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...
World shares took a downturn on Monday amid growing economic uncertainty fueled by geopolitical tensions in the Middle East, overshadowing recent policy measures aimed at bolstering markets. This comes as investors brace for a week filled with data that could influence central banks' upcoming decisions.
Geopolitical tensions intensified with continued Israeli strikes across Lebanon, contributing to market unease, though oil prices remained relatively stable despite concerns over increased supply. Brent crude oil futures rose by 52 cents to US$72.50, while West Texas Intermediate climbed 40 cents to US$68.58.
While Hurricane Helene has mostly passed, causing significant devastation in parts of the southern US, a new tropical depression is expected to strengthen into another hurricane later this week. Such hurricanes disrupt the supply chain of oil products, raising concerns about supply from the world's largest oil producer.
In contrast, Chinese stock markets experienced a surge as brokerages faced overwhelming trading activity from retail clients in a pre-holiday rush. Investors are moving money from bonds and deposits into stocks, buoyed by recent government stimulus measures. The blue-chip CSI300 index surged 8.5%, marking its biggest daily gain since 2008, while the Shanghai Composite rose 7.1%, building on last week’s 13% rally.
Meanwhile, Japan's Nikkei index dropped nearly 5% amid worries that the new prime minister may favor interest rate normalization while potentially increasing taxes on investments and corporations. This development helped the dollar maintain a steady position around ¥142.44 after a significant drop of 1.8% on Friday.
European markets opened lower on Monday, with the STOXX 600 down 0.7%, weighed down by profit warnings and bleak growth forecasts from the auto sector. According to Matt Tickle, chief investment officer at Barnett Waddingham, "The Chinese stimulus has created some noise, but the market may be front-running these first few steps, which might lead to disappointment later if measures don't continue."
Investors are keenly focused on the actions of central banks this week, particularly in the US, where major economic data will be released, including a payrolls report that could impact the Federal Reserve's decision on another rate cut in November. Wall Street also enjoyed a robust week, buoyed by positive core US inflation data that suggests the possibility of a half-point rate cut from the Fed.
S&P 500 futures dipped 0.1%, while Nasdaq futures fell 0.2%. Despite these dips, the S&P 500 index is up 20% year-to-date and is on track for its best January-September performance since 1997.
In currency markets, the dollar index fell 0.2% to 100.22 after a 0.3% decline last week, while the euro climbed 0.3% to US$1.1200, benefiting from the positive US inflation report. The eurozone is set to release inflation figures this week alongside producer prices and unemployment data.
As a softer dollar and lower bond yields helped gold prices reach US$2,685 an ounce, gold was last recorded at US$2,650 an ounce, positioning it for its best quarter since 2016.
With a busy week ahead for central banks and economic data, market participants remain vigilant amidst the prevailing uncertainties.
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