• FOMC left rates and pace of asset purchases unchanged, whilst making no mention of the SLR in its statement
• The median dot plot projections still forecast no rate hikes through end-2023
• The FOMC release spurred the S&P 500 and DJIA to fresh record highs and provided a constructive backdrop for the Asia-Pac region
• The DXY slipped below 91.50, lifting EUR/USD above 1.1950, GBP/USD sits on a 1.39 handle and USD/JPY lost 109 status
• Netherland's PM Rutte is set for a 4th term and stated he is looking to form a new government quickly following an overwhelming election win
• Looking ahead, highlights include Norges Bank, CBRT, BoE rate decisions, US IJC, Philadelphia Fed Business Index, Japanese CPI, ECB's Lagarde, de Guindos, Schnabel, Norges Bank's Olsen, BoE's Cunliffe, Haldane, Fed Chair Powell, ECB TLTRO, supply from Spain, France & the US

FOMC

FOMC kept the Fed Funds Rate at 0-25bps and IOER at 10bps, while QE was unchanged at USD 120bln per month with a unanimous vote in favour of policy. There was no mention of SLR in the statement although it was reported the NY Fed raised its RRP facility limit to USD 80bln from 30bln "reflecting growth and evolution of funding markets". The Fed reiterated its commitment to use a full range of tools to support the economy and stated that overall financial conditions remain accommodative reflecting measures to support the economy and the flow of credit to US households, while indicators of economic activity and employment have turned up recently following a moderation in the pace of the recovery. (Newswires)

The median dot plot projections still forecast no rate hikes through end-2023, but four officials now project a hike in 2022 (vs one in December) and seven officials see a hike in 2023 (vs. five in December). Of note, rate markets fully price in the first rate hike by June 2023 and just two hikes for 2023 vs. 3 hikes priced in for 2023 prior to the meeting.

Median forecasts (vs. December):

• Real GDP: 2021 at 6.5% (4.2%), 2022 at 3.3% (3.2%), 2023 at 2.2% (2.4%), long run at 1.8% (1.8%)
• Unemployment Rate: 2021 at 4.5% (5.0%), 2022 at 3.9% (4.2%), 2023 at 3.5% (3.7%), long run at 4.0% (4.1%)
• Inflation: 2021 at 2.4% (1.8%), 2022 at 2.0% (1.9%), 2023 at 2.1% (2.0%), long run at 2.0% (2.0%)

Fed Chair Powell stated at the presser that some of the very worst economic outcomes have been avoided but no one should be complacent, and they will continue to provide support as long as needed. Powell stated that ongoing vaccinations offer the hope of return to more normal conditions later this year although noted that the economic recovery is uneven and far from complete with the path ahead uncertain, while he added that one-time increases in prices are likely to have only a transient impact on inflation.

Fed Chair Powell stated during Q&A that it is not time to start talking about tapering and reiterated that they need to see actual progress to meet "substantial further progress" and will want to provide as much advance notice of taper as possible. Powell also said they will have something to announce on leverage ratio (SLR) in the coming days but didn’t go into any further details, while he said the SEP is not a committee forecast and does not represent Fed's reaction function. Furthermore, he said that they have laid out clear guidance on lift off, that the state of the economy in 2-3yrs is highly uncertain and they would not want to focus on a potential rate increase that far in the future.

CORONAVIRUS UPDATE

UK government's vaccines task force notified the NHS of a significant reduction in supply from manufacturers in the week commencing 29th March, according to a NHS journal. There were also comments from UK Health Minister Hancock following the reports of the vaccine shortfall, in which he stated that vaccine supply is always lumpy and they are on target to meet the 15th April date for vaccinating top priority groups. (Newswires)

Pfizer (PFE) and AstraZeneca (AZN LN) denied there was a coronavirus vaccine shortage and said they are on track to fulfill delivery commitments despite the NHS warning of vaccine shortages for April. (Sky News)

ASIA

The FOMC spurred the S&P 500 and DJIA to fresh record highs and provided a constructive backdrop for the Asia-Pac region. That said, the ASX 200 (-0.7%) failed to take advantage of this with the index dragged amid weakness across tech, financials, healthcare and property, while a blockbuster jobs report did little to spur the risk appetite in Australia. Nikkei 225 (+1.0%) reclaimed the 30k status amid favourable currency flows and as Japan makes final preparations to end the Tokyo state of emergency on Sunday, although the index then pared some of its gains after reports suggesting the BoJ is to widen the yield target band to +/- 25bps and scrap its JPY 6tln target for ETF purchases. Hang Seng (+1.2%) and Shanghai Comp. (+0.4%) were both positive but with gains in the mainland somewhat limited after China lowered the bar on expectations ahead of the US-China meeting in Alaska and stated it will not compromise with the US on sovereignty. It was also reported that the US Commerce Department served subpoenas on multiple Chinese companies that provide information and communications technology or services in the US and the FCC voted to adopt procedures to determine whether to revoke China Unicom’s authority to conduct wireless operations in the US. Finally, 10yr JGBs were initially stable as participants looked ahead to tomorrow’s BoJ conclusion, but then saw a bout of pressure on reopen from the lunch break following the source reports that the BoJ is to widen the yield target band and drop its ETF target which saw prices move lower by around 30 ticks before paring a majority of the losses.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4859 vs exp. 6.4871 (prev. 6.4978)

China is to propose lifting of Trump policies in US-China meeting in Alaska and will propose Biden-Xi virtual meeting during April climate summit, while Chinese officials also plan to propose re-establishing regular high-level meetings between the 2 countries and plan to propose the creation of a vaccine passport as proof of immunization, according to sources. In relevant news, it was also reported that China does not have high expectations concerning the meeting with the US and will not compromise with the US on sovereignty. (Newswires/WSJ)

Chinese Foreign Ministry spokesperson said China firmly opposes and strongly condemns US sanctions on 24 Chinese mainland and Hong Kong officials regarding Hong Kong's electoral reform, while China has taken countermeasures. (Global Times)

US Commerce Department served subpoenas on multiple Chinese companies that provide information and communications technology and services in the US, while it stated that unrestricted use of "untrusted" Chinese communications technology services poses a national security risk. (Newswires)

BoJ is said to widen the target yield band to +/-25bps to from the current +/-20bps and scrap the JPY 6tln ETF target but pledge to conduct such purchases during when markets are turbulent, according to sources. (Nikkei)

UK/EU

Netherland's PM Rutte is set for a 4th term and stated he is looking to form a new government quickly following an overwhelming election win. According to an IPSOS exit poll, Dutch PM Rutte's VVD party is set to win 36 seats (prev. 33) and coalition partner D66 will become second largest party with 27 seats (prev. 19), while other coalition partner CDA is set to win 14 seats (prev. 19) and CU is set to win 4 seats (prev. 5 seats). (Newswires)

FX

In FX, the DXY declined below 91.50 following the dovishly-perceived FOMC announcement. EUR/USD surged above 1.1950 on the back of the dovish Fed and with Dutch PM Rutte on track for a 4th term, while GBP/USD was steady as focus for the currency turns to the upcoming BoE policy announcement. Elsewhere, USD/JPY fluctuated with initial gains reversed on reports that the BoJ will widen the yield target band, while antipodeans held on to their gains against the greenback with AUD/USD helped by a blockbuster jobs report in which Employment Change topped estimates at 88.7K vs exp. 30.0K and the Unemployment Rate dropped to 5.8% from 6.4%, while weaker than expected New Zealand GDP data did little to dent the NZD. In EM, the BCB raised the Selic Rate for the first time in 6 years and by a larger than expected amount of 75bps (exp. +50bps) amid ongoing inflation concerns and weak currency with the central bank also signalling a similar hike at the next meeting.

Brazil Central Bank raised the Selic Rate to 2.75% vs. Exp. 2.50% (Prev. 2.00%) through unanimous decision, while it stated the committee forecasts another 75bps hike at the next meeting unless there is a significant change in inflation projections or balance of risks. Furthermore, it stated that it initiated a partial normalization process in reducing the extraordinary extent of monetary stimulus and that persevering with economic reforms is essential for a sustainable rebound, while it added that current inflation shocks are temporary but will continue to observe how they evolve and that uncertainty regarding economic growth remains larger than usual especially for Q1 and Q2 this year. (Newswires)

• Australian Employment (Feb) 88.7k vs. Exp. 30.0k (Prev. 29.1k)
• Australian Full Time Employment (Feb) 89.1k (Prev. 59.0k)
• Australian Participation Rate (Feb) 66.1% vs. Exp. 66.2% (Prev. 66.1%)
• Australian Unemployment Rate (Feb) 5.8% vs. Exp. 6.3% (Prev. 6.4%)
• New Zealand GDP (Q4) Q/Q -1.0% vs. Exp. 0.1% (Prev. 14.0%, Rev. 13.9%)
• New Zealand GDP (Q4) Y/Y -0.9% vs. Exp. 0.5% (Prev. 0.4%, Rev. 0.2%)

COMMODITIES

WTI crude futures were subdued beneath the USD 65.00/bbl level as prices remained in consolidation mode after the latest IEA Oil Market Report kept its global oil demand forecast steady this year at an increase of 5.5mln bpd to a total 96.5mln bpd, and although the latest DOE crude inventories showed a narrower than expected build, this was still at a contrast to the surprise drawdown in the private sector data. Gold prices held on to post-FOMC gains around the USD 1750/oz level, while copper failed to benefit from the mostly constructive risk tone and instead gradually retraced the prior day's advances.

GEOPOLITICAL

North Korea said the US attempted to initiate contact multiple times recently by emails and telephone messages, but it will disregard US attempts for contact until hostile policies are dropped. Furthermore, North Korea said it has only heard lunatic theory of threats and complete denuclearisation from the new US administration, while it will respond to power with power and to goodwill with goodwill. (Newswires/KCNA)

US Secretary of State Blinken said President Biden is to complete North Korea policy review in the approaching weeks and that we're committed to denuclearization of North Korea, while he added the US will consider pressure and diplomatic options regarding North Korea and stated that China aggression in the region poses a challenge but also called on China to play a role in convincing North Korea to pursue denuclearization. (Newswires)

US reportedly warned China it will enforce sanctions on Iran oil shipments as shipments from the Islamic regime to China have soared, according to a senior US official. (FT)

US said steps to remove Turkish parliament member Gergerlioglu from his parliamentary seat is troubling and efforts to dissolve the Pro-Kurdish People's Democratic Party undermines democracy in Turkey. (Newswires)

Russian Foreign Ministry called its ambassador to the US back to Moscow for consultations over the future of US-Russia ties after US President Biden's comments on Russian President Putin. (Newswires)

US

The Treasury curve was ultimately mixed after the Fed dot plots pushed back on early rate-hike pricing, while Powell asserted the Fed's willingness to see a realized inflation overshoot. At pixel time, 2s -1.8bps at 0.133%, 5s -4.2bps at 0.782%, 10s +1.3bps 1.636%, 30s +4bps at 2.432%. Inflation breakevens widened at the long-end, whilst little changed at the front. Eurodollar futures now show the first hike fully priced in by June 2023 (prev. Dec'22/Mar'23) and just two hikes priced in for 2023 (prev. three before today's meeting). On the release of the FOMC statement and SEPs, there was some choppy behaviour, although the curve generally steepened as the front-end saw some strength as the Fed's median dot plot continued to signal no hikes through 2023. IFR noted that hedge funds had been sellers on the uptick in the long end, with real money lifting intermediate cash, while trading accounts entered steepeners. There was no reference to the SLR at the time of the rate decision, but Powell in the Q&A said that a decision would be announced in the coming days. In the front-end, the NY Fed raised the RRP facility limit to USD 80bln from 30bln, "reflecting growth and evolution of funding markets". There have been calls for the Fed to increase the cap on the RRP facility to ease front-end pressure in interest rates, where the flood of reserves has been pushing STIRs into negative territory. By raising the RRP cap, this should alleviate some of the downward pressure in overnight rates by providing more capacity for (eligible) participants to park cash at the NY Fed. T-note (M1) futures settled 4+ ticks higher at 132-03.

US Treasury said it has disbursed 90mln direct payments from US President Biden's coronavirus stimulus plan worth over USD 242bln and that recipients of the first batch of direct deposit payments now have full access to funds, while additional batches of payments will be sent in the coming weeks with the vast majority issued by direct deposit. (Newswires)

S&P Dow Jones Indices said the Index Committee increased the market capitalization eligibility criteria to USD 11.8bln from USD 9.8bln for the S&P 500. (PR Newswire)