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...
Global markets slid on Friday as concerns over a potential US government shutdown mounted and Donald Trump’s trade threats against Europe heightened tensions. Investors also focused on upcoming US inflation data that could influence Federal Reserve policy for 2025.
Key Market Highlights
1. US Government Shutdown Risks
- A spending bill failed in the House of Representatives on Thursday, highlighting political volatility under President-elect Donald Trump.
- Trump’s proposed tariffs and spending policies have increased uncertainty, with credit default swaps (CDS) on six-month US bills rising to a four-week high of 11 basis points.
2. Trump’s Trade Threats
- Trump warned the European Union to increase purchases of US oil and gas or face tariffs:
- “Otherwise, it is TARIFFS all the way!!!” he stated on Truth Social.
- European stocks fell 1%, marking a 3% weekly drop, as US stock futures slipped 0.7%-1.1%.
3. Inflation and Fed Policy Outlook
- The Core Personal Consumption Expenditures (PCE), a key US inflation measure, is expected to rise 0.2% in November.
- A higher reading could further reduce expectations for rate cuts next year, with markets now pricing in fewer than two cuts for 2025.
4. Treasury and Currency Market Impact
- 10-year Treasury yields surpassed 4.5% for the first time since May, amid a cautious Fed stance.
- Dollar Performance:
- Down 0.3% at 108.12, but close to a two-year peak of 108.43.
- Euro gained 0.2% to US$1.03925.
- Yen recovered 0.4%, trading at 156.87, after plunging 1.7% the previous day due to the Bank of Japan's dovish stance.
5. Commodity Prices
- Oil: US West Texas Intermediate fell 0.6% to US$68.96.
- Gold: Gained 0.5% to US$2,605 per ounce, benefiting from safe-haven demand.
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