• US stocks rallied, while bonds and gold also surged as the dollar and yields slumped in response to the dovish FOMC
• The Fed kept rates unchanged but made dovish tweaks to the statement guidance and cut its 2024 median dot by more than expected
• European equity futures are indicative of a higher open with Euro Stoxx 50 future +1.1% after the cash market closed down 0.1% yesterday
• DXY fell as low as 102.42, EUR/USD hovers around 1.09 pre-ECB, USD/JPY slipped below 141 at one stage. 
• The US 10yr treasury yield below 4.0% for the first time since August, while money markets are pricing around 150bps of cuts for next year.
• Looking ahead, highlights include US Export & Import Prices, IJCs, Retail Sales, Australian PMI (Flash), BoE, ECB, SNB, Norges & Banxico Policy Announcements, ECB’s Lagarde Press Conference, Supply from US.

US TRADE

EQUITIES

• US stocks rallied, while bonds and gold also surged as the dollar and yields slumped in response to the ubiquitously dovish FOMC in which the Fed kept rates unchanged but made dovish tweaks to the statement guidance and cut its 2024 median dot by more than expected to imply three rate cuts in 2024 vs its prior median of one cut and street estimates for two cuts. Powell also gave the nod to upcoming rate cuts during the press conference as he noted they discussed the timing of rate cuts at the meeting and there was a general expectation that rate cuts will be a topic of discussion going forward, while this resulted in money markets pricing an 88% probability of the first 25bp rate cut in March vs 50% before the FOMC.
• SPX +1.37% at 4,707, NDX +1.27% at 16,562, DJIA +1.40% at 37,090, RUT +3.52% at 1,947.
• Click here for a detailed summary.

FOMC

• Fed left rates unchanged at 5.25-5.50%, as expected, and softened its guidance whereby it stated that in determining the extent of “ANY” additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Fed also stated inflation has eased over the past year but remains elevated, while it maintained its language that tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.
• Fed dot plot projection for the FFR in 2024 was lowered to 4.6% (prev. 5.1%, exp. 4.9%), 2025 was lowered to 3.6% (prev. 3.9%, exp. 3.6%), 2026 was kept at 2.9% (prev. 2.9%, exp. 2.9%), and the longer run view was kept at 2.5% (prev. 2.5%, exp. 2.5%).
• Fed Chair Powell said at the press conference that inflation has eased without a significant rise in unemployment but reiterated inflation is still too high and they are fully committed to returning inflation to 2%, while he reiterated that policy is well into restrictive territory and full effects of tightening are likely not yet felt with the Fed proceeding carefully, given how far they have come. Powell also said the Fed believes the policy rate is at or near its peak and is prepared to tighten policy further if appropriate, while it will keep policy restrictive until the Fed is confident on the path to 2% inflation. Furthermore, he noted the Fed added the word "any" to show the Fed thought they are at or near the peak for rates and repeated that participants did not want to take the possibility of further hikes off the table.
• Fed Chair Powell stated in the Q&A that the Fed is still focused on the question of whether rates are high enough and it is not likely the Fed will hike further, but the Fed does not take that possibility off the table. Powell noted policymakers are thinking and talking about when it will be appropriate, while he stated as rate cuts begin to come into view it is now a topic of discussion. Powell also noted that many mentioned their rate forecasts and the Fed discussed the timing of rate cuts at the meeting, while there was a general expectation that rate cuts will be a topic of conversation going forward. Furthermore, he said discussion on when to cut rates is still ahead and they will decide very carefully, as well as noted that the reason you would not wait to 2% inflation to cut rates is it would be too late and would overshoot, while they need to reduce restriction on the economy well before 2% as it takes a while for policy to get into the economy.

NOTABLE HEADLINES

• US House voted 221 vs 212 to formally authorise an impeachment inquiry into President Biden, while Biden later commented that Republicans are focused on attacking him with lies and are wasting time on a baseless political stunt, according to Reuters.
• US Senate voted 87 vs 13 in favour of the National Defense Authorization Act which authorises a record USD 886bln in annual military spending, while the bill now goes to the House for a vote, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks were mostly higher with sentiment underpinned in reaction to the FOMC.
• ASX 200 was lifted with gains led by the rate-sensitive sectors after a fall in yields and with participants also digesting the latest jobs data which showed a much larger-than-expected increase in headline employment change.
• Nikkei 225 bucked the trend and was initially boosted at the open but then failed to sustain the 33,000 level and wiped out all its gains amid selling in the banking sector and headwinds from a stronger currency.
• Hang Seng and Shanghai Comp were initially positive with the former underpinned after the HKMA kept rates unchanged in lockstep with the Fed, while gains in the mainland were limited following the latest Chinese loans and aggregate financing data which missed estimates.
• US equity futures (ES +0.4%) extended on post-FOMC highs after the Fed provided its strongest signal so far regarding incoming cuts.
• European equity futures are indicative of a higher open with Euro Stoxx 50 future +1.1% after the cash market closed down 0.1% yesterday.

FX

• DXY retreated further beneath 103.00 in reaction to the FOMC which lowered the median dot plot to imply three rate cuts in 2024 vs a prior view of one cut and street estimates for two cuts, while Powell also gave the nod to an upcoming rate cutting cycle as he noted they discussed the timing of rate cuts at the meeting and there was a general expectation that rate cuts will be discussed going forward.
• EUR/USD extended on post-FOMC advances and reclaimed the 1.0900 handle as the focus now turns to the ECB.
• GBP/USD ascended towards the 1.2650 level where it then hit some resistance ahead of the BoE announcement.
• USD/JPY continued its slide and briefly breached 141.00 amid a decline in US yields and better-than-feared Machinery Orders.
• Antipodeans took advantage of the broad dollar weakness with AUD/USD also helped back above the 0.6700 level after the latest jobs data and with NZD/USD ultimately unfazed by the surprise contraction in Q3 GDP.
• PBoC set USD/CNY mid-point at 7.1090 vs exp. 7.1566 (prev. 7.1126).
• Brazil Central Bank cut the Selic rate by 50bps to 11.75%, as expected, while committee members unanimously anticipate further reductions of the same magnitude in the next meetings. BCB said the pace of rate cuts is appropriate to keep contractionary monetary policy for the disinflation process and the total magnitude of the easing cycle over time will depend on inflation dynamics, expectations and projections, the output gap and balance of risks.

FIXED INCOME

• 10-year UST futures made further headway above 112.00 in the aftermath of the dovish FOMC and presser which eventually dragged the US 10yr treasury yield below 4.0% for the first time since August, while money markets are pricing around 150bps of cuts for next year.
• Bund futures extended on the prior day’s advances with a firm footing above 136.00 heading into the ECB policy announcement.
• 10-year JGB futures were initially lifted in tandem with global peers but are well off today's best levels after weaker demand at the latest 20-year JGB auction which also resulted in a notably longer than tail of 0.82 vs prev. 0.14.

COMMODITIES

• Crude futures were rangebound amid a lack of fresh energy-specific catalysts and after yesterday's upward momentum in Brent and WTI was stalled by resistance around the USD 75/bbl and USD 70/bbl levels, respectively.
• Spot gold extended on the prior day's best levels after surging above USD 2,000/oz on the dovish FOMC.
• Copper futures held on to their post-FOMC gains amid the mostly constructive mood and weaker dollar.

CRYPTO

• Bitcoin was indecisive and took a breather after the prior day's rally and brief return above the USD 43,000 level.

NOTABLE ASIA-PAC HEADLINES

• HKMA kept its base rate unchanged at 5.75%, as expected.
• Japan's negative rate exit scenario is said to be muddled by the Fed outlook with the BoJ preparing to tighten monetary policy as other central banks signal loosening, according to Nikkei.
• Japan's ruling LDP tax reform panel agreed on income tax breaks aimed at offsetting the impact of price increases on households, according to Reuters.

DATA RECAP

• Japanese Machinery Orders MM (Oct) 0.7% vs. Exp. -0.5% (Prev. 1.4%)
• Japanese Machinery Orders YY (Oct) -2.2% vs. Exp. -5.1% (Prev. -2.2%)
• Australian Employment Change (Nov) 61.5k vs. Exp. 11.0k (Prev. 55.0k)
• Australian Full-Time Employment Change (Nov) 57.0k (Prev. 17.0k)
• Australian Unemployment Rate (Nov) 3.9% vs. Exp. 3.8% (Prev. 3.7%)
• Australian Participation Rate (Nov) 67.2% vs. Exp. 66.9% (Prev. 67.0%)
• New Zealand GDP QQ (Q3) -0.3% vs. Exp. 0.2% (Prev. 0.9%, Rev. 0.5%)
• New Zealand GDP YY (Q3) -0.6% vs. Exp. 0.5% (Prev. 1.8%, Rev. 1.5%)

GEOPOLITICS

• US National Security Adviser Sullivan met with Saudi's Crown Prince MBS and discussed the humanitarian response in Gaza including efforts to increase the flow of critical aid, according to the White House.
• US is reportedly holding up the licences for selling over 20k rifles to Israel due to concerns about attacks by extremist Israeli settlers against Palestinian civilians in the West Bank, according to sources cited by Axios.
• US, Japan and Philippines national security advisers held a call and expressed concerns about China's recent dangerous and unlawful conduct in the South China Sea, according to Reuters.
• Chinese Embassy in Canada said China condemns Canada's support for the Philippines in violating China's sovereignty in the South China Sea, according to Reuters.

EU/UK

NOTABLE HEADLINES

• EU agreed to relax capital rules for insurers to boost investment, according to Reuters.
• EU restored Hungary's access to EUR 10bln of cohesion funds although three Hungary cohesion policy programmes which have a budget of EUR 6.3bln remain suspended and overall funding that remains locked amounts to EUR 21bln.
• EU Budget Commissioner Hahn sees a summit deal on EU cash for Ukraine and said the EU has a plan B if Ukraine financing is not placed in the EU budget in which it could bypass a Hungary veto with an intergovernmental agreement.

DATA RECAP

• UK RICS Housing Survey (Nov) -43 vs. Exp. -57 (Prev. -63, Rev. -61)