• The Fed kept rates unchanged as expected while maintaining an overall upbeat view of the economy and labour market
• This subsequently provided support to the USD with USD/JPY moving closer to 113.00 and EUR/USD below 1.0900
• Looking ahead, highlights include Eurozone services PMIs, Norges Bank rate decision, US trade data, factory orders and a slew of ECB speakers

Fed kept rates unchanged at 0.75%-1.00% as expected, with the decision made by unanimous vote. (Newswires)

- Fed stated growth slowdown in Q1 is likely to be transitory and that they still expect the economy to expand at a moderate pace.

- Fed said that the 12-month inflation is running close to its 2% goal and labour market continued to strengthen as growth slowed.

- Fed reiterated that risks to outlook appear roughly balanced and it expects economy to warrant gradual rate hikes.

- Fed did not signal any change to its balance sheet policy.

- The widely expected announcement from the Fed resulted into a fairly subdued immediate reaction across major US asset classes, although the USD gradually benefited and Tnotes were pressured in the minutes following the release as Fed Fund Rate Futures began to price in a 93% chance of a June hike vs. 69% the prior day given the Fed’s downplaying of lacklustre Q1 growth and confidence in the Labour market.

ASIA

Asia equity markets traded subdued after weakness across the commodities complex and as participants digested the latest FOMC which spurred expectations for a June hike. ASX 200 (-0.5%) declined as materials names felt the brunt of the losses in the metals complex, while Shanghai Comp. (+0.2%) and Hang Seng (-0.4%) were intially pressured as commodity prices in China slumped in which Dalian iron ore futures hit limit down shortly after the open. Downside was also attributed to recent deleveraging in shadow banking, an increase in Chinese short-term money market rates and after Caixin Services and Composite PMI data fell to 11-month and 10-month lows respectively. However, heading into EU trade, the Shanghai Comp staged a modest recovery. As a reminder, Japanese markets remained closed for Greenery Day.

Chinese Caixin Services PMI (Apr) 51.5 (Prev. 52.2); 11-month low. (Newswires)

Chinese Caixin Composite PMI (Apr) 51.2 (Prev. 52.1); 10-month low

PBoC injected CNY 30bln in 7-day reverse repos, CNY 10bln in 14-day reverse repos and CNY 10bln in 28-day reverse repos. PBoC set CNY mid-point at 6.8957 (Prev. 6.8892). (Newswires)

EUROPE

The French Presidential candidates conducted a live TV debate in which Macron was seen to have performed better, as an Elabe poll showed that 63% thought Macron won the debate vs. 34% for Le Pen with the rest undecided. (Newswires)

UK

French presidential candidate Macron suggests that the UK will have to pay a EUR60-80bln Brexit bill. (Newswires)

Twitter sources reported that UK royal staff have been called to Buckingham Palace in early morning hours and will be addressed this morning by the Lord Chamberlain (most senior officer in the household). Staff are said to have been left in the dark to the reason for the emergency meeting, while other sources noted vague speculation regarding possible death of Prince Philip – Unconfirmed. (Twitter) However, other Twitter reports suggested that contact with Buckingham Palace revealed that there is absolutely no cause for concern. Note, that this is all currently vague Twitter speculation and has not been verified. Announcements from Buckingham Palace typically take place at around 0800BST.

FX

USD remained firm against its major counterparts post-FOMC where the Fed provided an optimistic tone. This boosted USD/JPY towards 113.00 which most JPY-crosses coat-tailed on, while EUR/USD was kept at a sub-1.0900 level. Elsewhere, AUD/USD languished amid weakness across commodities and after discouraging data including Chinese PMIs and a narrower than expected Australian trade surplus.

RBA Governor Lowe said that the high cost of housing is a real issue for many and can have serious side effects, while he added that rates could be expected to increase overtime. Lowe also conducted a Q&A in which he commented that lower rates would contribute to imbalances in the system, but added did not rule out the possibility that rates could go lower at some point. (Newswires)

COMMODITIES

Gold (+0.1%) failed to make any significant recovery and remained around 6-week lows post-FOMC where the Fed provided an optimistic tone as Fed Rate Futures priced in a 93% chance of a rate hike in June. Elsewhere, copper also failed to nurse losses amid weakness in Chinese commodity prices which saw Dalian iron ore futures hit limit down shortly after the open of Shanghai metals trade, while WTI crude futures were uneventful and consolidated around USD 48/bbl.

Iron ore exports from Australia’s Port Hedland rose 12% Y/Y to 42.2mln tons in April. (Newswires)

US

Treasuries made fresh lows following the FOMC’s decision, after pushing to mid-session lows as the US Treasury reiterated that it was studying longer term issuance and a strong ISM non-manufacturing print. 10 Year Treasury futures settle -0.05 at 125.17+.

US House Rules Committee cleared the Republican healthcare bill for a full vote today, while there were earlier comments from US House Majority Leader McCarthy that significant progress was made on Obamacare repeal bill. (Newswires