• Fed hiked rates by 50bps as expected and will begin trimming its balance sheet on June 1st.
• Powell said 50bps increases should be on the table at the next couple of meetings and that a 75bps increase is not something they are actively considering.
• APAC stocks traded positively following the strong handover from Wall St.; SPX +2.97%.
• European equity futures are indicative of a stronger open with Eurostoxx 50 +2.4% after the cash market closed lower by -1.0% yesterday.
• DXY was subdued after being dragged lower in the aftermath of the FOMC, EUR/USD is back on a 1.06 handle.
• Looking ahead, highlights include German Industrial Orders, OPEC+, BoE & Norges Bank Policy Announcements, Speech from ECB's Lane, Supply from Spain & France.
• Earnings from Stellantis, UniCredit, AXA, Airbus, Deutsche Lufthansa, Credit Agricole, Barratt Developments, Swiss Re, Adecco & ConocoPhillips.

US TRADE

• US stocks ripped higher after the Fed's 50bps rate hike and lack of 75bps appetite in Fed Chair Powell's press conference.
• SPX +2.97% at 4,299, NDX +3.41% at 13,535, DJIA +2.82% at 34,061, RUT +2.53% at 1,949.
• Click here for a detailed summary.

FOMC

• Fed hiked rates by 50bps to between 0.75%-1.00%, as expected, via a unanimous decision and will start trimming the balance sheet on June 1st with the initial caps on reductions set at USD 30bln for Treasuries and USD 17.5bln for MBS before rising to USD 60bln and USD 35bln, respectively, after three months. Fed anticipates that ongoing increases in the target range will be appropriate and noted that although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. It also stated that inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.
• Fed Chair Powell said inflation is much too high and they are moving expeditiously to bring inflation down which is essential to keep a strong labour market and noted the labour market is extremely tight. Powell also said 50bps increases should be on the table at the next couple of meetings and that a 75bps increase is not something they are actively considering, while he added if they see what they expect to see, then it will be 50bps on the table at the next two meetings. Furthermore, he said they are raising rates expeditiously to a broad range and plausible levels of neutral but added there is no bright red line on what neutral is and they will not hesitate to go above neutral if required.

NOTABLE US HEADLINES

• US Treasury Secretary Yellen said she feels quite good about the strength of the US economy and that Q1 GDP is not a good read on the strength of the economy, while she added that consumer spending and business investment remain strong, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

DEFENCE/MILITARY/ASSISTANCE

• Ukrainian Interior Minister said they hope to reach a ceasefire agreement in the entirety of Mariupol with European or Turkish assistance, according to Al Jazeera. It was also reported that Russian forces had entered the territory of the Azovstal plant in Mariupol, while Nexta later noted that Ukraine and Russia agreed on a ceasefire from May 5th-7th in the territory of Azovstal, according to Nexta.

ENERGY/SANCTIONS/DIPLOMATIC

• Russian Foreign Ministry spokeswoman warned that Finland and Sweden will turn into an arena of confrontation between NATO and Russia if they join NATO, according to AJABreaking.

OTHER

• US condemned North Korea's recent missile launch and urged Pyongyang to engage in dialogue, while the State Department said the US may discuss the deployment of an additional THAAD system to South Korea, according to Yonhap.
• US State Department said the US is preparing equally for both scenarios of returning to the nuclear agreement with Iran or not reaching an agreement, according to Sky News Arabia

APAC TRADE

EQUITIES

• APAC stocks traded positively as the region reacted to the FOMC meeting where the Fed hiked rates by 50bps as expected and announced to begin reducing the balance sheet from next month, while Fed Chair Powell dispelled concerns of a more aggressive 75bps rate hike.
• ASX 200 was firmer with gold miners buoyed by higher prices and as the energy sector benefitted from the proposed Russian oil embargo.
• Hang Seng and Shanghai Comp were higher following the mainland’s return from the Labour Day holidays but with advances initially contained by several headwinds including an extension of COVID restrictions in Beijing, the deterioration in Caixin Services and Composite PMIs, while the US SEC added over 80 companies to its list for possible delisting and HKMA also hiked its base rate by 50bps in lockstep with the Fed.
• US equity futures plateaued overnight and held on to the gains from the post-FOMC relief rally.
• European equity futures are indicative of a stronger open with Eurostoxx 50 +2.4% after the cash market closed lower by -1.0% yesterday.

FX

• DXY was subdued after being dragged lower in the aftermath of the FOMC as Fed Chair Powell took prospects for a 75bps hike off the table and instead suggested the likelihood of 50bp increases for the next two meetings.
• EUR/USD benefitted from the dollar's demise, although price action quietened in Asia trade with the single currency flat on the session.
• GBP/USD faded some of its recent gains and fell beneath 1.2600, with attention in the UK shifting to the BoE and local elections.
• USD/JPY traded indecisively and oscillated around 129.00 with Japanese participants still away on holiday.
• Antipodeans held onto most of their recent gains but with upside restricted after mixed building approvals and trade data from Australia.
• Brazil's Central Bank raised the Selic rate by 100bps to 12.75%, as expected, while it left the door open to further monetary tightening at a slower pace and considered it appropriate to advance the process of monetary tightening significantly into even more restrictive territory. BCB also stated that inflationary pressures arising from the pandemic period have intensified due to problems related to the new COVID-19 wave in China and the Ukraine war, according to Reuters.

FIXED INCOME

• 10yr UST futures marginally pulled back following the post-FOMC bull-steepening which was spurred by Powell's 75bps rebuttal.
• Bunds were firmer in the aftermath of the FOMC.

COMMODITIES

• Crude futures held on to yesterday's spoils after prices rallied around 5% with the EU seeking to ban Russian oil.
• Norway's labour unions said initial wage talks with oil firms broke down and they will proceed with mediation, according to Reuters.
• Spot gold extended on gains and reclaimed the USD 1900/oz status following the recent pressure on the greenback.
• Copper was underpinned by the Powell-induced relief rally and as its largest purchaser, China, returned to the market.

CRYPTO

• Bitcoin was flat overnight with price action contained beneath the 40,000 level.

NOTABLE HEADLINES

• PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.10% for a CNY 40bln net daily drain.
• PBoC set USD/CNY mid-point at 6.5672 vs exp. 6.5695 (prev. 6.6177)
• HKMA raised its base rate by 50bps to 1.25%, as expected, following the earlier Fed rate hike, according to Bloomberg.

DATA RECAP

• Chinese Caixin Services PMI (Apr) 36.2 vs. Exp. 40.0 (Prev. 42.0)
• Chinese Caixin Composite PMI (Apr) 37.2 (Prev. 43.9)
• Australian Building Approvals (Mar) -18.5% vs. Exp. -12.5% (Prev. 43.5%, Rev. 42.0%)
• Australian Building Approvals (Mar) -18.5% vs. Exp. -12.5% (Prev. 43.5%)
• Australian Trade Balance G&S (A$) (Mar) 9314M AU vs. Exp. 8500.0M AU (Prev. 7457.0M AU)
• Australian Goods/Services Exports (Mar) 0% (Prev. 0%)
• Australian Goods/Services Imports (Mar) -5% (Prev. 12.0%)

UK/EU

NOTABLE HEADLINES

• UK PM Johnson insisted that Britain can manage the rising inflation and said it is in a better position to deal with surging inflation now than it was in the 1980s and 1990s, according to The Times.
• UK PM Johnson is reportedly to give discussions with the EU "one last chance" for a compromise regarding the Northern Ireland protocol before introducing legislation to overturn it, according to The Times.
• ECB's Panetta says the ECB could end the negative rate cycle after deciding when to conclude the APP in Q3, via Reuters citing a paper. Adds, would be incautious to act on rates before seeing Q2 data.