• Fed stood pat on rates whilst indicating a willingness to adjust the pace of the balance sheet run-off, the message of patience was reiterated, language on the balance of risks was dropped
• Asian stocks were mostly higher across the board as they took impetus from their counterparts in the US
• The EU stands ready to take Brexit to a last-minute summit rather than bend the knee to demands from UK PM May, according to diplomats citing the scheduled summit on March 21-22
• Looking ahead, highlights include German Retail Sales & Jobs, French CPI, Italian GDP, EZ GDP & Unemployment Rate, Canadian GDP, ECB’s Coeure, Mersch & Weidmann Speaking
• EARNINGS: Celgene, General Electric, Northrop Grumman, Altria Group, ConocoPhillips, SAmazon.com, United Parcel Service, Raytheon, Mastercard, Charter Communications, DowDuPont, Sprint Corp. Nokia, H&M, Diageo, Roche, Ferrari, BT, Royal Dutch Shell

FOMC

- US Fed Funds Target Rate 2.25% - 2.50% (Prev. 2.25%-2.50%); as expected. (Newswires)

- FOMC said it will continue to unwind the balance sheet by forgoing reinvestment of up to USD 50bln in maturing securities monthly but added that it is prepared to adjust balance sheet normalisation process in light of recent economic and financial conditions.

- FOMC removed reference to "gradual" rate hikes and to risks to the economic outlook being roughly balanced, while it will be patient as it determines what future rate adjustments should be, especially in light of economic & financial developments as well as muted inflation measures.

- Fed Chair Powell said rates are now in the range of estimates of neutral and cited data dependency when asked whether the next rate move will be up or down. Powell also said he does not want the balance sheet to cause market turbulence and that Fed discussions will soon turn to the ultimate composition of Fed's balance sheet, while he added that there will be some imprint of the government shutdown on Q1 GDP and constantly repeated reference to patience.

- The reaction was notably dovish since the Fed indicated a willingness to adjust the pace of the balance sheet run-off. The message of patience was reiterated with the Fed removing the reference to hike rates gradually. The language on the balance of risks (was "roughly balanced) was dropped. Its view of the economy was tweaked to "solid" from a previous "strong". In an immediate reaction, ES futures rose from 2660 to 2676, while the T-Note future (H19) jumped from 121-20 to 121-27 and selling pressure was seen in the USD.
 

ASIA-PAC

Asian stocks were mostly higher across the board as they took impetus from their counterparts in US where sentiment was lifted on the back of earnings and a dovish Fed, while the region also digested better than expected Chinese PMI data. ASX 200 (-0.4%) and Nikkei 225 (+1.1%) both initially benefitted from the rising tide in the aftermath of the FOMC, although weakness in Australia’s largest weighted financial sector later dragged on the local bourse, while a slew of corporate updates shared the focus for Japan. Hang Seng (+1.0%) and Shanghai Comp. (+0.4%) conformed to the positive tone following better than expected Chinese Manufacturing PMI and Non-Manufacturing PMI data, while another PBoC liquidity injection ahead of next week’s Lunar New Year and ongoing US-China trade talks also contributed to the optimism. Finally, 10yr JGBs were initially higher as they tracked the upside in T-notes post-FOMC and as the BoJ Summary of Opinions unsurprisingly reiterated the need to persistently continue powerful monetary easing, although gains were later pared despite stronger 2yr auction results as upside was restricted by the firm risk sentiment.

PBoC injected CNY 50bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7025 (Prev. 6.7343)

Chinese Manufacturing PMI (Jan) 49.5 vs. Exp. 49.3 (Prev. 49.4). (Newswires)
Chinese Non-Manufacturing PMI (Jan) 54.7 vs. Exp. 53.9 (Prev. 53.8)
Chinese Composite PMI (Jan) 53.2 (Prev. 52.6)

BoJ Summary of Opinions from the January meeting reiterated that although it will take time to achieve the price stability target, it is necessary to persistently continue with the current powerful monetary easing. Furthermore, the BoJ stated that risks to overseas economies are tilted to the downside, while there was an opinion that there is room for JGB purchases to be revised and that If downside risks to economy and prices materialize, the BoJ should be ready to respond with policy. (Newswires)
 

UK/EU

Senior ministers reportedly said the price for solving the backstop is committing to some form of permanent customs union/arrangement in the non-legally binding political declaration, according to BuzzFeed’s political correspondent. (Twitter)

The EU stands ready to take Brexit to a last-minute summit rather than bend the knee to demands from UK PM May, according to diplomats citing the scheduled summit on March 21-22. (Newswires)

UK PM May is said to be putting together a series of measures in an attempt to woo Labour MPs to support her Brexit deal; measures include cash injections into leave-supporting deprived areas. (The Guardian)

Britain must pay the GBP 39bln Brexit bill even if it leaves the EU without a deal, the European Commission has warned. (Telegraph)

UK PM May’s chief Brexit negotiator warned against backing a Conservative plan to go back to Brussels and reopen negotiations in a series of emails to senior officials. (Telegraph)

US Representative Boyle (D) has warned that UK PM May’s attempts to renegotiate the UK’s withdrawal from the EU and its potential impact on the Irish border could pose a risk to future UK and US trade talks. (Newswires)  

EU's Chief Brexit Negotiator Barnier said Brexit deal cannot be renegotiated especially on backstop but added that he is confident of finding an agreement before March 29th, while he also said we do not have time or technology to find an alternative arrangement to the backstop. (Newswires)

EU Council President Tusk tweeted a message to PM May that the EU position is clear and consistent, while he added the Withdrawal Agreement is not open for renegotiation and said we found out what the UK doesn't want but still don’t know what it does want. (Twitter)

Confederation of British Industry small business survey showed export sentiment declinied at the fastest pace since the GFC, while overseas political and economic concerns are highest since the survey began in 1988. (Newswires)

UK GfK Consumer Confidence (Jan) -14.0 vs. Exp. -15.0 (Prev. -14.0). (Newswires)
UK Lloyds Business Barometer (Jan) 19 (Prev. 17)

German Chancellor Merkel's conservative CDU/CSU alliance wants to cut the corporate tax burden in Germany to a maximum 25% from over 30% at present, according to a parliamentary group report. (Handelsblatt)

FX

In FX markets, the DXY was pressured in the wake of the dovish FOMC announcement which benefitted the greenback’s major counterparts in which EUR/USD reclaimed the 1.1500 handle and provided GBP/USD with some reprieve from the recent Brexit-related woes. High-beta currencies were also lifted by the USD weakness and heightened risk appetite with NZD/USD getting an added push from a rating outlook upgrade by S&P, while USD/JPY relinquished the 109.00 handle due to the Fed and USD/CNY briefly fell below 6.7000 after the PBoC set the firmest fix since July.

S&P raised New Zealand Outlook to Positive from Stable, while it affirmed its AA rating. (Newswires)

COMMODITIES

Commodities were lifted on the back of the risk appetite and a weaker USD which saw WTI crude futures gains a firmer footing above USD 54.00/bbl, while ongoing supply uncertainty related to Venezuela and smaller than expected build in this week’s API and DoE crude inventories also contribute to the tailwinds for oil prices. Elsewhere, gold remains firmer in the aftermath of the dovish FOMC and copper extended on gains amid broad support for the complex and better than expected Chinese PMI data.

China 2018 gold demand rose 5.7% to 1151 tons, while gold output declined 5.9% Y/Y to 401 tons. (Newswires)
 

GEOPOLITICS

Venezuela's Guaido is said to have held secret meetings with Venezuela military and security forces. (NYT)
 

US

Treasury futures drifted lower in earlier trade into the US equity open - exacerbated by a stronger than expected ADP report at 213K – before the trading range bound until the FOMC decision. The Fed took a dovish stance, removing references to gradual rate hikes and also mentioned its openness to tweaking the balance sheet runoff, as of such, treasuries caught a large bid with the front end leading causing steepening across the curve; the 2/30 seeing the greatest steepening at c.7bps. Elsewhere, the US Treasury announced next week it will sell USD 38bln in 3yr, USD 27bln in 10yr and USD 19bln in 30yr; to raise USD 29.9bln in new cash; as expected. US T-note futures (H9) settled 7 ticks higher at 122-00.

US President Trump will meet with Chinese Vice Premier Liu He at 2030GMT today. (Newswires)

US President Trump said it is highly unlikely he would be willing to include 'Dreamers' in negotiations regarding border security and government funding, while there were separate reports that the White House is said to prepare an emergency wall plan. (Newswires) US Democrats reportedly suggested openness for a compromise with President Trump, despite unveiling initial proposal for border security which doesn't include a physical barrier. (The Hill)