• FOMC expects it will soon be appropriate to raise the target range with bond-buying to end in March
• Fed Chair Powell did not rule out raising interest rates at every FOMC meeting
• All major US indices finished lower and APAC equity markets sold off following the FOMC and hawkish Fed Chair Powell comments
• European futures are indicative of a weaker open with the Eurostoxx 50 future lower by 2.4%
• DXY printed YTD highs with G10 peers all softer against the greenback ahead of the European session
• US ambassador to Russia delivered Washington's response to Russia's security demands
• Looking ahead, highlights include German GFK Consumer Sentiment, SARB rate decision, US durable goods & GDP, PCE prices and IJC, US 7yr supply. Earnings from Altria, McDonalds, Visa, Apple, Deutsche Bank, SAP, UniCredit, LVMH

FOMC

• FOMC left rates unchanged as expected through a unanimous decision and expects it will soon be appropriate to raise the target range, while it will bring bond-buying to an end in early March (unchanged) and released principles for reducing size of balance sheet.
• FOMC agreed it is appropriate at this time to provide information regarding its planned approach for significantly reducing the size of the Federal Reserve's balance sheet and expects that reducing the size of the Federal Reserve's balance sheet will commence after the process of increasing the target range for the federal funds rate has begun.
• Fed Chair Powell said it is not possible to predict with much confidence the path of the policy rate but stated the Fed has lots of room for hikes without limiting the expansion of the labour market and did not rule out raising interest rates at every FOMC meeting, according to Bloomberg. They will make the decision on whether to raise rates at the March meeting in which the Committee is of a mind to raise rates in March.
• Powell responded that they have not made decisions on that yet when asked about larger than 25bp hikes and said it is time to stop asset purchases and then at an appropriate time, shrink the balance sheet with a substantial amount of shrinkage in the balance sheet to be done, while they will have another discussion on balance sheet at the next meeting and at least one meeting after that, according to Reuters.

US TRADE

• All major US indices finished lower and wiped out initial gains following the FOMC and hawkish Fed Chair Powell comments.
• S&P 500 (-0.2%) wiped out gains of more than 2%.
• Nasdaq (Unch.) was flat amid strength in the semiconductor index and upside in Microsoft post-earnings.
• Russell 2000 (-1.4%) lagged peers

APAC TRADE

EQUITIES

• APAC markets sold off with risk appetite hit as the region digested the hawkish FOMC meeting.
• Nikkei 225 (-3.1%) suffered losses of more than 3% and with the index down more than 10% from January highs.
• KOSPI (-3.3%) was mired by another North Korean launch and with Samsung Electronics dwindling post-earnings.
• Hang Seng (-0.3%) and Shanghai Comp. (+0.7%) declined amid a slowdown in Chinese Industrial Profits and with the CSI 300 Index slipping into bear market territory after falling 20% from its February 2021 peak, while developers are hit including Evergrande as investors will have to wait six months for an initial restructuring plan.
• US equity futures remained pressured during Asia trade with the E-mini S&P -1.6% back below 4,300. European futures are indicative of a weaker open with the Eurostoxx 50 future down by 2.4% after the cash market closed higher by 1.7% yesterday.

FX

• DXY climbed above 96.50 in the aftermath of the FOMC meeting
• EUR/USD declined firmly beneath 1.1300 as the greenback’s major counterparts gave way following Powell’s hawkish comments.
• GBP/USD fell below 1.3450 as PM Johnson’s government remains on edge with the Sue Gray report seen to be delayed to next week.
• USD/JPY little changed with some of the recent USD-driven advances in the pair offset by the downbeat mood.
• Antipodeans extended on losses despite New Zealand CPI printing its highest reading in 31 years, while a recent poll that showed median forecasts for the first RBA hike in November also did little to stem the downturn.

FIXED INCOME

• 10-year USTs fell beneath 128.00 with the 10yr US yield around the 1.85% mark
• 10-year JGBs suffered from spillover selling and following weaker demand at the 2yr JGB auction.
• Bunds retreated below 170.00.
• Rates markets implied a 30bps hike at March FOMC (26bps prior to Jan FOMC, further increasing odds of a 50bps liftoff), and 113bps of hikes by the December FOMC (100bps prior).

COMMODITIES

• WTI and Brent crude futures weakened amid the risk aversion and firmer dollar.
• Spot gold extended on post-FOMC losses.
• Copper was pressured as risk assets slumped.
• China Gold Association said 2021 gold consumption increased 36.5% Y/Y to 1,220.9 tons and gold output rose 10.0% Y/Y to 329.0 tons, according to Bloomberg.

CRYPTO

• Crypto markets declined amid broad weakness in risk assets.

NOTABLE APAC HEADLINES

GEOPOLITICS

US ambassador to Russia delivered Washington's response to Russia's security demands. US Secretary of State Blinken said the document includes concerns the US and allies have raised and the responses reflect the US is open to dialogue and prefers diplomacy but will not release the document publicly and it remains up to Russia to decide how to respond, while they are ready either way, according to Reuters.

• US Secretary of State Blinken spoke with China's Foreign Minister Wang Yi and underscored global security and economic risks posed by further Russian aggression against Ukraine, according to Reuters.
• UK is considering deploying hundreds of troops to eastern Europe amid Russian threat to Ukraine, according to The Telegraph.
• French Presidential Official said they received commitment by Russia to re-engage in Normandy talks which will be at a political adviser level, while Russia's Kozak said Ukraine talks in Paris agreed that a ceasefire in Eastern Ukraine should be observed but many issues remain unsolved, according to Reuters.
• Russian envoy sees Iran the nuclear deal being reached by the end of February and said the Iran oil embargo will be lifted under the deal, while a new Iran deal could start by April, according to Reuters.
• North Korea fired an unidentified projectile towards the East Sea, according to Yonhap, while the South Korean military said the launch is presumed to be ballistic missiles, while Reuters reported the US State Department condemns North Korea's missile tests.

NOTABLE US HEADLINES

• Nomura forecasts Fed to hike by 50bps in March and then 25bps in May, June, July and December

RBNZ Q4 Sectoral Factor Model Inflation Index YY (Q4) 3.2% (Prev. 2.7%)

New Zealand CPI YY (Q4) 5.9% vs. Exp. 5.7% (Prev. 4.9%)

New Zealand CPI QQ (Q4) 1.4% vs. Exp. 1.3% (Prev. 2.2%)

Chinese Industrial Profit YY (Dec) 4.2% (Prev. 9.0%)

Data Recap

China is said to weigh breaking up Evergrande (3333 HK) to contain the situation, according to Bloomberg.

EU is to launch WTO case against China over Lithuania row, according to SCMP.

White House Press Secretary said President Biden wants to sign China competition bill as soon as possible, according to Reuters.

China's profit growth dropped significantly in last two months of 2021 and downstream industries, especially SMEs remain under great operating pressure, while it added that a number of loss-making enterprises is still large and the industrial economy still faces many challenges this year, according to the NBS.

PBoC injected CNY 200bln via 14-day reverse repos with the rate at 2.25%, according to Reuters.