• The FOMC hiked by 75bps to 2.25-2.50%, as expected, taking rates back to neutral for the first time since 2019.
• A dovish reaction was seen across markets with Chair Powell signalling a meeting-by-meeting data-dependant approach going forward.
• US equity futures were subdued overnight as Meta fell 4.7%; Europe is set for a firmer open following Wall Street’s late rally.
• In FX, JPY was the clear outperformer with JPY-pairs breaching psychological levels, whilst DXY was pressured.
• Looking ahead, highlights include German State and National CPIs, US Q2 GDP Advance, Q2 PCE, US IJC, Biden-Xi call, supply from Italy and the US.
• Earnings from Barclays, Anglo American, Nestle, EDF, L'Oréal, Sanofi, EssilorLuxottica, Safran, Amazon, Apple, Intel, and more.

FOMC JULY MEETING

• The FOMC lifted rates by 75bps to 2.25-2.50%, as was expected, taking rates back to neutral for the first time since 2019. The only major tweak to the statement was its reassessment of the economy; the Fed now acknowledges that “recent indicators of spending and production have softened” (recall, it previously said that “overall economic activity appears to have picked up after edging down in the first quarter”). This change was to be expected given the softening in many key macro indicators.
• The statement offered no clues about what the Fed would do at its September meeting, but at his post-meeting press conference, Chair Powell was more explicit, stating that over the coming months, the Fed was looking for compelling evidence that inflation is coming down, and the pace of future rate hikes would depend on incoming data and the outlook for the economy. This essentially suggests that the Fed will be data-dependent, and act on a meeting-by-meeting basis, rather than flagging policy in advance.
• Powell did, however, say that another large rate hike could be appropriate at the next meeting and that the FOMC has not yet made a decision on the when to slow rate hikes. He also argued that the Committee wanted to get rates to moderately restrictive territory, which he suggested was between 3.0-3.5%. According to the June SEP, rates will be at this level by the end of this year (these forecasts will be updated in eight weeks' time, but Powell referred journalists to the June SEP when asked about his economic views).
• Chair Powell was quizzed on whether the US economy was in a recession; Powell seemed reticent to use the phrase, but reiterated that it was necessary to slow growth in order to create some slack in the economy, to allow the supply-side to catch-up; Powell also said that the slowdown in Q2 was notable, but the economy was still on track to grow this year, and demand was strong.

MARKET REACTION: The event was met with a dovish reaction, particularly in the wake of less forward guidance alongside a data-dependent approach – which allows flexibility for the Central Bank to ease off the tightening pedal should economic data improve, but Chair Powell warned the Fed will not hesitate to make a larger move if appropriate. Nonetheless, equities rallied to session highs before easing off best levels into the close, DXY slumped to 106.25. Spot gold rose to highs of USD 1,740/oz, whilst the reaction across 10yr UST futures was interesting - the September contract rallied to a 120-15+ peak from 120 before retracing the move. Money market pricing, which had expected rates at 3.4% by end-2022 before Powell spoke, had eased to around 3.3% as the Fed Chair was speaking - implying that a rate rise to 3.25% was fully priced, with around 20% probability that rates would be lifted to 3.25-3.5%.

Click here for Fed Chair Powell's statement

Click here for the full Newsquawk Snap Analysis

US TRADE

• US equities took encouragement from Microsoft and Google's earnings with the rally extending during the FOMC announcement and press conference
• US equity futures eased off best levels, whilst Meta shares fell 4.6%
• SPX +2.54% at 4,020, NDX +4.26% at 12,601, DJIA +1.37% at 32,197, RUT +2.06% at 1,842.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Meta Platforms Inc (META) Q2 2022 (USD): EPS 2.46 (exp. 2.59), Revenue 28.82bln (exp. 28.95bln), Advertising revenue 28.15bln (exp. 28.53bln). Outlook reflects continuation of weak advertising demand environment it experienced throughout Q2. Guidance assumes FX will be about a 6% headwind to Y/Y total revenue growth in Q3. Co. said the economic downturn will have a broad impact on digital advertising business, says the situation seems worse than it did a quarter ago. Shares fell 4.7% after-market
• US Senate Majority Leader Manchin and Senate Democratic leader Schumer's reconciliation bill will invest around USD 300bln in deficit reduction, USD 369.7bln in energy security and climate change. It will close tax loopholes on wealthy individuals and corporations. The bill will be submitted for parliamentary review on Wednesday; Senate will consider it next week, according to Reuters. US President Biden said he spoke today with Senate Majority Leader Schumer and Senator Manchin to offer support for the Inflation Reduction Act; urged for this to pass as soon as possible.
• US House Republican leadership will now whip against the CHIPS+ bill, urging lawmakers to vote against it after the reconciliation deal was announced, according to Punchbowl's Sherman.
• "Bankers close to Musk say he knows it will be an uphill battle to win outright against Twitter (TWTR) and his game plan is to force TWTR to agree to terms below his initial USD 54.20 bid...", according FBN's Gasparino.
• The Biden admin is expected to declare monkeypox a public health emergency, according to sources cited by Politico.
• Former US Republicans and Democrats will on Wednesday announce a third party, called "Forward", to appeal to voters who they say are dismayed with the two-party system, according to Reuters sources.

GEOPOLITICS

RUSSIA-UKRAINE

• US Secretary of State Blinken said he will speak to Russian Foreign Minister Lavrov by phone in the coming days. Russia said it received no formal request from the US regarding a meeting between Foreign Minister Lavrov and US Secretary of State Blinken, via Tass.

OTHER

• China will hold military exercises in designated areas in the South China Sea on Fri and Sat, according to the Maritime Safety Administration cited by Global Times.
• White House Middle East coordinator McGurk told a group of think tank experts last week it's “highly unlikely” that the 2015 nuclear deal with Iran will be revived in the near future, according to Axios citing sources.
• White House Economic Adviser Rouse said President Biden has not yet made a decision on China tariffs, according to Reuters.
• North Korean Leader says the South Korean admin and military will be totally destroyed if they try "dangerous attempts", via Yonhap; prepared for any military clash with the US.

CENTRAL BANKS

• BoJ Deputy Governor Amamiya said we must not loosen our grip in keeping monetary policy easy as there is no prospect yet of sustainably meeting the 2% inflation target. He added that consumer sentiment has been worsening due to rising energy and food prices. BoJ must be vigilant to financial and forex moves and their impact on economy and prices.
• BoK to strengthen monitoring of FX and capital flows following the FOMC hike, according to Bloomberg.
• HKMA raised its base rate by 75bps to 2.75%, as expected, following the earlier Fed rate hike.

APAC TRADE

EQUITIES

• APAC stocks eventually traded higher across the board following the firm lead from Wall Street.
• ASX 200 saw firm gains across its Tech, Gold, and Mining sectors.
• Nikkei 225 gained in early trade and briefly topped the 28k mark before recoiling as the JPY saw a sudden bout of strength.
• KOSPI benefited from Samsung Electronics' rise post-earnings, although the firm echoed recent remarks from SK Hynix regarding weaker H2 memory demand.
• Hang Seng moved on either side of breakeven but later saw an upside bias as Hong Kong Finance Secretary said Hong Kong's H2 economic performance will be better than H1.
• Shanghai Comp eventually gained despite the recent cautious commentary from Chinese President Xi.
• US equity futures resumed trade with a downside bias following the prior day's rally and after downbeat earnings from Meta. ES -0.2%.
• European equity futures are indicative of a firmer open with the Euro Stoxx 50 future +0.6% after the cash market closed higher by 0.9% yesterday.

FX

• DXY initially attempted to claw back some losses, but efforts were futile amid a bout of JPY strength.
• JPY was the marked outperformer despite a lack of pertinent newsflow, with some citing the potential relief over the FOMC-BoJ policy divergence as Fed pricing eased. USD/JPY, EUR/JPY, GBP/JPY and AUD/JPY all fell below psychological levels.
• EUR/USD and GBP/USD traded near post-Fed highs above 1.0200 and north of 1.2150 respectively.
• AUD and NZD were flat with no reaction seen from the overnight data, although upside could've been capped by the commentary from China's President who suggested China faces more complicated challenges than previously.

FIXED INCOME

• 10yr UST futures were subdued but within its post-Fed range, with the corresponding cash yield just above 2.77%.
• Bund futures fell under 155.00 to a low of 154.75 as the German State of North Rhine-Westphalia saw its Y/Y CPI tick higher from the prior vs the nationwide expectations for a Y/Y cooling.
• 10yr JGB yields declined under 0.20% while futures played catch-up with western contracts.

COMMODITIES

• Crude continued to grind higher overnight with aid from the softer Dollar.
• Spot gold held onto the prior day's spoils and topped its 21DMA at 1,737.65/oz.
• India's gold demand in H2 is seen falling Y/Y due to lower disposable income; H1 gold demand rose 42% Y/Y, according to World Gold Council.
• Copper prices rose along with the broader commodities complex in China as traders reacted to the softer Dollar.
• Magnitude 6.3 earthquake hits Tocopilla in Chile, according to the EMSC

CRYPTO

• Bitcoin gained overnight with the crypto rising above USD 23k whilst Ethereum extended gains above USD 1.6k.

NOTABLE APAC HEADLINES

• Australian Treasurer Chalmers said the final budget outcome for 2021/22 likely to show a dramatically better-than-expected outcome.
• Samsung Electronics (005930 KS) - Q2 2022 (KRW): Revenue 772tln (Co. exp. 77tln); operating profit 14.1tln (exp. 14tln). Net profit 11.1tln (exp. 10.3tln); Chip operating profit 9.98tln (exp. 11.08tln); expects weaker H2 phone/PC memory chip demand.
• South Korean President Yoon has ordered to take steps against illegal activities regarding stock short selling, via Yonhap.
• Hong Kong Finance Secretary said Hong Kong's H2 economic performance will be better than H1; property market fundamentals remain sound. Hong Kong Monetary Chief expects overnight and one-month interbank rate to continue to rise at a much faster pace; says HKD has been stable and has been operating in an orderly manner; public should be prepared for interbank rate to climb further, via Reuters.
• PBoC injected CNY 2bln via 7-day reverse repos with the maintained rate of 2.10% for a net drain of CNY 1bln
• PBoC set USD/CNY mid-point at 6.7411 vs exp. 6.7425 (prev. 6.7731)

DATA RECAP:

• Australian Retail Sales MM Final * (Jun) 0.2% vs. Exp. 0.5% (Prev. 0.9%)
• Australian Import Prices (Q2) 4.3% (Prev. 5.1%)
• Australian Export Prices (Q2) 10.1% (Prev. 18.0%)
• New Zealand ANZ Business Outlook* (Jul) -56.7% (Prev. -62.6%)
• New Zealand ANZ Own Activity* (Jul) -8.7% (Prev. -9.1%)

EUROPE-SPECIFIC HEADLINES

DATA-RECAP:

• German North Rhine-Westphalia State CPI MM (Jul) 1.1% (Prev. -0.1%)
• German North Rhine-Westphalia State CPI YY (Jul) 7.8% (Prev. 7.5%)