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 stock futures pared losses on Friday following softer-than-expected inflation data, while Treasury yields fell. However, concerns about the Federal Reserve's hawkish tone and a potential government shutdown continue to loom large over markets.
Key Market Movements
Stock Futures:
- S&P 500 futures: -0.5%
- Nasdaq 100 futures: -0.8%
- Dow Jones Industrial Average futures: -0.2%
Treasuries:
- 10-year US Treasury yields fell six basis points to 4.50%.
Commodities:
- West Texas Intermediate crude: -0.6% to $68.96/barrel.
- Gold: +0.7% to $2,611.66/ounce.
Drivers of Market Sentiment
- Inflation Data:The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures (PCE) index, rose by a muted 0.1% in November, suggesting a more benign inflation trajectory. Despite this, annual core PCE inflation remained steady at 2.8%, underscoring persistent price pressures.
- Fed’s Policy Outlook:The Fed scaled back its anticipated rate cuts for 2025, signaling a cautious approach due to inflation concerns. This shift has heightened market volatility.
- Looming Government Shutdown:Political tensions escalated as the Republican-led House rejected a funding plan backed by President-elect Donald Trump. The prospect of a shutdown could disrupt markets and amplify uncertainty.
- "Triple Witching Day":The expiration of $6.5 trillion worth of options tied to stocks, indexes, and ETFs could stoke further turbulence.
Global Market Highlights
Europe:
- Stoxx Europe 600 fell 1.7%, reflecting investor caution.
- UK and German bond yields declined amid rate uncertainty.
Asia:
- China’s one-year bond yield dipped to 1%, reflecting expectations of monetary easing.
- The yen rebounded as Japan’s inflation gauge strengthened.
- Brazil:The real gained 1.4% after central bank intervention to stabilize currency markets.
Corporate Spotlight
- Novo Nordisk:Shares plunged 29%, the steepest drop on record, after underwhelming trial results for its obesity drug.
- Nike:New CEO Elliott Hill pledged to refocus on sports and revamp products to reignite growth.
- FedEx:Announced plans to spin off its freight division, boosting its shares.
- Tesla, Nvidia, and Others:Mega-cap tech stocks remain in focus amid high options activity.
Currency and Crypto Movements
Currencies:
- The euro rose 0.5% to $1.0410.
- The Japanese yen gained 0.6% to 156.55 per dollar.
Cryptocurrencies:
- Bitcoin: -1.9% to $95,498.48.
- Ether: -3.5% to $3,297.18.
Outlook
The combination of a cautious Fed, options expiration, and political uncertainty presents a challenging landscape for investors. Markets will closely watch developments around the government shutdown and further economic indicators to gauge future trends.
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