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Russia hits panic button with 6.5% interest rate hike

Russia hit the panic button last night, raising their interest rate to 17%, just days after they’d increased it from 9.5% to 10.5% at their scheduled monthly meeting. The hike is a bid to stop the freefall of the Rouble, which hit a price of 80 to the euro yesterday, one of its largest single day moves since their currency crisis began. The rate rise has so far seen the currency regain about half of yesterday’s 10% losses and only time will tell if this has any lasting impact on the financial hot potato that is the Rouble.

Earlier in the day stock markets continued to get beaten up by investors, with losses in Europe ranging from 1% in the Czech Republic to the best part of 3% in Germany. The move was driven by a further fall in oil and risk aversion sentiment following Sydney’s hostage situation. Oil and mining stocks dragged the FTSE lower, with a fall in BP shares pulling the rest of the index down with it. BT offset some of the negative sentiment, with a rise in its share price following an announcement that it is in exclusive talks to buy EE, the mobile phone business, for around £12.5bn from its French and German owners.

On a data note; yesterday we saw the US falter for the first time in a while as New York state’s manufacturing report showed a big drop, when the market had expected an improvement over last month. It was the first time in almost two years that manufacturing activity in the state has decreased. The US has been riding on a wave of impressive data for the last few months and such a reversal from such a key state is either an anomaly or a canary in the coal mine.

In Europe, Greek opposition party Syriza has made a few campaign pledges to kick off the week. They have said that they will stop payments to EU creditors if they were to get into power and negotiate new terms on their bailout package and remaining debts. Despite the hard line, Syriza has said that it wants to keep Greece within the Euro, though markets “will have to dance to the tune of his government” said Alex Tsipras. Currently Syriza are ahead of the incumbent government by about 5%.

Overnight Japan has been dragged into the poor stock market performances that we’ve seen elsewhere in the world. The move shows a bit of enthusiasm is lacking following Shinzo Abe’s re-election on Sunday night. In his winning address yesterday Mr Abe tried to remind us that his plans are only half complete, but it seems like he is going to need to put the other half into action before markets take the bait.
We’ve just heard the Bank of England stress tests results, which show that the Co-op bank was the only bank to fall below the 4.5% capital threshold. The results show that the banking sector could withstand external shocks with no structural reforms needed – finally, a small positive from the UK banking sector.

Today’s calendar has plenty to sink our teeth into, including, preliminary PMI readings from Europe, inflation data from the UK, the German ZEW index, US manufacturing data and the first day of the two day Federal Reserve meeting.