• FOMC hiked rates as expected, Fed Chair Powell provided an upbeat tone on the US economy, dot plots suggested no more hikes after 2020
• UK PM May is reportedly losing support for a no-deal Brexit if EU discussions fail, according to sources
• Recent reports suggest the Italian Government may postpone their 2019 budget plan meeting while the league are set to join 5SM in seeking a 2.4% deficit target
• Looking ahead, highlights include German regional and national CPIs, US GDP, Durables, Italian budget presentation and a slew of central bank speakers

FOMC

- FOMC hiked rates by 25bps to 2.00%-2.25% as expected via unanimous decision. The Fed removed the reference in its statement that policy is 'accommodative', while it stated it sees gradual hikes and that risks to the economy 'roughly balanced'.

- Aside from the “accommodative” removal, the statement was little changed and the dot plot showed rate hike projections were also unchanged from June, although the Fed's new 2021 dot estimated rates are to be between 3.25-3.50% which matches its 2020 projection. This hints that the FOMC has put an end date to its hiking cycle and suggests the FOMC does not intend to raise rates above its estimate of neutral (neutral rate estimates are between 2.50-3.50%).

- Core PCE inflation forecasts were unchanged across the board, while real GDP forecasts were raised for this year and next year to 3.1% (Prev. 2.8%) and 2.5% (Prev. 2.4%) respectively.

- At the press conference Powell noted dropping the 'accommodative' language is a sign that monetary policy is proceeding in line with expectations and does not signal rate path change. He also sees positive signs of a strong economy and that growth outlook remains favourable with fiscal stimulus boosting the economy; says gradual normalisation helping to sustain US economy.

- Furthermore, Powell noted that if inflation surprises to the upside, the Fed would have to move quicker but stressed he did not see that happening while he also added trade was a downside risk, though the effects of trade tensions have been relatively small so far.

- There was a mixed reaction to the FOMC which was initially perceived as dovish due to the dot plots which suggested no more hikes after 2020 and that the Fed will refrain from going above the neutral rate. However, the dollar then found support and stocks were pressured on Fed Chair Powell’s comments on the economy at the press conference which sounded upbeat about economic prospects and defined this as a particularly bright moment for the US economy.

ASIA

Asian stocks were indecisive following a lacklustre lead from Wall St. where the major bourses ended the day with losses after a mixed-perceived FOMC. ASX 200 (Unch) was subdued by a pullback in commodity names, while Nikkei 225 (-0.5%) swung between gains and losses at the whim of a choppy currency. Shanghai Comp (-0.4%) and Hang Seng (-0.4%) also flip-flopped with the region somewhat cautious as it digested the FOMC and a lock-step hike by the HKMA, while the PBoC skipped open market operations again for a net daily drain of CNY 60bln. Finally, 10yr JGBs tracked US Treasuries higher with prices also supported amid the BoJ’s Rinban announcement for JPY 880bln in JGBs across the curve before hitting resistance at 150.20.

HKMA hiked base raise by 25bps to 2.50% in lock-step with the Fed just as expected and said capital outflows will not have significant impacts on HK's money markets. Furthermore, Hong Kong Finance Secretary Chan said Hong Kong's super low rate environment could change and that rising interest rates could pose high risks for asset markets. (Newswires)

US President Trump suggested he is going to call Chinese President Xi on Thursday, while he added that the China tariffs have had no effect on the US economy. US President Trump also stated US is "winning big" in trade dispute with China, and that there is plenty of evidence of China meddling in upcoming US election. (Newswires)

PBoC skipped open market operations for a net daily drain of CNY 60bln. (Newswires)

PBoC set CNY mid-point at 6.8642 (Prev. 6.8571)

China Industrial Profits (Aug) Y/Y 9.2% (Prev. 16.2%) (Newswires)

UK/EU

UK PM May Spokesman said PM May and US President Trump agreed that Brexit provides a wonderful opportunity for an ambitious UK-US free trade deal. (Newswires)

UK PM May is reportedly losing support for a no-deal Brexit if EU discussions fail, according to sources. Sources suggest there are concerns that May will stick to her promise to force a no-deal Brexit if Europe rejects her Chequers plan again. (Times)

Italy Deputy PM Di Maio said Italy is about to approve citizen's income, while he added a new government meeting is needed on budget targets and there is still work to be done. (Newswires) Recent reports suggest the Italian Government may postpone their 2019 budget plan meeting and the league are set to join 5SM in seeking a 2.4% deficit target. (Corriere Della Sera)

FX

In FX markets, the greenback stabilised overnight from post-FOMC volatility, while EUR/USD was little changed and GBP/USD tested 1.3150 to the downside amid ongoing Brexit uncertainty. NZD/USD initially strengthened after a relatively upbeat RBNZ interest rate decision where the central bank kept rates unchanged and saw early signs of an increase in core inflation, while it also stated that the outlook for OCR assumes growth will pick up over the coming year. However, the gains were short-lived as the RBNZ reiterated that they expect to keep the OCR at the current level into 2020. Elsewhere, USD/CAD reached session highs after US President Trump said he rejected a one-on-one meeting with Canadian PM Trudeau and that US is not getting along at all with Canadian negotiators, although a Trudeau spokesman later denied he had requested a meeting.

RBNZ Cash Rate (Sep) 1.75% vs. Exp. 1.75% (Prev. 1.75%). The RBNZ reiterated it expects to keep OCR at this level into 2020 and that next move could be up or down, while it sees early signs of an increase in core inflation and outlook for OCR assumes growth will pick up over the coming year. (Newswires)

GEOPOLITICS

US President Trump said he does not want to get into a "time game" in regard to North Korea's denuclearisation. (Newswires)

Japanese and North Korean Foreign Ministers are said to have held talks, while it was also reported that China is to send a top official to North Korea in October. (Newswires)

Iran President Rouhani said Iran will remain in 2015 nuclear deal as long as it serves its interests. Separately, EU’s Foreign Affairs Minister Mogherini, when asked about timing for Special Purpose Vehicle for Iran trade, said 'I believe before November'. (Newswires)

 

COMMODITIES

Commodities were mixed overnight with a continuation of the upside in energy prices seen as Asia trade got underway in which WTI up over 1% and Brent breached USD 82.00/bbl following comments from US Energy Secretary Perry who stated the US is not consider the release of SPR reserves to lower oil prices. Elsewhere, gold eventually shrugged off the post-FOMC volatility and gained but remained below the USD 1200/oz level, while copper underperformed on the back of the indecisive risk tone.

US Energy Secretary Perry said the US is not considering release from strategic petroleum reserve to lower oil prices because the impact would be small and short-lived. (Newswires)

US

The Treasury complex was choppy around settlement, given the FOMC’s decision to lift rates, and amid the press conference with Chair Powell, who was generally upbeat, but cognizant of risks. Informa points out that ahead of the Fed chair’s press conference, Treasuries were bear-steepening, led by the belly, but sellers stepped in with block sales in TYZ8. Choppy trade continued through the end of Powell’s presser, which ultimately saw major curve spreads flattening, with 2s10s narrowing beneath its 50DMA, and 2s30s and 5s30s and 5s10s were capped by their 50DMAs. The FOMC rate decision has set the tone for Thursday’s 7-year auction, with analysts noting that the recent sell-off of Treasuries has lifted the 7s yield to above 3%, making the WI yield cheaper compared to the previous stop-out rate, which analysts say could provide support. In addition, Societe Generale says that any short-covering from the record net shorts from leveraged funds in the TY futures could also provide support, while the auction may also benefit from month-end extensions. The 7-year has also cheapened on the fly over the last fortnight vs 5s and 10s, which could be a positive. SocGen holds a slightly positive bias going into the auction. US T-note futures (z8) settle  9 ticks higher at 118-23+.

US President Trump said he rejected a one-on-one meeting with the Canadian PM and added the US is not getting along at all with Canadian negotiators. However, Canadian PM Trudeau spokesman later said Trudeau did not request a one-on-one meeting after (Newswires)

USTR Lightizer plans to publish text of the bilateral deal with Mexico on Friday, two days ahead of TPA deadline; Will likely leave Canada out but leave open possibility to join later. There were also reports USTR Lightizer plans to tell Congress that upcoming talks with Japan are just one item on a list of new negotiations and that he wants to submit notification for negotiations with the EU, Philippines and the UK, according to WSJ citing sources. In related news, the text of US-Mexico trade deal expected to be released today; the deal has been written to allow Canada to join later as according to sources. (Newswires/WSJ)

US House of Representative passed the USD 850bln spending bill, which avoids plans to shut the government on Sunday. (Newswires)