• FOMC hiked rates by 25bps as expected; noted that inflation has eased somewhat but remains elevated.
• US stocks (S&P 500 +1.05%) and bonds rallied as the dollar tumbled in the aftermath of the FOMC.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.7% after the cash market closed up 0.2% yesterday.
• DXY remains pressured with the index on a 100 handle, EUR/USD is above 1.10 ahead of ECB, Cable lingers just below 1.24 pre-BoE.
• Meta shares rallied 20% after-market following its earnings results and the announcement of an additional USD 40bln share buyback.
• Looking ahead, highlights include US IJC & Factory Orders, BoE & ECB Policy Announcements and Press Conferences, Supply from Spain & France, Earnings from ING, Deutsche Bank, Infineon, Santander, BT, Shell, Amazon, Apple, Alphabet, Ford, Merck, Bristol-Myers & Qualcomm.

US TRADE

• US stocks and bonds rallied as the dollar tumbled in the aftermath of the FOMC meeting where the Fed hiked by 25bps as expected, but also made some subtle language changes to reflect the debate shifting to when to stop hiking rather than how much it needs to hike by, while Fed Chair Powell gave something for both doves and hawks to chew on with a slew of two-sided remarks in a seeming shift from his usual strict hawkishness, while he also acknowledged that the disinflationary process has begun.
• SPX +1.05% at 4,119, NDX +2.16% at 12,363, DJIA +0.02% at 34,092, RUT +1.49% at 1,960.
• Click here for a detailed summary.

FOMC

• FOMC hiked rates by 25bps to 4.50-4.75%, as expected, while it reiterated that ongoing rate increases will be appropriate and noted that inflation has eased somewhat but remains elevated.
• Fed Chair Powell said there is more work to do and they have covered a lot of ground but the full effects are yet to be felt, while he reiterated that they continue to anticipate ongoing increases are appropriate to get to a sufficiently restrictive stance and will likely have to maintain a restrictive stance for some time. Powell added that inflation data over the past three months showed a welcome reduction in the pace of increases, but they need substantially more evidence to be confident inflation is on a downward path.
• Fed Chair Powell stated in the Q&A that they have not yet made a decision on the terminal rate and will look at data between now and March, while he noted they are talking about a couple more rate hikes to get to an appropriately restrictive stance and that they are not very far from that level. Powell also acknowledged that the disinflationary process has begun which is seen in the goods sector and in the pipeline for housing, as well as noted that it is a good thing that disinflation we've seen so far has not come at the expense of a weaker labour market.

NOTABLE HEADLINES

• US House Speaker McCarthy said he had a good first meeting with US President Biden and they agreed to continue the conversation, while he added they both had different perspectives but he thinks they can find common ground and he told President Biden he would like to reach an agreement well before the deadline. Furthermore, the White House said President Biden welcomes separate discussions with congressional leaders about how to reduce the deficit and control national debt while continuing to grow the economy.

APAC TRADE

EQUITIES

• APAC stocks traded mostly higher in the aftermath of the FOMC meeting where the Fed slowed the pace of rate increases and Fed Chair Powell provided a slew of two-sided remarks in which he pointed to a couple more rate hikes to get to an appropriately restrictive stance but noted they are not very far from that level and acknowledged that the disinflationary process had begun.
• ASX 200 was led by outperformance in gold miners and tech but with gains limited by weakness in other commodity-related sectors and after mixed data.
• Nikkei 225 notched marginal gains with earnings releases driving the best and worst performing stocks and the 27,500 level continued to elude the index.
• Hang Seng and Shanghai Comp. initially gained although price action was then choppy after the HKMA raised rates in lockstep with the Fed and the PBoC continued its substantial post-holiday liquidity drain.
• US equity futures were mixed (ES +0.3%, NQ +0.9%) with a surge in Nasdaq 100 futures as Meta shares rallied 20% after-market following its earnings results and the announcement of an additional USD 40bln share buyback.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.7% after the cash market closed up 0.2% yesterday.

FX

• DXY remained subdued after slipping beneath the 101.00 level in the aftermath of the FOMC where the Fed slowed the pace of rate hikes and slightly tweaked the language on guidance in which it referenced the "extent of future increases" instead of the "pace of future increases", which suggests the debate is moving from the size of hike increments to how many hikes remain in the cycle.
• EUR/USD extended on its advances and reclaimed the 1.1000 handle to print its highest level since April last year with the attention for the single currency turning to today’s ECB rate decision.
• GBP/USD was firmer ahead of the BoE rate decision with the central bank expected to lift the Bank Rate by 50bps to a fresh 14-year high.
• USD/JPY extended its decline amid the dollar pressure following the FOMC and Powell’s presser
• Antipodeans benefitted from the softer USD and printed 8-month highs although with further upside in AUD/USD limited after mixed data releases.
• PBoC set USD/CNY mid-point at 6.7130 vs exp. 6.7142 (prev. 6.7492)
• Brazil Central Bank maintained the Selic rate at 13.75%, as expected. BCB will remain vigilant and assess if the strategy of maintaining the Selic rate for a sufficiently long period will be enough to ensure the convergence of inflation, while it will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected and noted that despite some recent moderation, consumer inflation and measures of underlying inflation are above the range compatible with meeting the inflation target.

FIXED INCOME

• 10yr UST futures were steady and held on to the majority of the gains in the aftermath of the FOMC.
• Bund futures were kept afloat with trade quiet as the attention turns to the ECB and BoE rate decisions.
• 10yr JGB futures were choppy after failing to sustain the 147.00 level and amid a mixed 10yr auction.

COMMODITIES

• Crude futures marginally rebounded overnight and partially nursed some of the prior day's heavier losses in which selling pressure was seen leading into the FOMC and after bearish inventory data.
• IEA's Birol does not expect major problems or disruptions from the proposed Russian oil products price cap but said there may be some transition difficulties during the implementation.
• Spot gold sat around the USD 1950/oz level with prices underpinned by the softer dollar.
• Copper futures were rangebound during Asia trade and held onto the gains from the Fed meeting.

CRYPTO

• Bitcoin gained as risk assets benefitted post-FOMC which lifted prices briefly above 24,000.
• US judge dismissed proposed class action accusing Coinbase (COIN) of selling unregistered securities and failing to register as a broker-dealer, according to a court ruling cited by Reuters.

NOTABLE ASIA-PAC HEADLINES

• Hong Kong Monetary Authority raised its base rate by 25bps to 5.00%, which was as expected and in lockstep with the Fed.

DATA RECAP

• South Korean CPI MM (Jan) 0.8% vs. Exp. 0.5% (Prev. 0.2%)
• South Korean CPI YY (Jan) 5.2% vs. Exp. 5.0% (Prev. 5.0%)
• Australian NAB Business Confidence (Q4) -1 (Prev. 9)
• Australian Building Approvals (Dec) 18.5% vs. Exp. 1.0% (Prev. -9.0%, Rev. -8.8%)

GEOPOLITICS

• UK Defence Secretary Wallace said there is no solid decision not to send fighter jets to Ukraine but doesn't think it is the right approach for now, according to Reuters.
• North Korean state media said the US and allies’ military drills have pushed the situation to an extreme red line and that US drills threaten to turn the peninsula into a huge war arsenal, according to Reuters and SCMP. Furthermore, the White House said it rejects the notion that US joint military exercises in the region serve as a provocation for North Korea and said the US has no hostile intent towards North Korea, while it seeks serious diplomacy and will work with allies to fully enforce UN Security Council resolutions aimed at limiting North Korean weapons programs.