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 Treasury yields and the dollar dipped, while the Dow Jones Industrial Average surged to a record high on Friday, as a mild US inflation report boosted expectations for a larger interest rate cut at the Federal Reserve's (Fed) November meeting.
The personal consumption expenditures (PCE) price index, the Fed's preferred measure of inflation, rose just 0.1% in August, down from 0.2% in July, indicating that inflation is moderating. Over the past 12 months, the PCE increased 2.2%, down from 2.5% in July, lifting market sentiment. This fueled expectations for a 50-basis-point interest rate cut at the Fed's upcoming policy meeting, with the probability of such a cut rising to 56.7% from 49.9% prior to the data release, according to the CME's FedWatch Tool.
The Dow Jones Industrial Average rose 137.89 points (0.33%) to close at 42,313.00, setting a new record, while the S&P 500 dipped 0.13% and the Nasdaq Composite fell 0.39%. Despite the slight declines in the S&P 500 and Nasdaq, all three major US indices posted their third consecutive week of gains.
Global stocks also rallied, with MSCI’s global stock index hitting an intraday record, and European shares closed at an all-time high, bolstered by China’s stimulus measures aimed at boosting its domestic economy. Chinese stocks saw significant gains, with blue-chip stocks jumping 4.5%, and Hong Kong's Hang Seng Index rising 13% for the week, marking its best performance since 1998.
The 10-year US Treasury yield fell 3.5 basis points to 3.754% as demand for safer assets increased amid geopolitical tensions in the Middle East, with Israel’s recent actions in Lebanon pushing investors towards Treasury bonds.
In currency markets, the dollar weakened against the yen, falling 1.82% to 142.17, after Shigeru Ishiba, Japan's former defense minister, appeared poised to become the next prime minister. The dollar index, which tracks the greenback against a basket of currencies, was down 0.17%, hitting its lowest level since July 2023.
In commodity markets, aluminum prices reached a 16-week high following China’s latest stimulus efforts, and oil prices edged up slightly, with US crude settling at US$68.18 per barrel and Brent crude at US$71.98 per barrel. Gold prices, although down 1% on the day, were on track for their best quarter in over eight years.
This market rally reflects optimism around a more aggressive Fed rate cut, coupled with China's economic stimulus, which has lifted both global stock markets and commodity prices.
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