• Fed delivered a 25bps hike and opened the door to a pause, although Powell was reluctant to officially call it one and pushed back on talk of rate cuts.
• PacWest Bancorp (PACW) is said to weigh strategic options including a sale, according to Bloomberg.
• APAC stocks were mixed in the aftermath of the FOMC which saw US stocks mostly decline post-Powell presser.
• European equity futures are indicative of a marginally softer open with the Euro Stoxx 50 -0.1% after the cash market closed up 0.4% yesterday.
• DXY remains subdued near the 101 mark, EUR/USD eyes 1.11 to the upside and Cable reached a fresh YTD peak.
• Looking ahead, highlights include German Trade Balance, EZ & UK Composite/Services PMI, US IJC, ECB & Norges Bank Policy Announcements & Press Conferences, BoE DMP, Supply from Spain & France.
• Earnings from Volkswagen, Infineon, Hugo Boss, BMW, AB InBev, Adecco, Shell, Apple, Kellogg, AEP, Moderna, Paramount & Conoco.

US TRADE

EQUITIES

• US stocks mostly declined with the majority of losses incurred after Fed Chair Powell's press conference despite initially printing session highs immediately after the statement. All eyes were on the Fed which hiked 25bps as expected and opened the door to a pause, although Powell was reluctant to officially call it one and pushed back on market pricing for rate cuts this year, while banks particularly took a beating post-Powell after he alluded that the SLOOS survey is consistent with banks tightening lending standards and the pace of lending is slowing.
• SPX -0.70% at 4,090, NDX -0.64% at 13,030, DJIA -0.80% at 33,414, RUT +0.41% at 1,739.
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FOMC

• FOMC hiked rates by 25bps to 5.00-5.25% as expected, with the decision unanimous, while it opened the door to a rate pause as it dropped the language that it anticipates more policy firming may be appropriate to attain a sufficiently restrictive stance. Fed stated that in determining the extent to which additional policy firming may be appropriate, it will take into account tightening to date, policy lags and other developments. Fed also noted that tighter credit conditions are likely to weigh on the economy, hiring and inflation but added that job gains have been robust and inflation remains elevated.
• Fed Chair Powell said during the press conference that the focus remains on the dual mandate and they are committed to bringing inflation back down to 2%, with the Fed to take a data-dependent approach to determine the extent of further rate hikes. Powell also noted that inflation is still well above its goal, pressures continue to run high but inflation has moderated somewhat, while they have a long way to go to bring down inflation and are prepared to do more if warranted.
• Fed Chair Powell said during the Q&A that the decision on a pause was not made today but the statement change today was meaningful and they will be driven by incoming data and meeting-by-meeting, while there will be an ongoing assessment of whether the Fed has reached sufficiently restrictive and it is not possible to say with confidence if it has reached a sufficiently restrictive level which it will revisit at the June meeting. Furthermore, he stated the Senior Loan Officer Opinion Survey is consistent with banks tightening lending standards and the pace of lending slowing, while the Committee has a view that inflation is not going to come down so quickly as it will take some time and if that is correct, it would not be appropriate to cut rates. Powell also said that support for a rate hike was very strong and there were a number of policymakers at the meeting talking about pausing, but not so much at this meeting, while he added that they are much closer to the end than the beginning and they feel like they are close, or maybe even there.

NOTABLE HEADLINES

• US President Biden is to nominate Fed's Jefferson for Vice Chair and World Bank's Kugler for the Fed Board in which the selections could be announced as soon as this Friday, according to Bloomberg.
• White House CEA report said a protracted US default could result in a loss of 8.3mln jobs and a 6.1% drop in GDP, while a short default could result in a loss of 500k jobs and a 0.6% drop in GDP.
• US SEC is not considering a short selling ban as worries over bank soundness hurt shares, according to an SEC official cited by Reuters.
• PacWest Bancorp (PACW) is said to weigh strategic options including a sale, according to Bloomberg. Co. later stated that it has explored strategic asset sales including a USD 2.7bln lender finance loan portfolio and said that core customer deposits have increased since March 31st with total deposits totalling USD 28bln as of May 2nd, while it will continue to evaluate all options to maximise shareholder value, according to Reuters.
• Western Alliance (WAL) said it has not experienced unusual deposit outflows following the sale of First Republic Bank and other recent industry news, while it added that deposits as of Tuesday rose to USD 48.8bln from USD 48.2bln on Monday and QTD deposits are up USD 1.2bln from end-March.

APAC TRADE

EQUITIES

• APAC stocks were mixed in the aftermath of the FOMC meeting where the Fed delivered a widely expected 25bps rate hike and paved the way for a pause, although Fed Chair Powell pushed back against cutting rates this year and alluded to banks tightening lending standards and slowing the pace of lending.
• ASX 200 was lacklustre amid weakness in its top-weighted financial sector after big four bank NAB's H1 profit missed analysts’ estimates, although losses were cushioned by resilience in mining names and improved trade data.
• KOSPI was subdued as participants digested mixed earnings results, while Nikkei 225 remain closed.
• Hang Seng and Shanghai Comp. were firmer as mainland participants returned from the golden week break with Chinese markets shrugging off the surprise contraction in Caixin Manufacturing PMI and the PBoC’s significant liquidity drain, as well as the HKMA’s 25bps rate hike in lockstep with the Fed.
• US equity futures were marginally higher after shrugging off the early regional bank jitters; ES +0.2%.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.1% after the cash market closed up 0.4% yesterday.

FX

• DXY remained subdued near the 101.00 level in the aftermath of the Fed rate decision where the central bank hiked rates by 25bps to 5.00-5.25%, as expected, but issued a dovish tweak to the statement in which it dropped the language that it anticipates more policy firming may be appropriate to attain sufficiently restrictive stance.
• EUR/USD extended on gains and was further boosted by the FOMC announcement although the 1.1100 status continues to elude the single currency as the attention now shifts to the ECB.
• GBP/USD marginally added to the prior day’s advances after reaching a fresh YTD high.
• USD/JPY languished beneath the 135.00 level after Japan’s currency was supported by haven flows and the narrowing of yield differentials due to the Fed’s language tweak.
• Antipodeans were positive after recovering from the initial pressure triggered by the US regional bank jitters.
• PBoC set USD/CNY mid-point at 6.9054 vs exp. 6.9061 (prev. 6.9240)
• Brazil Central Bank maintained the Selic rate at 13.75%, as expected. BCB said it will assess if the strategy of maintaining the Selic rate for a long period will be sufficient to ensure the convergence of inflation to the target and will persist in its strategy until consolidating disinflation and anchoring expectations around its targets.

FIXED INCOME

• 10yr UST futures were lifted following the FOMC meeting where the Fed laid the groundwork for a pause which money markets are pricing around a 90% probability of for the Fed’s next meeting, while further upside was seen after regional banking fears were stoked as PacWest Bancorp shares collapsed after-hours.
• Bund futures gained but with prices contained near 136.50 as participants await the ECB.

COMMODITIES

• Crude futures initially extended on this week's firm declines with early turmoil after US regional bank fears were stoked by a report that PacWest Bancorp is considering strategic options including a potential sale, which dragged WTI crude futures beneath the USD 64/bbl level before staging a gradual and full recovery.
• Russian Deputy PM Novak said the fall in oil prices requires a detailed study for possible OPEC+ response and commented that maybe the oil price fall will be short-term, according to Interfax and TASS.
• Norway's Lederne labour union said it agreed on a wage deal for oil workers, averting the risk of strike action.
• Spot gold was volatile at the reopen and spiked by around USD 40 to briefly above USD 2080/oz amid a flight to safety but eventually reversed all of the gains and heads into the European session relatively unchanged.
• Copper futures were underpinned as the largest purchaser returned to the market from a 5-day closure and with prices unfazed by the disappointing Caixin Manufacturing PMI data.

CRYPTO

• Bitcoin traded rangebound with support around the recently reclaimed USD 29,000 level.

NOTABLE ASIA-PAC HEADLINES

• PBoC injected CNY 33bln via 7-day reverse repos with the rate at 2.00% for a CNY 529bln net drain.
• HKMA raised its base rate by 25bps to 5.50%, as expected.
• Chinese airlines will be allowed to expand their flights to the US, according to FT.
• US Senate Majority Leader Schumer said Democrats hope to introduce a bipartisan bill to compete with China in the next several months and critical minerals is a very important part of this package, while lawmakers will look at TikTok and other foreign-based apps when writing the China bill.

DATA RECAP

• Chinese Caixin Manufacturing PMI Final (Apr) 49.5 vs. Exp. 50.3 (Prev. 50.0)
• Australian Trade Balance (AUD)(Mar) 15.27B vs. Exp. 12.65B (Prev. 13.87B)
• Australian Goods/Services Exports MM (Mar) 4% (Prev. -3%)
• Australian Goods/Services Imports MM (Mar) 2% (Prev. -9%)

GEOPOLITICS

• Russian Security Council Deputy Chair Medvedev said the drone attack leaves Russia no other option but the elimination of Ukraine President Zelenskiy and his "clique".
• Ukrainian President Zelenskiy said Ukraine does not attack Russian President Putin or Moscow and that they fight in their own territory.
• White House said it cannot confirm the authenticity of the Kremlin drone report and it will announce a new security assistance package for Ukraine.
• An oil refinery in Krasnodar Krai, southern Russia caught fire after a drone attack, according to TASS.
• G7 is considering a communique urging China to be "responsible" and to warn China against using force to alter the status quo, according to Nikkei.