• The FOMC announced its tapering schedule as expected whilst stressing patience on rate hikes
• Asia-Pac stocks traded higher amid tailwinds from the fresh record highs stateside in the aftermath of the FOMC
• DXY heads into the European open firmer and north of 94.00, EUR lags in the G10 space with EUR/USD sub-1.16
• Iran said nuclear talks will resume on November 29th in Vienna
• Looking ahead, highlights include German Industrial Orders, Eurozone Services & Composite PMIs (Final), BoE Rate Decision and Press Conference, US IJC, ECB's Lagarde, Elderson, Schnabel, supply from Spain and France
• Earnings: AXA, Commerzbank, Credit Suisse, Deutsche Post, HeidelbergCement, ING, Lanxess, Legrand, Leonardo, BT, Hikma, Sainsbury’s, CIGNA, ViacomCBS, Becton Dickinson, Barrick Gold, Kellogg, Occidental, Parker-Hannifin, Uber

FOMC

Fed kept rates unchanged and announced it will begin to taper later this month by USD 10bln in Treasuries and USD 5bln in MBS as expected, while its decision was unanimous. The Fed noted that a reduction in purchases is likely appropriate each month but is prepared to adjust if warranted.

Fed stated that inflation is elevated, largely reflecting factors that are expected to be transitory which was a slight change from its previous description of inflation factors as "transitory", while supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Furthermore, it stated that the path of the economy continues to depend on the course of the virus and that progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment, as well as a reduction in inflation but added that risks to the economic outlook remain.

Fed Chair Powell said the economy has made progress towards goals although they remain attentive to risks and policy will continue to provide support to the recovery. Powell stated that real GDP has slowed notably and the surge in the Delta variant has held back the recovery but added that demand has been very strong and economic growth should pick up this quarter, while they expect strong economic growth this year. Fed Chair Powell also said supply and demand imbalances have contributed to sizable price increases, while inflation is running well above the 2% goal and bottlenecks are affecting how supply can respond to demand, with bottlenecks lasting longer than expected.

Fed Chair Powell responded in the Q&A that they focus on what they control and that it is time to taper, but it is not time to raise rates, when asked about market pricing, while they think they can be patient but will not hesitate if a response is called for and he stated that they could achieve maximum employment by middle of next year. Powell added it is not a good time to raise interest rates because they want to give the labour market time to heal further and stated the inflation overshoot question is not the one they are considering right now. Powell also said that transitory means it will not leave behind persistently higher inflation, while they took a step back from transitory in the statement to show uncertainty and wanted to acknowledge transitory means different things to different people. Furthermore, he noted that wages are a key measure of how tight the labour market is and they want to be humble about what they know about the economy, while he added that Delta has put them on a different path and hopes to get more clarity over H1 next year. (Newswires)

CORONAVIRUS UPDATE

A large study by Imperial College London found COVID-19 infections in England during October were at the highest level since the study began in May last year with the infection rate in study participants at 1.72% or one in 58 people which was more than double compared to the prior month. (Newswires)

Australia's Victoria state reported 1,247 new COVID-19 cases (prev. 941) and New South Wales reported 308 new cases (prev. 190). (Newswires)

Hong Kong-China quarantine free travel reportedly is to start as early as next month but will be limited to Guangdong province with Shenzhen as the only entry point. (Newswires)

ASIA

Asia-Pac stocks traded higher amid tailwinds from the fresh record highs stateside in the aftermath of the FOMC where the Fed announced it is to begin tapering asset purchases but suggested it was in no rush to hike rates. ASX 200 (+0.5%) was kept afloat by advances in tech and financials but with gains in the index capped after weak Retail Sales data and rising COVID-19 cases for Australia’s most populous states, while the energy sector underperformed after oil prices tumbled 4.5% yesterday due to bearish inventory data and the announcement that Iran nuclear talks will resume on November 29th in Vienna. Nikkei 225 (+0.8%) was buoyed on return from holiday as it coat-tailed on the recent advances in USD/JPY and with Japan mulling easing border controls as soon as next Monday, with Toyota also holding on to gains after a jump in H1 profits and JPY 150bln buyback announcement, although the Nikkei finished well off intraday highs after stalling on approach to the 30k level. Hang Seng (+0.1%) and Shanghai Comp. (+0.6%) conformed to the broad upbeat mood but was slow to start after another substantial liquidity drain by the PBoC despite the suggestion by Chinese press that recent reverse repo action showed stabilisation efforts. In addition, COVID-19 concerns continued to linger with Beijing having suspended inbound trains from 23 regions to curb the spread of the virus, while there was also attention on the geopolitical front after the US Department of Defense warned that China’s nuclear stockpile is outpacing forecasts and with China conducting week-long live-fire drills in the East China Sea. Finally, 10yr JGBs were steady with only a slight pullback seen from yesterday’s advances and with prices largely ignoring the subdued picture in T-notes which were pressured heading into the Fed taper announcement, while JGBs were also kept afloat after the 10yr inflation-indexed auction from Japan which showed an increase in both the b/c and lowest accepted prices.

PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a CNY 150bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.3943 vs exp. 6.3911 (prev. 6.4079)

Chinese President Xi said China will expand international shipping cooperation and will ensure smooth global industry and supply chains. (CCTV)

FX

In FX markets, the DXY initially weakened beneath the 94.00 level following the Fed’s widely expected taper announcement and with Powell repeating that it is not time to raise rates. Nonetheless, the DXY gradually pared the losses throughout Asia trade to reclaim the 94.00 level. EUR/USD briefly reclaimed the 1.1600 handle with the single currency buoyed at the expense of the greenback which helped a further rebound from the early wobble amid the recent slew of ECB rhetoric including from ECB President Lagarde who stated that the three ECB conditions for a hike are unlikely to be satisfied next year. GBP/USD strengthened post-FOMC and with encouragement also from the forecast-topping Services and Composite PMI data but is well off its highs after hitting resistance just shy of the 1.3700 handle and ahead of today’s BoE rate decision which is seen as coinflip between a hold in rates and a 15bps hike to 0.25%. USD/JPY and JPY-crosses were underpinned by the risk mood which initially kept antipodeans afloat to provide further reprieve for AUD/USD from this week’s RBA-triggered selling but with the support only brief due to weak Retail Sales and Exports data from Australia, as well as the overnight recovery in the USD.

• Australian Retail Trade (Q3) -4.4% vs. Exp. -4.6% (Prev. 0.8%)
• Australian Trade Balance G&S (AUD)(Sep) 12.2B vs. Exp. 12.2B (Prev. 15.1B)
• Australian Exports (Sep) -6% (Prev. 4%)
• Australian Imports (Sep) -2% (Prev. -1%)

COMMODITIES

Commodities were mixed in which WTI crude futures briefly dipped beneath the USD 80/bbl level in an extension of the prior day's 4.5% slump owing to the bearish EIA data and with pressure also from the announcement to resume Iran nuclear talks in Vienna later this month. Furthermore, ongoing COVID-19 concerns for the Asia-Pac region provided no favours for oil prices and focus now turns to the OPEC+ meeting later where producers are expected to stick to their plan of raising monthly oil output by +400k BPD. Gold prices were pressured heading into the FOMC but then found some reprieve as the USD initially weakened in the aftermath of the announcement, while copper was lifted by the broad constructive tone across although has since hit resistance around USD 4.40/lb level.

Russia's Gazprom export chief stated that their long-term business strategy is based on prospective demand in Russia and the company is not interested in record low or record high gas prices. Furthermore, they need to see a balanced market, while they treat the European market with great responsibility and will continue to meet demand. (Newswires)

GEOPOLITICAL

Iran said nuclear talks will resume on November 29th in Vienna and the US State Department stated that if Iran nuclear talks are to succeed, they should restart precisely where the sixth round of talks in Vienna left off. (Newswires)

US Department of Defense said China could have 700 nuclear warheads by 2027 and possibly 1,000 by 2030, while it warned that the nuclear stockpile is outpacing forecasts. (Newswires)

US

Treasuries bear-steepened into the FOMC meeting, closing little changed in wake of, with strong earlier ISM Services hitting duration; Treasury confirmed expectations for Q4 auction size cuts. TYZ1 volumes were average. 2s -0.2bps at 0.454%, 3s +0.5bps at 0.727%, 5s +1.5bps at 1.164%, 7s +1.9bps at 1.436%, 10s +3.2bps at 1.579%, 20s +3.6bps at 2.007%, 30s +3.9bps at 1.997%. 5yr TIPS -1.7bps at -1.712%, 10yr TIPS +0.3bps at -0.964%, 30yr TIPS +0.5bps at -0.311%. 5yr BEI +1.2bps at 2.943%, 10yr BEI +2.3bps at 2.522%, 30yr BEI +3.2bps at 2.323%. T-Notes saw very light trade O/N Wednesday, finding some upside momentum in the European morning alongside their counterparts across the pond. Catalysts were light and liquidity thin, with participants largely just positioning ahead of the Fed meeting. There were some additional bullish tailwinds out of the EGB space after Lagarde came out again to push back on aggressive rate hike pricing, although T-Notes struggled to break above 131-05 before trundling back lower into the NY session. The Treasury Q4 refunding announcement didn't give a bid to T-Notes, despite the relatively deeper cuts to 7yr Treasury auctions, with perhaps the smaller cut than expected to the 10yr auction offsetting that given the 7yr was as expected. As the dust settled from the announcement, T-Notes resumed their downside, despite a bid emerging out the curve for cash 20s after the bigger sized auction cuts at that tenor. The downside was then accentuated as ISM Services grew more than expected to a record high with another rise in Prices Paid. Selling of T-Notes levelled off into the NY afternoon, with 130-22 providing support into FOMC. There was some chop in the immediate aftermath as the Fed confirmed the taper pace as expected (USD10bln/m of Tsys), T-Notes trundled lower by a few ticks before paring back through Powell's presser/Q&A to settle around its pre-FOMC levels. T-note (Z1) futures settled 6+ ticks lower at 130-24+.

US Democratic Representative Larsen said the vote on infrastructure would come after the vote on Biden's social policy agenda, while it was later reported that House majority leader Hoyer said votes on bipartisan infrastructure framework and build back better are possible for Thursday, according to Punchbowl News' Jake Sherman. (Newswires/Twitter)

US House Democrats are tweaking the EV tax credit proposal and are revising vehicle price caps in which the new proposal makes vans, SUVs and trucks with MSRP up to USD 80k eligible and lowers the income cutoff to USD 500k for joint tax returns for full EV tax credit. (Newswires)