• European equities higher across the board as investors cheer the Fed
• DXY lower, NOK bolstered by hawkish Norges hike
• Looking ahead, highlights include BoE rate decision US weekly jobs, Philly Fed, BoE’s Carney

ASIA-PAC

Asian equity markets traded mostly positive as the region digested the dovish FOMC. ASX 200 (+0.6%) was led higher by gold names after the precious metal surged to its highest since 2013 but with upside in the broader market capped by weakness in other miners including Rio Tinto after it lowered its iron ore production outlook and with Caltex heavily pressured on disappointing guidance. Nikkei 225 (+0.6%) was also supported in the aftermath of the FOMC although a firmer currency and unsurprising BoJ announcement limited the advances, while Hang Seng (+1.2%) and Shanghai Comp. (+2.4%) outperformed on optimism ahead of the US-China trade talks and as financials surged after continued liquidity efforts by the PBoC. Finally, 10yr JGBs were higher as they tracked the upside in T-notes amid a decline in global yields with the US 10yr yield below 2.00% for the first time since November 2016 and with the 30yr yield also at similar multi-year lows.

PBoC injected CNY 30bln via 14-day reverse repos. PBoC set CNY mid-point at 6.8805 (Prev. 6.8893)

Early talks suggest G20 members' frustration regarding US-China trade spat and that there is mounting pressure on the world's two largest economies to ease trade tensions. (FT)

US President Trump and Chinese President Xi are expected to meet over dinner on June 29th in Japan. President Trump says he will also be meeting with Russian President Putin at the G20. (Newswires)

USTR Lighthizer said will meet with China VP Liu He this week and again before the Trump-Xi meeting at G20. (Newswires)

New Zealand GDP (Q1) Q/Q 0.6% vs. Exp. 0.6% (Prev. 0.6%), Y/Y 2.5% vs. Exp. 2.4% (Prev. 2.3%, Rev. 2.5%) 

US

President Trump is said to believe he has the authority to replace Fed Chair Powell but will not remove him for now. (Newswires)

CENTRAL BANKS

BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%, while it maintained forward guidance of keeping rates at extremely low levels at least through to Spring 2020. Furthermore, the BoJ said its decision to maintain QQE with YCC was made by 7-2 votes with Harada and Kataoka the dissenters, and stated the economy is likely expanding moderately as a trend which is likely to continue although output and exports are impacted by overseas slowdown. (Newswires)

RBA Governor Lowe said the possibility of lower rates remain on the table and that it is not unrealistic to expect a further reduction in the Cash Rate. Governor Lowe also commented that recent data suggests we are not making any inroads into the economy's spare capacity and it is unrealistic to think one 25bps cut can alter the growth path, while he also suggested that it is important to recognize monetary policy is not the only option and that he is very hopeful we will not need to cut as far as some central banks in Europe. (Newswires)

Norges Bank unanimously delivered on the promised 25bps June hike, with the Key Rate now at 1.25%, as expected.” Governor Olsen highlighted that the “assessment of the outlook and balance of risks suggests that the policy rate will most likely be increased further in the course of 2019”, with policy forecasts signalling faster rate rises in the coming years. In-fitting with some of the calls, the rate path was left unchanged from the March release. The NB did however acknowledge that a deepening in trade tensions and softer oil prices could weigh on the domestic economy. All-in-all a hawkish hike, which was reflected by the markets as NOK strengthened.

ECB's de Guindos (Neutral) says the Bank is ready to act if the deterioration continues. (Newswires)

GEOPOLITICS

Iranian Revolutionary Guard shot down a US drone according to reports citing the state news agency, although the US military later stated that no US aircraft had operated in Iranian airspace. (Associated Press/Newswires) Iran's Revolutionary Guard Corp Top Commander Salami says the the downing of the US drone sent a clear message to Washington, according to State TV. (Newswires)

UK/EU

UK Retail Sales MM (May) -0.5% vs. Exp. -0.5% (Rev. -0.1%) (Newswires)

China-EU investment access talks went better than expected, according to diplomatic sources, The talks also went “deeper than normal” and the parties agreed to hold further meetings each month from July to speed up the process, sources stated. (SCMP)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +0.8%] as the region carries the FOMC-spark gains from Wall Street and Asia overnight. UK’s FTSE 100 (+0.5%) marginally lags its peers as the index is pressured by a firmer Sterling ahead of the BoE Monetary Policy Meeting. Sectors are also broadly in green, albeit financial names lag amid the post-FOMC yield decline. In terms of individual movers, Dixons Carphone (-13%) sunk to the bottom of the Stoxx 600 after the Co. cut guidance. Meanwhile, Fresenius Medical Care (+2.1%) is supported by a positive Barclays broker move. Finally, more bad news for Deutsche Bank (-1.1%) after NYT reported of a criminal probe over alleged money laundering.

FX

DXY - The Dollar is down across the board as the FOMC matched market expectations by shifting further towards a rate cut, while Fed chair Powell delivered an extra dovish snippet in the press conference by revealing that even those not plotting an ease are more prone towards loosening monetary policy if needed. The has now index lost grip of the 97.000 handle and extended losses towards 96.500, with chart support just below (ie the 96.459 post-NFP low) under threat ahead of weekly claims, Philly Fed and the LEI.

NOK/NZD/CHF - The G10 outperformers, with the Norwegian Crown benefiting from a hawkish Norges Bank hike on top of the aforementioned Greenback weakness, and also further divergence vs the ECB as the revised rate path pencils in 2 more 25 bp tightening moves (next in September 2019 and 3rd before Summer next year). Usd/Nok and Eur/Nok down to circa 8.5500 and 9.6630 respectively in response. Meanwhile, the Kiwi and Franc drew additional impetus from data in the form of NZ Q1 y/y GDP and Swiss trade, as Nzd/Usd rebounds firmly towards 0.6600 and Usd/Chf retreats sharply through 0.9900, with 0.9850 in sight.

EUR/AUD/CAD/GBP - The next best majors in terms of gains relative to the Buck, as the single currency tests 1.1300 and unwinds more post-Draghi declines, while the Aussie pivots 0.6900 even though RBA Governor Lowe underscores room for further OCR cuts and the CBA believes back-to-back easing is in the offing with another ¼ point reduction in July. Elsewhere, the Loonie has built on Wednesday’s strong headline Canadian CPI platform to probe 1.3200 offers and psychological resistance and the Pound has reclaimed 1.2700+ status ahead of the BoE amidst market expectations or perceptions that the outturn might be hawkish on balance – see the headline feed or Research Suite for a more detailed preview. Note, not much reaction in Cable to UK retail sales that were weak and came with back data downgrades as the ONS flagged bad weather impacting clothes and footwear in mitigation.

EM - Broad rallies or rebounds at the Dollar’s expense, but the Lira also gleaning impetus to breach 5.7500 via an improvement in Turkish consumer sentiment, while the Rand is testing 14.2000 in anticipation of SA President Ramaphosa’s SOTU address and the Ruble is getting an oil-related boost and rallied to 63.2400 at one stage.

FIXED INCOME

Notwithstanding hefty block trades in US Treasury futures and options that appeared to be bullish given transaction and strike levels vs live prices prevailing at the time, core debt futures have cooled off appreciably. Indeed, Bunds are just off 172.41 Eurex lows compared to 172.70 at best, as Gilts hover a few ticks above their new 130.38 Liffe base and the 10 year T-note sits roughly midway between 128-08-127-26 overnight session parameters, with the corresponding yield displaying a distinct reluctance or stickiness around the 2% marker. Ahead, the BoE, some decent US releases and Treasury issuance details for next weak that could al be weighing on sentiment alongside a degree of post-Fed reappraisal after the initially dovish take.

COMMODITIES

WTI and Brent futures extended on gains in early European trade as the upside seen amid the dovish FOMC was exacerbated by reports that Iran shot down a US spy drone over the Strait of Hormuz, as tensions in the region escalates. WTI futures rose to levels just shy of USD 56.00/bbl whilst its Brent counterpart ran out of steam ahead of USD 64/bbl. Both benchmarks have since come off highs but hold onto a bulk of its gains, amid light news flow in the complex. Elsewhere, gold remains closer to the 1400/oz after having experienced a post-FOMC flash spike, with some attributing the move to a breakout from a five year range. Meanwhile, copper is back above the USD 2.70/lb amid a weaker Dollar and upbeat risk sentiment around the market. Finally, Dalian iron ore hit fresh record highs after Rio Tinto yesterday lowered its Pilbara shipment guidance, suggesting that supply could remain tight despite Vale resuming operations at its Brucutu Mine.