• The FOMC left policy unchanged and Fed Chair Powell pushed back on early tapering expectations
• Asian equity markets traded positively in reaction to the continued dovish tone from the FOMC
• Support was also garnered from firm earnings amongst the tech giants including Apple, Facebook and Qualcomm
• Focus was also on President Biden’, who unveiled his American Families plan to Congress
• In FX, the DXY was subdued around the 90.50 mark, EUR/USD briefly tested 1.2150, GBP/USD extended gains above 1.39
• Looking ahead, highlights include German Unemployment & CPI (Prelim), EZ Economic Sentiment, US GDP (Advance), PCE Prices (Advance) & Initial Jobless Claims, Fed's Williams, Quarles, ECB's de Guindos, Elderson and supply from Italy
• Earnings from Amazon, Merck, Caterpillar, Altria, McDonald's, Gilead, Mastercard, Airbus, BASF, Lufthansa, Nokia, Shell, Standard Chartered, STMicroelectronics, Total, Logitech

FOMC

FOMC left the FFR at 0.00%-0.25% and IOER at 0.10% as expected and maintained the current pace of QE (USD 80bln of USTs) via unanimous decision. Fed stated that indicators of economic activity and employment have strengthened amid progress on vaccinations and strong policy support but stated that the ongoing public health crisis continues to weigh on the economy and that risks to the outlook remain. (Newswires)

Fed Chair Powell stated during the press conference that the recovery remains incomplete but has occurred far quicker than expected and conditions in the labour market continue to improve, while he affirmed the transitory rise in inflation this year would not meet the standard for rate hikes and said it is likely to take "some time" for substantial progress to be achieved. Powell also noted during the Q&A that it is not time to start talking about QE tapering and that they will signal in advance when they will although he added that activity has only just picked up and it will take some time to meet that bar. Powell said it seems unlikely there would be a persistent rise in inflation while there is still slack in the labour market and that it would take time to move inflation expectations up which they would expect to come with a strong labour market. Furthermore, he suggested that we do not need to get all the way to our goals to taper and that we are a long way from Fed's goals, while he noted that some asset prices are high and are seeing some things that are a bit frothy.

CORONAVIRUS UPDATE

US CDC said it is committed to a resumption of US passenger cruise industry operations by mid-summer. In other news, USTR Tai met with Bill Gates to discuss increasing COVID-19 vaccine production and the proposed IP waiver for vaccines, while she also held a discussion with Moderna (MRNA) CEO regarding a proposed waiver of intellectual property rights. (Newswires)

White House said the US is delivering supplies worth over USD 100mln in approaching days to provide relief for India and has re-directed its own order of AstraZeneca (AZN LN) manufacturing supplies to India which would allow India to make 20mln vaccine doses. (Newswires)

Two Australian men died a few days after receiving the AstraZeneca (AZN LN) vaccine, although the link between deaths and the vaccine was not yet established which health authorities are reviewing. (Sydney News Today)

England Deputy Chief Medical Officer Van Tam said the UK is near to bottom levels of coronavirus and a third wave could be much less significant. (Sky News)

ASIA

Asian equity markets traded positively in reaction to the continued dovish tone from the FOMC and beat on earnings amongst the tech giants including Apple, Facebook and Qualcomm. In addition, focus was also on President Biden’s first address to a joint session of Congress where he stated America is on the move again and that the American Jobs Plan is a blue-collar blueprint to build America, while he called on Congress to pass the USD 15/hour minimum wage and extend child tax credit through at least end-2025, as well as outlined the American Families Plan. This facilitated a continued upside in US equity futures to push the Emini S&P to a record high and briefly above the 4,200 level although gains for Asia bourses were tempered amid a heavy slate of earnings and with Japanese participants absent due to a holiday closure. ASX 200 (+0.2%) was positive with outperformance in gold miners amid a rebound in the precious metal in the aftermath of the dovish FOMC, but with gains in the index capped by losses in consumer stocks after weaker quarterly sales from Woolworths and with Treasury Wine Estates dampened by a 4% decline of Australian wine exports in the year to end-March. KOSPI (+0.1%) benefitted as its top constituent Samsung Electronics remained afloat following its final Q1 earnings results which topped forecasts for net profit and posted a slight increase in revenue from the preliminary. Hang Seng (+0.9%) and Shanghai Comp. (+0.2%) also gained with sentiment encouraged by earnings releases including China’s largest oil company Sinopec and big 4 bank China Construction Bank.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4715 vs exp. 6.4718 (prev. 6.4853)

Tencent (700 HK) faces a fine from China's competition regulator which could be valued at least USD 1.54bln and the antitrust investigation could force a sale of its music business, according to sources. (Newswires)

UK/EU

UK auto production rose by 47% Y/Y in March which was the first increase since August 2019, according to SMMT. (Newswires)

Britain is set to formally recognise the EU Ambassador in London for the first time post-Brexit. (The Times)

Brussels pledges to apply strict rules regarding the Recovery Fund spending to ensure the funds are well spent. (FT)

FX

In FX markets, the DXY was subdued around the 90.50 level due to the recent FOMC-induced pressure after the Fed stuck to its dovish script (as detailed above). EUR/USD benefitted from the USD weakness and briefly tested the 1.2150 level to the upside with the single currency also helped by optimism in France where PM Castex stated the COVID situation is getting better and that President Macron will present a gradual exit from lockdown on Friday, while GBP/USD extended on gains at the 1.3900 handle after the dovish Fed tone reverberated across the FX space. USD/JPY was uneventful amid the holiday closure in Japan and antipodeans were kept afloat due to the softer greenback, recent gains in commodities and improved tier 2 data releases from both sides of the Tasman. However, the greenback eventually nursed some of its losses which forced its major counterparts to return mostly flat for the Asia-Pac session.

Australian Treasurer Frydenberg said the unemployment rate will recover to full employment in around 2 years and that the budget will work to reduce unemployment, but added that health and economic uncertainty remains. (Newswires)

• Australian Export Prices (Q1) Q/Q11.2% (Prev. 5.5%)
• Australian Import Prices (Q1) Q/Q 0.2% (Prev. -1.0%)
• New Zealand NBNZ Business Confidence (Apr) -2.0% (Prev. -4.1%)
• New Zealand NBNZ Activity Outlook (Apr) 22.2% (Prev. 16.6%)

COMMODITIES

Commodities saw mild gains overnight with prices finding a tailwind from the dovish Fed rhetoric and subsequent weakness in the greenback, which helped WTI crude futures just about reclaim the USD 64.00/bbl level but with gains capped amid reports the US is eyeing a major rollback of Iranian sanctions. Gold prices were underpinned following the FOMC, while copper was also firmer due to the constructive risk tone and in tandem with mild gains across the complex.

Major Chinese investors are said to be in talks to buy stake in Saudi Aramco with China Investment Corporation (CIC) among those who could invest and is the most likely investor, while Aramco was also in discussions with Chinese national oil companies, according to sources. (Newswires)

World Gold Council said India gold consumption could falter during the June quarter due to COVID-19 restrictions but could rebound in H2 on pent up demand. (Newswires)

GEOPOLITICAL

US is reportedly eyeing a major rollback in Iran sanctions to revive a deal although reports later stated that the US would keep some restrictions on Iran if it rejoined the JCPOA. (Newswires/AP)

US

By settlement, 2s -1.4bps at 0.166%, 5s -1.6bps at 0.862%, 7s -1.0bps at 1.311%, 10s -0.4bps at 1.618%, 20s -0.3bps at 2.177%, 30s -0.3bps at 2.290%; volumes were decent compared to recent averages. 5yr TIPS -5.8bps at -1.694%, 10yr TIPS -2.9bps at -0.799%, 30yr TIPS -1.8bps at -0.016%; 5yr BEI +3.3bps at 2.616%, 10yr BEI +1.3bps at 2.405%, 30yr BEI +0.4bps at 2.311%. NY Fed RRP demand at YTD peak of USD 166.732bln across 33 bidders (prev. USD 142.172bln across 31 bidders). SOFR unch. at 1bps. US sold USD 35bln of 119-day CMBs at 2.5bps, covered 3.56x. On the day, Treasuries were marginally firmer in choppy trade after earlier losses were reversed as Powell pushed back on QE tapering. The climb higher in US yields above last week's peaks was seemingly spillover from EGBs alongside positioning ahead of the FOMC, and the Biden tax-fuelled fiscal plan. As NY players arrived sovereign yields pared from their peaks, with analysts noting likely short-covering/profit-taking pre-FOMC, with perhaps some tech buying on the basis that Bunds held above 170.00 and T-Notes just over a 50% Fib at 131-25. Yields were choppy up into the FOMC, with some chunky block trades seen in steepeners, and lots of activity around 5yr USTs and in the Eurodollar strip, perhaps some of that flow was a result of several corporate deals today. The Fed decision gave no curveballs with yields muted in the wake of that. Front EDs pared earlier losses too as the Fed made no hike to its IOER/RRP rates, as some traders had speculated beforehand it might. Treasury yields went into futures settlement ultimately little changed, after a dovish reaction was seen in the Powell presser/Q&A after the Fed Chair said it is not time to start talking about QE tapering. Month-end is in vogue, and current estimates see 0.09yr Treasury duration extension due.

US President Biden stated in his first address to a joint session of Congress that America is on the move again and US is poised to take off but added that there is still more to do in fighting COVID-19 and we cannot let our guard down, while he called on Congress to pass USD 15/hour minimum wage and to extend child tax credit through at least end-2025. President Biden also stated the American Jobs Plan is a blue-collar blueprint to build America, while he later outlined details of the American Families Plan which will provide access to quality and affordable childcare, as well as up to 12 weeks paid family/medical leave and also called to lower prescription drug costs but also suggested it is time for corporate America and the wealthiest 1% of Americans to pay their fair share. Furthermore, President Biden stated US is in competition with China and will stand up to unfair trade practices such as subsidies for SOEs, theft of US technologies and IP, while he told Chinese President Xi the US will maintain a strong military presence in Indo-Pacific and made it clear to Russian President Putin that the US doesn't seek escalation but their actions have consequences. (Newswires)

US Senate Democrats are said to resist President Biden's plans to ask Congress to pay for the entire USD 1.8tln American Families Plan with some wanting him to finance it with deficit spending, while there were also comments from White House economic adviser Boushey that President Biden's proposed tax hikes on the wealthy could apply to at least some of this year’s earnings. (Axios)

US Democratic Senator Manchin said the trillion-dollar proposal from US President Biden makes him uncomfortable and wants to find out how we're gonna pay for it, while he also questioned if the US is going to be able to be competitive and be able to pay for what is needed in the country. (CNN)

Apple Inc (AAPL) Q2 2021 (USD): EPS 1.40 (exp. 0.99), Revenue 85.9bln (exp. 77.35bln); authorises increase of USD 90bln to existing share repurchase programme and it saw no material service constraint, iPad: 7.81bln (exp. 5.58bln), iPhone: 47.94bln (exp. 41.43bln), Mac: 9.1bln (exp. 6.86bln), Services: 16.9bln (exp. 15.57bln) shares were higher by 2.3% in after-hours trade