• The Fed kept rates unchanged, enhanced guidance and refrained from extending the weighted average maturity of purchases
• Asian equity markets gradually shrugged off the early indecision following a mixed lead from Wall Street as markets digested the FOMC meeting
• As an adjustment to the WAM was seen to be a coinflip, this resulted in some unwinding of dovish bets before Fed Chair Powell reaffirmed a firm dovish stance at the presser
• Participants continue to await any breakthrough in Capitol Hill with negotiators reportedly closing in on a USD 900bln COVID-19 aid bill
• The DXY was subdued and briefly dipped below 90.00 for the first time since April 2018
• Looking ahead, highlights include BoE, SNB, Norges, CNB, Indonesia & Banxico rate decisions, EZ CPI (final), US building permits, housing starts, IJC, Philadelphia Fed, Japanese CPI, NZ trade, ECB's Schnabel, de Guindos

FOMC

FOMC kept Fed Funds Rate unchanged at 0.00%-0.25% and IOER at 0.10% as expected, while it extended its swap lines and repo facility for foreign and international monetary authorities through September 30th, 2021. Fed maintained asset purchases at current pace with a new guidance of “until substantial further progress has been made on maximum employment and price stability goals”, while it notably refrained from extending the weighted average maturities of its purchases (it was 50/50 going into the meeting), with some analysts suggesting that a January decision may be more appropriate, allowing the Fed to see how the pandemic's resurgence and fiscal stimulus plays out. (Newswires)

Fed maintained its Fed Funds Rate projections at current levels through to 2023 and the longer run at 2.5%. Just one FOMC member expects a rate hike in 2022, five look for a hike in 2023. Real GDP growth forecasts were upgraded for 2020-2022 but downgraded for 2023 and the longer run. Fed also lowered unemployment rate projections through to 2023 and the core inflation profile was lowered in 2020 but upped for 2021 and 2022.

Fed Chair Powell stated at the press conference that updated guidance will ensure monetary policy will provide powerful support to the economy but noted the recovery has moderated in recent months and the next few months are likely to be very challenging with surge in cases particularly concerning. Furthermore, he stated the Fed has the flexibility to provide more accommodation and no one should doubt that it won't provide accommodation until the job is well and truly done, while he responded they could up asset purchases and target them more at the long-end when asked what more the Fed could do.

CORONAVIRUS UPDATE

US COVID-19 cases +201,776 (prev. +204,748) and deaths +2,960 (prev. 1,766), while a major newswire tally stated US cases rose by at least 232,255 to a total of 16.92mln and deaths rose by at least 3,580 to a total of 307.8k which was a record daily increase. New York COVID-19 cases +9,998 (prev. +10,353), hospitalisations 6,097 (prev. 5,982), case positivity rate 6.21% (prev. 5.33%), deaths +95 (prev. +128). (Newswires)

US VP Pence is reportedly to receive a televised a vaccination on Friday, while other reports noted that President-elect Biden is expected to get a vaccine shot next week. (Axios/CNN)

FDA said the Pfizer (PFE) vaccine holds extra doses and that pharmacists have found a way to squeeze extra doses out of vials which potentially expands the nation's scarce supply by 40%. In other news, an Alaska health worker reportedly had a serious allergic reaction to the Pfizer vaccine, while the Co. stated it doesn't have all details from the Alaskan individual who had an allergic reaction but will closely monitor all reports suggestive of serious allergic reactions. (Politico/NYT)

Novavax (NVAX) announced a deal to supply New Zealand with 10.7mln doses of COVID-19 vaccines and will work with New Zealand regulatory agency to obtain product approvals. (Newswires)

Tokyo raised its virus alert status to the highest level and infections in the city increased by over 800 for a new record daily increase. There was separate news the Japanese government report on Fujifilm's (4901 JT) Avigan drug for COVID-19 treatment concluded it is difficult to judge the efficacy and health authorities are likely to make a final decision whether to approve it on December 21st. (Nikkei/Kyodo)

WHO-led international mission expected to go to China in early January to probe coronavirus origins, according to diplomats. (Newswires)

ASIA

Asian equity markets gradually shrugged off the early indecision following a mixed lead from Wall Street as markets digested the FOMC meeting where the Fed kept rates unchanged, enhanced its guidance and refrained from extending the weighted average maturity of purchases. As a potential adjustment to the WAM was seen to be a coinflip, this resulted in some unwinding of dovish bets before Fed Chair Powell reaffirmed a firm dovish stance at the presser, while participants also continue to await any breakthrough in government spending and COVID-19 relief discussions with negotiators reportedly closing in on a USD 900bln COVID-19 aid bill. ASX 200 (+1.2%) was higher with gains led by strength in tech which found inspiration from the outperformance of the sector stateside, while miners and financials also notched respectable gains, with the overall mood further underpinned by strong jobs data. Nikkei 225 (+0.2%) was indecisive as exporters contended with the recent fluctuations of the domestic currency and the KOSPI (-0.2%) lagged as record daily new COVID-19 infections added to the drag on the index which pulled back from near all-time highs. Hang Seng (+0.3%) and Shanghai Comp. (+0.9%) eventually conformed to the mostly constructive tone although price action was initially choppy after a neutral PBoC liquidity operation and with the latest headlines continuing to underscore tensions surrounding China as USTR Lighthizer suggested that President-elect Biden should insist China stick to the Phase 1 trade deal and US SEC announced that Chinese coffee company Luckin Coffee agreed a USD 180mln fine to settle accounting fraud charges. Finally, 10yr JGBs were rangebound and languished near support at 152.00 with price action hampered by indecision in Japanese stocks and as the BoJ kick starts its 2-day policy meeting.

PBoC injected CNY 10bln via 7-day reverse repos at a rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.5362 vs exp. 6.5414 (prev. 6.5355)

USTR Lighthizer said President-elect Biden should insist China stick to the Phase 1 trade deal and use dispute system to resolve conflicts, while he added any easing of China tariffs shows US is not serious about treating Beijing as a strategic rival. Lighthizer also stated the Phase 1 deal implementation is good in some parts but not good in others and that any US-EU deal on ending aircraft subsidies should allow joint action to oppose future Chinese subsidies. (Newswires)

US stated that China's military declined to participate in a slated virtual meeting with US military counterparts, while a US admiral said the decision is another example that China doesn't honour its agreements. (Newswires)

US SEC said Chinese coffee company Luckin Coffee agreed to pay USD 180mln fine to settle accounting fraud charges. (Newswires)

UK/EU

UK PM Johnson said we expect discussions will continue over the coming days and that Parliament could be recalled next week to ratify a deal if there is one. (Newswires)

UK House of Commons will begin Christmas holidays on Thursday but will be recalled if there is a trade deal with reports noting that Leader of the House of Commons Jacob Rees-Mogg is to announce that MPs will be sent home for Christmas on Thursday but can be recalled with 48 hours’ notice. (Newswires)

Brussels said UK side is going "so slowly" in the trade deal negotiations, but it isn't clear whether it is dragging its feet deliberately or just being careful. (Newswires)

UK and US signed a customs agreement to ensure continued free trade. (Newswires)

ECB's Villeroy said the ECB stands ready to use all its instruments to offset the negative impact of the exchange rate on inflation. (Newswires)

ECB's Weidmann said PEPP expansion risks weakening market discipline for governments and that ECB must be wary of becoming the dominant market player. (Newswires)

German Ambassador to US Haber said US-EU dispute over aircraft subsidies should be resolved quickly, especially given the harmful impact of pandemic on aircraft manufacturers. (Newswires)

FX

In FX markets, the DXY was subdued and briefly dipped below 90.00 for the first time since April 2018 in a continuation of its recent slide and amid ongoing stimulus hopes, although there was some brief support following the FOMC meeting where the Fed refrained from an extension to the WAM of purchases which spurred an unwinding of the dovish bets, but this was short-lived as Fed Chair Powell stuck to a dovish tone at the press conference in which he noted the next few months are likely to be very challenging and that no one should doubt the Fed won't provide accommodation until the job is well and truly done. EUR/USD was choppy with the single currency largely influenced by the USD fluctuations and following mixed comments from central bank officials in which ECB's Villeroy stated they stand ready to use all instruments to offset the negative impact of the exchange rate on inflation, while ECB’s Weidmann warned of the risks associated with an expansion to PEPP. GBP/USD was higher and reclaimed the 1.3500 handle but with recent price action turbulent as participants continued to hang on Brexit discussions which are said to have a way to go. USD/JPY retreated beneath 103.50 again owing to the softer USD and antipodeans were mildly underpinned by data after Australian jobs data topped estimates with Employment Change at 90.0k vs exp. 50.0k and Unemployment Rate at 6.8% vs. Exp. 7.0%, while New Zealand Q3 GDP Q/Q rose by a record 14.0% vs. Exp. 13.5% which alongside comments from New Zealand Finance Minister Robertson that there was no great discomfort from level of NZD/USD, helped pushed the currency to its highest since early 2018.

Australian Treasurer Frydenberg said the economy is rebounding strongly and bottom line has improved but the road ahead is very challenging, Frydenberg stated trade issues with China are very serious and they are working hard to diversify export markets although they still expect resource exports to increase 5% in FY21/22 despite China's actions. Furthermore, they expect FY21 real GDP at 4.50% vs prev. forecast 4.75% and FY21 budget deficit at AUD 197.7bln vs prev. forecast 213.7bln, while they expect unemployment to peak at 7.5% in March quarter vs prev. forecast of 8% in June quarter and anticipates unemployment to return to pre-COVID levels in 4 years. (Newswires)

New Zealand Finance Minister Robertson said there is no great discomfort from level of NZD but noted unease on debt to income ratios, while he added the economy is stronger than expected which is reflected in NZD gains. (Newswires)

• Australian Employment Change (Nov) 90.0k vs exp. 50.0k (prev. 178.8k)
• Australian Unemployment Rate (Nov) 6.8% vs exp. 7.0% (prev. 7.0%)
• Australian Participation Rate (Nov) 66.1% vs exp. 66.0% (prev. 65.8%)
• New Zealand GDP (Q3) Q/Q 14.0% vs exp. 13.5% (prev. -12.2%, Rev. -11.0%)
• New Zealand GDP (Q3) Y/Y 0.4% vs exp. -1.3% (prev. -12.4%, Rev. -11.3%)**

COMMODITIES

Commodities notched mild gains overnight as the risk tone gradually improved which helped WTI crude futures break back above USD 48.00/bbl with ongoing stimulus hopes, recent vaccine developments and a larger than expected draw in EIA headline crude inventories providing a tailwind for oil prices. Gold was sensitive to the choppy price action in the greenback post-FOMC but then recovered from an early wobble after Fed Chair Powell reaffirmed a firm dovish stance, while copper conformed to the mild gains across the complex as sentiment eventually improved throughout Asia trade.

GEOPOLITICAL

US Secretary of State Pompeo said US is imposing sanctions on Vietnam Gas and Chemical Transportation Corp. regarding transport of Iranian petroleum products. (Newswires)

US

Treasuries were little changed after a lack of Fed changes to its QE offset the risk aversion seen running up to the event. By settlement, 2s -0.2bps at 12.1bps, 10s +0.9bps at 93.0bps, 30s +1.2bps at 167.6bps; T-Note futures volumes were average; 5-year TIPS -7bps at -155.3bps (new record lows). Yields had entered the Wednesday how they left Tuesday (rising) just as did stocks alongside further positive noise around US stimulus and Brexit. Those pressures accelerated on reports that Congress was on the brink of a USD 900bln stimulus deal, with chunky selling reported in USTs across hedge funds, speculative accounts, and dealers; 10s and 30s cash yields clipped session highs of 95.5bps and 170.7bps, respectively. However, there was an element of "sell the news" in stocks, and Treasuries reversed their losses, with disappointing retail sales and NAHB index supporting the bid for the duration. Desks also noted that some players unwound steepening bets ahead of the FOMC amid some expectations for WAM extension. Those expectations ultimately did not come to fruition, with the Fed maintaining its current asset purchases (with some extra "forward guidance"), seeing an initial spike higher in yields, although that move soon reversed for yields to sit (at pixel time) lower than before the announcement. Participants now look to Thursday's 20-year bond refunding announcement, coming at a time when market liquidity begins to thin out into year-end. T-note (H1) futures settled 1 tick higher at 137-28+.

US House Majority Leader Hoyer is hopeful that a relief deal can be done within 72 hours and was hoping to have an agreement on government spending last night but then later commented that another stopgap spending bill will be necessary, while there were comments from House GOP leader McCarthy that there are no meetings currently scheduled to discuss COVID-19 relief bill. (Newswires)

US GOP Senator Blunt thinks there is a good chance we can get a COVID relief and omnibus spending bill by Friday but added the leader said we should anticipate the possibility we could be here this weekend. There were also reports that GOP Senator Crapo wants a relief bill that prevents the renewal of Fed emergency lending facilities which run out at the end of the year, while other sources noted that stimulus talks hit snag over FEMA provision dispute. (Roll Call/Twitter)

US Senator Sanders said USD 600 stimulus cheque proposal is a step in the right direction. However, Sanders later said the proposal does not address the crisis in the way that it should and that there is simply not enough money in the proposal to deal with the unprecedented crises that we now face, while he added the bill has a lot in it that is good but given the enormity of the crisis, it simply does not go anywhere far enough. (Newswires/CNN/Fox)