• FOMC left its Fed Fund Target Rate unchanged at 1.50%-1.75% as expected via unanimous decision while it maintained the IOER at 1.55%
• Fed dropped its language from the statement regarding uncertainties for the outlook remaining
• Fed Dot Plots show a median view for an unchanged rate throughout 2020 and a single hike in 2021 followed by another in 2022, although some see a 2020 hike as likely to be appropriate
• Fed Chair Powell also said that a persistent move higher in inflation would have to be seen in order for rate hikes, noting it has been very challenging to get inflation to the 2% target
• Asian equity markets were varied for most of the day amid ongoing trade uncertainty heading into this week’s tariff deadline and today’s looming risk events
• Half of the latest UK Election Polls show a maintenance in the Tory/Labour spread and the other half show a slight narrowing
• Looking ahead highlights include, UK General Election, ECB, SNB & CBRT Rate Decisions, IEA Monthly Oil Report, EZ Industrial Production, US Initial Jobless Claims & BoJ Tankan Survey, ECB TLTRO-3 & US 30yr, ECB’s Lagarde & BoC’s Poloz

FOMC

- FOMC left its Fed Fund Target Rate unchanged at 1.50%-1.75% as expected via unanimous decision while it maintained IOER at 1.55% and said current policy stance is appropriate to maintain the US economic expansion, inflation and employment goals. Fed dropped its language from the statement regarding uncertainties for the outlook remaining and said it will continue to monitor incoming data, including global developments and muted inflation pressures. Furthermore, the Fed repeated that job gains are solid, but inflation is still below target and that business fixed investment and exports remain weak.

- Dot Plots: 2019: 1.6% (Prev. 1.9%), 2020: 1.6% (Prev. 1.9%), 2021: 1.9% (Prev. 2.1%), 2022: 2.1% (Prev. 2.4%) and long-run: 2.5% (Prev. 2.5%).

- Fed projections show an unchanged rate throughout 2020 and a single hike in 2021, although 4 of the 17 policymakers see a single hike in 2020 as likely to be appropriate.

- Fed Chair Powell said the US economic outlook is a favourable one and that policy is not on a pre-set course, while he added that current monetary policy is somewhat accommodative. Powell also reiterated that a persistent move higher in inflation would have to be seen in order for rate hikes and noted it has been very challenging to get inflation to the 2% target. Furthermore, Powell commented that three rate cuts wasn't the Fed's plan when it began cutting and that the need for rate increases is less than it was in the mid/late 90s cutting cycle. (Newswires)

- FOMC maintained GDP growth forecasts across all horizons with 2019 seen at 2.2%, 2020 at 2.0%, 2021 at 1.9%, 2022 at 1.8% and longer-run at 1.9%. Unemployment rate forecasts - 2019: 3.6% (Prev. 3.7%), 2020: 3.5% (Prev. 3.7%), 2021: 3.6% (Prev. 3.8%), 2022: 3.7% (Prev. 3.9%) and longer-run: 4.1% (Prev. 4.2%). Core PCE Inflation forecasts – 2019: 1.6% (Prev. 1.8%), 2020: 1.9% (Prev. 1.9%), 2021: 2.0% (Prev. 2.0%) and 2021: 2.0% (Prev. 2.0%).

Note: The initial reaction was rather stale; however, as the dust settled markets took it as a dovish meeting which put further pressure on the greenback sending the Dollar Index (DXY) to session lows. S&P 500 caught a slight bid which put the bourse back at the top end of the daily range just above the 3140 mark. The direction of moves in assets continued its direction as Powell’s presser went underway with participants paying attention to his comment that there is a great struggle to get inflation to the 2% target, suggesting inflation will be around current levels for some time.

ASIA-PAC

Asian equity markets were varied for most of the day as ongoing trade uncertainty heading into this week’s tariff deadline and today’s looming risk events slightly dampened the momentum from Wall St where sentiment was mildly underpinned following the FOMC meeting. Nonetheless, ASX 200 (-0.7%) and Nikkei 225 (+0.3%) traded mixed as the former suffered from broad losses across its sectors including underperformance in tech and financials, while the Japanese benchmark was kept afloat by a predominantly weaker currency but with gains also limited by a surprise 4th consecutive contraction in Machinery Orders which represented the longest streak of declines in over a decade. Elsewhere, Hang Seng (+1.3%) outperformed and topped the 27k level with the index led by a surge in Chinese tech names, although sentiment in the mainland was less optimistic with Shanghai Comp. (-0.2%) subdued by the tariff-threat overhang and as participants await statements from China’s Central Economic Work Conference which is expected to finish today. Finally, 10yr JGBs tracked the post-FOMC gains in T-notes and with prices also underpinned following the abysmal Machine Orders data from Japan, despite slightly weaker demand at the enhanced liquidity auction for longer-dated JGBs.

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set USD/CNY reference rate at 7.0253 vs. Exp. 7.0252 (Prev. 7.0385)

US President Trump is likely to meet with top trade advisers on Thursday regarding December 15th tariffs, according to sources. (Newswires)

China Industry Ministry official sees GDP at 6.1%-6.2% for 2019 and 6.0% for 2020, while Industrial Production is forecast at 5.5%-5.6% in 2019 and around 5.9% for 2020. (Newswires)

Japanese Machinery Orders (Oct) M/M -6.0% vs. Exp. 0.9% (Prev. -2.9%). (Newswires) Japanese Machinery Orders (Oct) Y/Y -6.1% vs. Exp. -1.8% (Prev. 5.1%)

UK/EU

• UK General Election polling: Half the polls out show a maintenance in the Tory/Labour spread and the other half a slight narrowing (5-12pp range)
• UK Election Survation poll showed Conservatives at 45% (Unch), Labour 34% (+3), Lib Dems 9% (-2), Brexit Party 3% (-1) taken December 10th-11th. (Newswires)
• UK Election Savanta/ComRes poll showed Conservatives at 41% (Unch.), Labour 36% (+3), Lib Dems 12% (Unch.), Brexit Party 3% (Unch.) taken December 9th-10th. (Newswires)
• UK Election Panelbase poll showed Conservatives at 43% (Unch.), Labour 34% (Unch.), Lib Dems11% (-2) Brexit Party 4% (+1) taken December 10th-11th. (Newswires)
• UK Election Kantar poll showed Conservatives at 44% (Unch.), Labour 32% (Unch.), Lib Dems 13% (-2), Brexit Party 3% (+1) taken December 9th-11th. (Newswires)
• UK Election BMG/Independent poll showed Conservatives at 41% (Unch.), Labour 32% (Unch.), Lib Dems 14% (Unch.), Brexit Party 4% (Unch.) taken December 6th-11th. (Newswires)
• UK Election Deltapoll poll showed Conservatives at 45% (+1), Labour 35% (+2), Lib Dems 10% (-1), Brexit Party 4% (+1) taken December 9th-10th. (Newswires)

UK RICS Housing Survey (Nov) -12 vs. Exp. -5.0 (Prev. -5.0). (Newswires)

ECB said that its Governing Council does not object to the appointment of Germany's Isabel Schnabel to the board. (Newswires)

Spain's King Felipe has asked PM Sanchez to form a government to end the political deadlock, PM Sanchez has accepted the invitation to do so. Sanchez is to meet the leaders of all other political parties next week. (Newswires) 

FX

In FX markets, the DXY remained subdued and eyes a breakdown of the 97.00 level following the FOMC and press conference where Fed Chair Powell provided dovish comments on inflation and suggested a prerequisite of persistent increases to inflation before a rate hike. This benefitted the greenback’s major counterparts in which EUR/USD surged above 1.1100 but was stopped short by resistance ahead of 1.1150 and its nearby 200DMA at 1.1155, while GBP/USD prodded above 1.3200 ahead of today’s general election in which the latest polls suggested PM Johnson’s Conservatives remain ahead of the Labour Party albeit by a varied margin of between 5-12 points. Elsewhere, JPY-crosses were higher although USD/JPY was subdued in the aftermath of the FOMC which antipodeans also benefitted from, with AUD/USD further helped by technical buying following a breakout from the 12-month downtrend line. Meanwhile, other regional currencies also took their swipe at the greenback in which USD/HKD extended on this week’s slide to briefly below the 7.8000 level to print a 6-month low.

Brazil Central Bank cut the Selic rate by 50bps to 4.50% as expected via unanimous decision and stated the economic recovery is gaining steam but current stage of the cycle warrants caution in its next steps. BCB added it sees two-way risks to inflation and that stimulative policy is still required but noted that data shows the economy has gained traction from Q2 onwards and it assumes recovery will continue at a gradual pace. (Newswires)

Israel’s Parliament approved a motion to conduct a new national election on March 2nd, which will be the 3rd election in less than a year. Recent polling suggests that neither of the two main parties (Blue & White and Likud) would achieve a 61-seat majority. (Newswires/BBC)

COMMODITIES

Commodities were relatively quiet with WTI crude futures flatlining just below the USD 59.00/bb level as oil prices consolidated from the prior day’s swing where initial pressure had been triggered by a surprise build in EIA crude inventories, before prices retraced the downside given that it was still at a narrower build than the prior day’s API. Nonetheless, the energy complex has since kept to within a tight range, with the somewhat varied overnight sentiment also keeping prices in check. Elsewhere, gold found mild support as the greenback weakened post-FOMC owing to Fed Chair Powell’s precondition for a persistent rise in inflation before hiking rates, while copper gradually extended on this week’s gains and home sin on the USD 2.80/lb level.

GEOPOLITICS

US warned North Korea of consequences if it carries out threats of a spectacular weapons test in the new year but added it will be flexible if it stays in talks. (Guardian)

US 

The TPLEX made gains on Wednesday, working off a weaker Dollar and extending after the FOMC rate decision. As the dollar weakened heading into the US session, the yields followed suit, with the curve initially bull-flattening, although, after the FOMC stood pat and abated any expectations of a hawkish tilt, the short-end caught up, with yields settling across the curve by approximately 4bps. US T-note (H0) futures settled 11+ ticks higher at 129-09.

USTR Lighthizer is expected to brief Republican Senators regarding USMCA during lunch today after many GOP Senators were said to have complained of being in the dark on the deal the White House struck with Democrats. (Newswires)