, up 0.44% and 0.7%, respectively, driven by stronger-than-expected US economic data that eased recession fears. Chinese stocks rallied, particularly property stocks, with the CSI 300 Real Estate Index surging over 8% on news that China may allow homeowners to refinance up to $5.4 trillion in mortgages to boost consumption.
Dollar Weakens Amid Fed Rate Cut Expectations: The US dollar slumped as markets priced in a potential 100 basis points of Fed rate cuts by the end of the year, with a 32.5% chance of a 50 basis point cut in September. The dollar is on track for its sharpest monthly decline since November. Against the yen, the dollar was set to lose more than 3% for the month, reflecting narrowing interest rate differentials between the US and Japan.
Global Market Reactions and Commodity Prices: US stock futures extended gains, with Nasdaq futures rising 0.36% and S&P futures up 0.2%. In Europe, FTSE futures gained 0.4%, while EUROSTOXX 50 futures dipped 0.22%. Oil prices edged slightly higher, with Brent crude futures rising to $80.18 per barrel. Spot gold fell 0.28% to $2,514.12 an ounce but remained set for a 2.6% monthly gain, buoyed by the prospect of Fed easing and a weaker dollar.
The market's focus remains on the pace and extent of rate cuts by the Fed and the European Central Bank (ECB) in the coming months, which will shape the trajectory of global markets and currencies.
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